12 min read

The Alchemy of Perpetual Economic Growth

Can the economy grow forever?
The Alchemy of Perpetual Economic Growth

The executive was in a drab grey suit, tie hanging loose. “Nine consecutive quarters of double-digit growth,” he droned, pausing for the weary employees to cheer. Behind the audience, the cutlery clanked as uniformed waiters set the buffet.

This after all was a celebration.

A celebration of exponential growth.

I was fresh out of grad school, new to the corporate spectacle. What happens when the growth machine stops, I wondered? A subversive thought that my mind, occupied by trivialities of signings and revenue, had no space for. But here is the thing with subversion. It nags you until you relent and drink from its fountain.

The year was 1798. A little-known reverend wrote an essay so controversial that it had to be published anonymously. The topic: Growth.

The reverend was skeptical about perpetual growth. Trained as a demographer, his obsession was the population. He theorized that the population grows exponentially, while the food supply only goes up by modest linear increments. Hence “the power of population is indefinitely greater than the power in the earth to produce subsistence for man.”

The reverend was Thomas Malthus, honoured today by the eponymous Malthusian Catastrophe.

His projections of population growth and agricultural productivity were wildly off the mark. Malthus saw poverty as a natural phenomenon, and the source of his Malthusian dread was not that overpopulation will frustrate efforts to raise living standards for the poor — but that higher living standards will increase fertility among the labour class, leaving more mouths to feed. The cycle of poverty is as natural as the sun and wind.

Malthus was precisely wrong but somewhat right.

His pessimism towards the poor was reflective of the class divisions in his era. If poverty is unavoidable, then there is no moral obligation on the rich to share their wealth. But obscured by politics and demography, there is one fundamental insight: there are natural limits to growth.

The asymptote is your friend

The growth of living organisms follows the S-curve. While the intuition behind the shape is surprisingly elegant, it took a mathematical breakthrough in the 19th century to come up with the math.

Think of your kid cousin who suddenly shoots up to six feet. If we plot his growth over time, it would be S-shaped. He’s tiny at birth, grows exponentially, then more slowly and then mercifully stops growing. In other words, his height is bounded by an upper limit.

That limit is called an asymptote — and it’s something your cousin has in common with bacterial populations, hamsters and owls.

If there were no upper limits to growth, then bizarre things would happen. A hamster that continued growing exponentially after birth would weigh four billion tons by its first birthday. That’s forty thousand container ships, fully stacked.

But if all natural growth is bounded, then how can the economy grow forever?

That’s where the dark magic of economic growth comes in.

The Compounding Problem

Jim Cramer, host of Mad Money on CNBC, speaks with the fervour of a televangelist. In an episode on the magic of compounding, his voice shrilled at the obviousness that “the next 40 years aren’t too different from the last 40 years.” If compound interest were a religion, then the disciples of personal finance would light candles at its altar and sing paeans to its glory.

In its effusive love letter to compounding, Canadian fintech Wealthsimple calls it the eighth wonder of the world and a “really good way to watch your money grow while doing nothing.”

Hidden under this perpetual money-making machine is a compounding problem. And to understand this problem, we need to develop an intuition for exponential growth.

Growth is exponential when the metric grows by a fixed percentage over time. To generate the same percentage growth every year, a larger absolute increase is required.

Take 30 pieces of silver.

Assume that a contemporary of Jesus saved a dollar and put it in a savings account yielding a nominal two percent. The Jim Cramers of Nazareth would scoff at the puny rate, but it is just a dollar — and the investment is soon forgotten. Two thousand years have passed. It is now 2021 and you discover, through meticulous genealogy, that you’re the heir to the dollar fortune. What’s it worth?

Two hundred and forty quadrillion, four hundred and seven trillion, twelve billion, ninety-one million, two hundred and fifty-five thousand dollars.

For the mathematically inclined, that’s 2.4 * 10^17 and it’s several orders of magnitude larger than the world economy combined.

Congrats. You’re now richer than Jeff Bezos times a gazillion.

That’s the nature of unbounded, exponential growth. If it were only the stuff of legend and counterfactual histories, there would be nothing to worry about. The problem is that it’s right here, destroying ecosystems and eating up the planet.

