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Simply dreaming

by Jerome a Paris Wed Jun 28th, 2006 at 06:16:17 PM EST

(Martin Wolf)

According to Angus Maddison, the authoritative economic historian, gross global product rose 19-fold (at purchasing power parity, or common international prices) between 1900 and 2001. Over the same period consumption of all commercial energy increased 18-fold. The closeness of the correlation is eery.

What, then, does the deep-seated link between economic development and energy consumption imply for humanity’s future? The answer is that it points to four big questions. First, where might all this energy come from? Second, what does it mean for energy security? Third, what does it imply for our ability to deal with the threat of climate change? And, finally, what can economic policy contribute? I plan to address these questions in future columns. But one point is already clear: anybody who thinks it will be easy to reduce global energy consumption is simply dreaming.


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It would be interesting to see population figures for the same period. This would allow factoring out growth due to population increase from that due to improvement in the standard of living.

Policies not Politics
---- Daily Landscape
by rdf (robert.feinman@gmail.com) on Wed Jun 28th, 2006 at 06:24:55 PM EST
According to wikipedia, the relevant figures are 1.65bn in 1900 and 6.07bn in 2000.

So, population increased 3.7-fold while energy consumption increased 18-fold and Gross Product 19-fold.

A society committed to the notion that government is always bad will have bad government. And it doesn't have to be that way. — Paul Krugman

by Migeru (migeru at eurotrib dot com) on Wed Jun 28th, 2006 at 06:42:20 PM EST
[ Parent ]
I was going to answer the guess that world population was about 1.5 bn in 1900. I'm glad to see I was not far off.

The thing is - what fraction of the population has seen its standard of living increase, really (i.e. what's the mean vs median effect?)

In the long run, we're all dead. John Maynard Keynes

by Jerome a Paris (etg@eurotrib.com) on Wed Jun 28th, 2006 at 06:47:39 PM EST
[ Parent ]


In the long run, we're all dead. John Maynard Keynes
by Jerome a Paris (etg@eurotrib.com) on Wed Jun 28th, 2006 at 06:55:16 PM EST
[ Parent ]
Well, wikipedia's table lists population numbers for all 6 continents:
World:         1.65bn to 6.07bn = x3.68 in 100yr = +1.31% per annum
Asia:          .957bn to 3.68bn = x3.84 in 100yr = +1.36% per annum
Africa:        .133bn to .796bn = x5.98 in 100yr = +1.81% per annum
Europe:        .408bn to .728bn = x1.78 in 100yr = +.581% per annum
South America: .074bn to .520bn = x7.03 in 100yr = +1.97% per annum
North America: .082bn to .316bn = x3.85 in 100yr = +1.36% per annum
Oceania:       .006bn to .031bn = x5.17 in 100yr = +1.66% per annum
Do we have a source for GP(PPP) and energy use by continent?

A society committed to the notion that government is always bad will have bad government. And it doesn't have to be that way. — Paul Krugman
by Migeru (migeru at eurotrib dot com) on Wed Jun 28th, 2006 at 07:05:36 PM EST
[ Parent ]


In the long run, we're all dead. John Maynard Keynes
by Jerome a Paris (etg@eurotrib.com) on Wed Jun 28th, 2006 at 06:52:19 PM EST
So what if we interpret the graph the other way around.... when there will be a huge demand for oil.... GDP will rise accordingly... and therefore.... logically, we'll all be fabulously rich and wealthy!

I can't wait for that Peak Oil thingee.

by Nomad on Wed Jun 28th, 2006 at 08:28:32 PM EST
[ Parent ]

Isn't this more a measurement issue than anything else? GDP measures mainly the output of high-energy-consumption industries. Why is anyone surprised that more cheaply available energy has produced increases in the production of these industries? That doesn't seem to require that a reduction in global energy consumption will lead to a reduction in real wealth or (the important measure) quality of life, as there may be more efficient or more economical methods of production that industry simply has no incentive to explore right now.

by Egarwaen on Wed Jun 28th, 2006 at 09:52:45 PM EST
I can't read the whole article (subscription wall), but a shorter Martin Wolf would seem to be: I'm going to discuss miracle fixes, but I'm ruling out reduction in consumption from the start.

