The Fairytale of eternal economic growth

“Fairytales of eternal economic growth.” is how Greta Thunberg depicted the mindset at the United Nations in 2019.

This echoes a famous quote by the cherished natural historian David Attenborough:
“Anyone who thinks that you can have infinite growth on a planet with finite resources is either a madman or an economist.”

Doubtless you’ve heard many variations of this apparent truism.
It’s catchy, and for good reason. It seems to capture the core problem in a pithy phrase.

It’s a perfect summary of an incorrect world view, leading to all sorts of problems. But it’s the world view of these two lovely people that is incorrect. To understand why, we need to become a little bit economically literate. Bear with me!

Economic growth does mean we create more stuff to consume. This is the issue as Greta and David understand it, and so far they’re right. But if we create stuff at outrageous expense we’re not achieving economic growth. That’s where this pithy phrase breaks down completely.

If you pay someone $200 to build you a chair, that you then sell for $100, you are $100 worse off. The economy shrank, not grew. That’s what economic growth means. Creating more value than you put in. The world economy is a lot more complex than this example, but it still works the same way.

Economic Growth means doing more, with less.

Greta and David are not entirely wrong. But their world view is incorrect. Infinite economic growth can indeed take place in a finite world. In fact you could say that it must take place. That if we do not create infinite economic growth, we will run out of resources.

This doesn’t mean there’s anything wrong with working for a better environment, or any other public good. These are laudable goals. But it does mean that we need to work for these things economically. We can’t save one acre of the Amazon at the expense of two acres. This is obvious.

Less obvious but equally true is that we can’t save one acre of the Amazon at a greater monetary expense than it’s worth. Because the end result would be the same; we’d run out of resources and lose the Amazon as well. So necessarily environmentalism must also create economic growth, otherwise it’s unsustainable.

The faulty truism Greta and David are selling is a self fulfilling prophesy. Resources are only finite if they succeed in slowing down economic growth.

The definitive guide to value creation

In my youth I dabbled with dark arts. I thought experimenting wouldn’t hurt, so I tried a little, but little became a lot. My addiction took up all my spare time and heavily impacted my social life. I became alienated by friends and had a hard time talking to people close to me.That’s how I spent six years studying economics.

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How to design rules that work

Rules are ever present in our daily lives. We follow social rules, company rules, and laws. We create organizations by making sets of rules, we create deals and contracts all defined by rules. But very few people learn how to create rules. Most rules, don’t work. As a former game designer, I’ve studied rules academically and tried and tested rules by the thousands. This is what I’ve learnt so far about creating rules that work.
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