To see it in action, let’s take a time and place no less Biblical than the US in the 20th century.

In 1954, the US was emerging from a recession, Marlin Brando was on the silver screen and Elvis Presley cut his first commercial record. The economy grew by a blazing seven percent that year, marking an increase of $191B. A boomer born that year was 65 in 2019, and the world around her had changed. Donald Trump was president, Lady Gaga won an academy award and it was the second warmest year in recorded history. The US economic growth had now slowed to a crawl at two percent — but achieving this growth required a colossal $413 Billion.

That’s the tyranny of the compound growth demanded by Wall Street. Its unrelenting math requires us to spend more, consume more, throw away more — and destroy more of the planet in the process, all to eke out modest percentage growth. Every single year.

But is it possible to grow the economy without destroying the planet?

The Decoupling Debate

Whether we can grow the economy without making our planet inhabitable is a religious debate and Andrew McAfee has picked his side. Co-founder of an initiative at MIT’s Sloan School of Management and a former professor at Harvard Business School, McAfee has pedigree. Unsurprisingly, he is also a regular fixture at Davos.

McAfee believes it’s possible to grow the economy without triggering environmental catastrophe and like any good business school professor, he comes armed with PowerPoint. He points out that US carbon emissions have declined since their 2017 peak and that air pollution in the rich world has seen a dramatic reduction since the 80s. McAfee argues that we already have the playbook to decouple economic growth from its environmental harm. All we need to do is put it into practice. Humanity’s salvation lies in the magic mixture of tech innovation and just enough regulation. We’ve done it before and we can do it again.

There is indeed a long-term trend towards dematerialization and energy efficiency, that is, we need less materials and less energy per unit of economic output — but can this really save the world?

The opinions seem to split along doctrinal lines. Business school types on one side. Climate scientists, ecological economists and anthropologists on the other. Responding to the tension between the climate emergency and economic growth, former Bank of Canada governor Mark Carney dismissed the conflict with a pithy conclusion, “…and grow we must.”

If only the trade-off was this easy to wish away.

Like most doctrinal conflicts, the source of schism lies in the nuance. In this case, the nuance of how decoupling is defined.

When McCafee refers to decoupling, he’s talking about the declining correlation between economic growth and certain ecological impacts. And he’s right. But not all decoupling is created equal. For us to save the planet, decoupling must be absolute, global, and holistic. And it must happen fast.

Let’s take an appliance we take for granted, the humble washing machine.

A new washing machine that consumes less energy to wash the same load is an example of relative decoupling. But when millions of new washing machines are sold every year, their cumulative consumption goes up. As things get cheaper and more efficient, we consume more. This is known as Jevons paradox, named after the English economist who first studied the phenomenon. William Jevons observed in 1865 that despite significant improvements in the efficiency of coal-powered steam engines, the net consumption of coal continued to increase. The paradox can be seen today across air travel, car ownership, refrigeration — and of course, energy consumption.

Now let’s trace the washing machine through its convoluted supply chain: the assembly plant, the aluminum smelter, the rare-earth ore, the polypropylene factory, the oil refinery. This vast material footprint is hidden from the average consumer — its toll ignored by accountants and extracted mostly from the Global South. For decoupling to work, it must be global. In other words, we can’t simply outsource our effluents. In a 2018 study, when two Swiss researchers adjusted for the energy embodied in trade imports, they concluded that “shifting energy-intensive activities abroad improves domestic performance but worsens both overall energy use & security…” In non-econ speak: when you run the numbers at the global scale, decoupling mostly disappears.

It’s now time to do our dirty laundry. The machine rumbles, and quietly drinks 70 litres of fresh, potable water, draining waste laced with six million bits of microplastics into the ocean. This depletion of a finite resource and the pollution of marine habitats are two examples of environmental impacts. Perhaps the most pernicious of these impacts is biodiversity loss. We rely on biodiversity to keep the planet healthy, and yet its decline is broadly correlated with economic growth. According to the Intergovernmental Science-Policy Platform on Biodiversity and Ecosystem Services, “Biodiversity… is declining faster than at any time in human history.” And here’s the rub: it doesn’t get that much better as countries get richer. In other words, there is little evidence of absolute decoupling when it comes to biodiversity.

