Sunday, June 12, 2011

Economic Growth Theory vs Prosperity Without Growth

In Prosperity Without Growth, Tim Jackson, a member of the UK Sustainability Commission, presents a potential problem with the need for a constant rate of economic growth. I summarize his analysis in this review. In economics textbooks, growth is necessary and highly desirable to increase everyone's standard of living.

In economic theory, output is a function of capital, labor, and the state of technology.


However, it's generally rewritten as Y/AN=f(K/AN)

I=S -> I/AN = sY/AN = sf(K/AN)

If d = capital depreciation

Kt+1/AN = (1-d)Kt/AN + sf(K/AN)

Kt+1/AN-Kt/AN = sf(K/AN)-dKt/AN = 0 in steady state

sf(Kt/AN) = dKt/AN = I

if technology grows gA percent a year and the population grows by gN, then total investment must grow by d+gA+gN

Output must grow for investment to grow. In Prosperity Without Growth, Jackson points out that resource efficiency must grow faster than output, which implies output growth must become completely decoupled from resource use at some point. How can we do this? New business models? New technology? Information technology? Entertainment?

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