Why? Because of an unexplored correlation between energy consumption and GDP growth. (It is of course axiomatic that we must have GDP growth). The correlation may well be explained, as Egarwaen suggests, by the fact that a great deal of GDP is generated by high-energy-consumption industries. In which case Wolf may be tying his discussion of the future down to past industrial models.

A vital element he does not seem to take into account is the cost of energy : to what extent has the relative cheapness of oil underpinned the economic growth of the second half of the twentieth century? And, whatever the future energy solutions he may propose, will they be as cheap?

by afew (afew(a in a circle)eurotrib_dot_com) on Thu Jun 29th, 2006 at 02:03:56 AM EST
a shorter Martin Wolf would seem to be: I'm going to discuss miracle fixes, but I'm ruling out reduction in consumption from the start.

This begs the question... Why GDP?

A society committed to the notion that government is always bad will have bad government. And it doesn't have to be that way. — Paul Krugman

by Migeru (migeru at eurotrib dot com) on Thu Jun 29th, 2006 at 03:08:13 AM EST
[ Parent ]
It is of course axiomatic that we must have GDP growth

But why must we? I'm really genuinely interested in that question, having practically zero economic background. Albeit with a general philosophical twang. I'm hoping Colman picks up the proposition Migeru set up in the other thread...

There's something rather disconcerting in your last paragraph: if cheap energy correlates with the rate of wealth increase, what would the world get into if cheap energy hits the proverbial cliff?

by Nomad on Thu Jun 29th, 2006 at 05:48:15 AM EST
[ Parent ]
Hey, Nomad! Here's a little something I wrote, um, 2 years ago.
Then, in Adam Smith's Wealth of Nations I found an explanation of the relation between economic growth and general welfare (although not phrased in those terms). Smith starts with a bit on living wages:
But though in disputes with their workmen, masters must generally have the advantage, there is however a certain rate below which it seems impossible to reduce, for any considerable time, the ordinary wages even of the lowest species of labour.
A man must always live by his work, and his wages must at least be sufficient to maintain him. They must even upon most occasion be somewhat more; otherwise it would be impossible for him to bring up a family, and the race of such workmen could not last beyond the first generation.
Interestingly, Smith assumes that children will be employed in a similar occupation to their parents. His living wage, to use modern parlance, must be really modest, because today's "working poor" still manage to survive and produce families. Then, a little bit on labour relations...
When in any country the demand for those who live by wages, labourers, journeymen, servants of every kind, in continually increasing; when every year furnishes employment for a greater number than had been employed the year before, the workmen have no occasion to combine in order to raise their wages. The scarcity of labour occasions a competition among masters, who bid against one another, in order to get workmen, and thus voluntarily break through the natural combination of masters not to raise wages.
Now for the relation between minimum wages and economic growth:
The demand for those who live by wages, therefore, necessarily increases with the increase of the revenue and stock of every country, and cannot possibly increase without it. The increase of revenue and stocks is the increase of national wealth. The demand for those who live by wages, therefore, naturally increases with the increase of national wealth, and cannot possibly increase without it.
It is not the actual greatness of national wealth, but its continual increase, which occasions a rise in the wages of labour. It is not, accordingly, in the richest countries, but in the most thriving, or in those which are growing rich the fastest, that the wages of labour are highest. England is certainly, in the present times, a much richer country than any part of North America. The wages of labour, however, are much higher in North America than in any part of England.
[...]
But though North America is not yet as rich as England, it is much more thriving, and advancing with much greater rapidity to the further acquisition of riches.
[...]
Though the wealth of a country should be very great, yet it has been long stationary, we must not expect to find the wages of labour very high in it. The funds destined for the payment of wages, the revenue and stock of its inhabitants, may be of the greatest extent; but if they have continued for several centuries of the same, or very nearly of the same extent, the number of labourers employed every day could easily supply, and even more than supply, the number wanted the following year. There could seldom be any scarcity of hands, nor could the masters be obliged to bid against one another in order to get them. The hands, on the contrary, would, in this case, naturally multiply beyond their employment. There would be a constant scarcity of employment, and the labourers would be obliged to bid against one another in order to get it. If in such a country the wages of labour had ever been more than sufficient to maintain the labourer, and to enable him to bring up a family, the competition of the labourers and interest of the masters would soon reduce them to this lowest rate which is consistent with common humanity. China has been long one of the richest, that is, one of the most fertile, best cultivated, most industrious, and most populous countries in the world. It seems however, to have been long stationary. [...] The accounts of all travellers, inconsistent in many other respects, agree in the low wages of labour, and the difficulty which a labourer finds in bringing up a family in China.
[...]
China, however, though it may perhaps stand still, does not seem to go backwards.
[...]
But it would be otherwise in a country where the funds destined for the maintenance of labour were sensibly decaying. Every year the demand for servants and labourers would, in all the different classes of employments, be less than it had been the year before. Many who had been bred in the superior classes, not being able to find employment in their own business, would be glad to seek it in the lowest. The lowest class being not only overstocked with its own workmen, but with the overflowing of all the other classes, the competition for employment would be so great in it, as to reduce the wages of labour to the most miserable and scanty subsistence of the labourer. Many would not be able to find employment even upon these hard terms, but would either starve, or be driven to seek subsistence either by begging, or by the perpetrating perhaps of the greatest enormities. Want, famine and mortality would immediately prevail in that class, and from thence extend themselves to all the superior classes, till the number of inhabitants in the country was reduced to what could easily be maintained by the revenue and stock which remained in it, and which had escaped either the tyranny or calamity which had destroyed the rest. This perhaps is nearly the present state of Bengal, and of some of the other English settlements in the East Indies. In a fertile country which had before been much depopulated, where subsistence, consequently, should not be very difficult, and where, notwithstanding three or four hundred thousand people die of hunger in one year, we may be assured that the funds destined for the maintenance of the labouring poor are fast decaying.
Smith ends with the following indictment of the East India Company:
The difference between the genius of the British constitution which protects and governs North America, and that of the mercantile company which oppresses and domineers in the East Indies, cannot perhaps be better illustrated than by the different state of those countries.
Why is this important?