Is it possible to enjoy both economic growth and environmental sustainability? That’s a politically polarizing question, hence the European Environment Bureau assembled a research team to try and answer it. The team performed a comprehensive literature review to provide a research-backed perspective.

The title of their report? Decoupling Debunked.

In their words, “the conclusion is both overwhelmingly clear and sobering: not only is there no empirical evidence supporting the existence of a decoupling of economic growth from environmental pressures on anywhere near the scale needed to deal with environmental breakdown, but also, and perhaps more importantly, such decoupling appears unlikely to happen in the future.”

(Don’t) Always be Growing

For a world that can’t handle more growth, it’s easy to conclude that contracting the economy is the only solution. The environmental movement’s euphemism for this contraction is degrowth. In the abstract, the idea has merit.

The path of constant growth winds through the ugly terrain of mass consumption. The love affair of modern economics with consumerism glimmers behind the Economist magazine’s ode to venturesome consumption: “…America’s policymakers should worry more about how to keep consumers consuming than the number of science and technology graduates, at home or in the East”. In order words, America’s innovation leadership is premised, not on fundamental research, but on insatiable consumers.

The US no longer has a monopoly on insatiable consumers. The consumer has now gone global, along with the trail of waste he leaves behind. Take the most ethereal product of the modern economy: the smartphone. Vaclav Smil, Professor Emeritus at University of Manitoba, estimates that 800 million smartphones are discarded every year and that the recycling rates are dismal. That’s around 131,000 tons of waste every single year — just for our slavish addiction to the latest digital tether. And it’s merely a speck in the desert of our annual material waste.

Consumerism is the engine of economic growth in advanced economies, fueled by cheap credit and algorithmically fine-tuned to manipulate our desires. But it’s not the whole story. For a Zara skirt bought on a whim by a teenager in Toronto, there is a worker in Dhaka earning a wage, a factory owner creating employment, a textiles trader bringing dollars into the economy. So, the consumerism of the West, while pernicious, has lifted millions out of poverty in the Global South. Bangladesh is a case in point. It is now the fastest-growing economy in South Asia, rapidly beating poverty primarily on the back of its textile exports.

Contracting advanced economies to contain ecological impact sounds like a good idea, except for a minor detail: it involves condemning the rest of the world to poverty. If the rich stop importing, then the spinning wheel pulling people out of poverty in the Global South grinds to a halt.

An egalitarian, if somewhat fanciful, alternative may be to elect a world government that equitably distributes wealth. Here again, lies a problem. The world is so poor that distributing global wealth equally will slide the entire global population below a reasonable poverty line, except now everyone will be equally poor. Max Roser, founder of the non-profit Our World in Data, has run the numbers. Even in a scenario of perfect equality, where every person earns the same income, the world economy will need to more than double — 2.7-fold to be exact — so everyone can hover around the poverty line.

The quality of life in this world-spanning commune is easy to visualize. If you’re in Canada, imagine living off an income of C$13,000 per annum. Not a great life.

We’re faced with a hard problem: if we grow, we probably die. If we don’t grow, then life isn’t worth living.

So, what do we do?

The Virtue of Enoughness

“The wealth required by nature is limited and is easy to procure, but the wealth required by vain ideals extends to infinity.” Epicurus

The question about the end of growth is an old one.

John Stuart Mill embraced the concept of no growth more than two centuries ago. He called it ‘the stationary state.’ His thinking was that after a certain level of development is achieved, a zero-growth world won’t lead to poverty but social progress, as people could focus on the art of living and “not the art of getting on.”

Maynard Keynes was also disdainful of economic growth for its own sake, cautioning that “the love of money as a possession” will come to be recognized as “a somewhat disgusting morbidity.”

The morbidity is now a public health concern — and people are taking note. There is a realization that well-being and economic growth, while often correlated, are not the same thing. Absent from economic accounting is the unpaid labour of a mother, the purity of the air we breathe — or the silent workings of nature replenishing soil and water.

As the West refocuses on the wellbeing of its citizens, it is pivoting away from the Washington Consensus and laissez-faire economic growth. This is good news, but it’s not enough because the economic model is still premised on the pursuit of more.

More clothes, more living space, more meat. More of everything.

While the US is a net importer of goods, it is the foremost exporter of cultural values — and none of its exports have been as seismic as consumerism. The world is now a monoculture modelled on Walmart, McDonald’s and Amazon. Great value, super-sized and delivered on 1-Click.

The pursuit of more now galvanizes an aspiring middle class in China and India — and it’s showing up in emissions. Their carbon footprint, while minuscule on per capita basis compared to the West, accounts for 35 percent of global emissions. It’s unlikely that our planet can cope. There just isn’t enough room for a billion McMansions.

The techno-optimists are right that we need technological breakthroughs to have a fighting chance against climate catastrophe. The techno-pessimists are right that tech innovation has slowed and we need concerted global action to transform our energy infrastructure. The socialists are right that unregulated capitalism got us into this mess — and the capitalists are probably right that directed market forces can help now that we’re cornered.

But for a glimpse into the future, we need the vision of a prophet and Ivan Illich may just be the seer we should turn to.

Before Illich was prosecuted for heresy by the Vatican in 1968, he was a Catholic bishop. Today he is known as the Prophet of Cuernavaca, a prescient thinker who foresaw the collision of our material wants against ecological boundaries — and advocated for the virtue of enoughness. According to Illich, only a society prepared to decide what is enough and not how much it can afford can replace the perception of scarcity with the perception of abundance.

Our economic worldview is premised on scarcity, where nothing has value until it has a price. As environmentalist Wolfgang Sachs observes, we’ve been trained to look at “forests and see lumber, at rocks and see ore, at landscapes and see real estate, at people and see labor.” We call these things resources only to feed them into the gaping mouth of a supply chain ever-churning to take apart their essence and to reconstitute them into a finished good with a higher margin.

Perhaps then a good place to start would be “to view nature with respect rather than simply as a resource to be exploited; to view society in terms of the common good rather than as markets to be mined for production inputs and outputs.”

Perhaps a good place to start would be to recognize that there is such a thing as enough.


Maryam, Farid and Mehryar, thanks for your feedback and encouragement.


The asymptote is your friend

  • Hamster growing exponentially: Growth Isn’t Possible, New Economic Foundation (2010)
  • Forty thousand container ships: Derived using a DWT of 225k per ship

The Compounding Problem

  • 30 pieces of silver: Meant to demonstrate how ultra-long-term compounding works, not to estimate what a ‘dollar’ at the time of Jesus would be worth today. Obviously.
  • US in the 20th century: Real Gross Domestic Product (GDPC1) chained to 2012 dollars for comparison, Federal Reserve Economic Data (FRED).

The Decoupling Debate

  • Two Swiss researchers: Vincent Moreau, FrançoisVuille. Decoupling energy use and economic growth: Counter evidence from structural effects and embodied energy in trade (2018)
  • Mark Carney: Ideas with Nahlah Ayed, BBC Reith Lectures: Mark Carney
  • Biodiversity and economic growth: Intergovernmental Science-Policy Platform on Biodiversity and Ecosystem Services, The global assessment report on biodiversity and ecosystem services (2019)
  • Absolute decoupling and biodiversity: Robin Naidoo,Wiktor L. Adamowicz, Effects of Economic Prosperity on Numbers of Threatened Species (2002)
  • Decoupling Debunked: European Environmental Bureau, Evidence and arguments against green growth as a sole strategy for sustainability (2019)

(Don’t) Always be Growing

  • Ode to venturesome consumption: Economist, Venturesome Consumption, July 29th 2006
  • 800 million smartphones discarded: Vaclav Smil, Growth (2019)
  • 2.7-fold increase: Max Roser, How much economic growth is necessary to reduce global poverty substantially? (2021)
  • C$13,000 per annum: Derived by converting Max’s $30/day poverty-level income to Canadian dollars using PPP conversion rate for 2021.

The Virtue of Enoughness

  • Keynes and Mill quotes via Wayne Ellwood, The No-Nonsense Guide to Degrowth and Sustainability
  • Wolfgang Sachs, The Virtue of Enoughness, New Perspectives Quarterly (1989). Note: Even though I was only able to find a paper dated 1999, I believe that’s a reprint of the original published in 1989, when Sachs and Illich were collaborating.
  • David Cayley, Ivan Illich: An Intellectual Journey (2021)