In modern language, I think that Adam Smith is simply saying that wages are in a direct correlation to GDP per capita, which should not be surprising. This explains the emphasis on growing the GDP. Still, what if GDP growth is not sustainable for one reason or another?

There is, in fact, every indication that our current economic model is unsustainable. Resource depletion and environmental damage are almost irrepairable. Exponential GDP growth can only go on forever if the "Production Possibility Frontier" expands exponentially. The problem is that the expansion of our economy is fuelled by nonrenewable resources, and so at some point the PPF might stop growing fast enough. Considering also that a substantial fraction of the world's population survives on less than $2 a day, and that even in the "first world" long-term unemployment is rampant and only getting worse due to outsourcing, it might be that any GDP growth is only benefitting the moneyed elite, and not the generality of the working poor.

Assume for a moment that there are limits for growth of the world's GDP. Then the only way to prevent a general decay of living conditions, even for us in the first world, will be to substantially reduce population, but this is not about to happen.

So, the question is, is there a way for "steady state economics" to escape the very unattractive depiction that Adam Smith makes of it? As the efficiency of labour increases with time even with a constant GDP, are the only alternatives either a decrease in population or in living standards, or both?

To end on a grim note, it is clear that war is a way to keep the GDP growing. You spend money on making weapons, then spend money paying people to use up those weapons destroying resource, capital, and killing people, and then use even more money in reconstruction. However, if the world reaches a point where the only way to increse the GDP is war, the relative size of the "war industry" in the world economy will increase until the whole economy is in war mode, and we end up living in a world not unlike Orwell's distopia. Is this what Eisenhower was warning about when he spoke of the dangers of the military-Industrial complex?



A society committed to the notion that government is always bad will have bad government. And it doesn't have to be that way. — Paul Krugman
by Migeru (migeru at eurotrib dot com) on Thu Jun 29th, 2006 at 06:09:12 AM EST
[ Parent ]
Front page thingy done ...
by Colman (colman at eurotrib.com) on Thu Jun 29th, 2006 at 06:14:05 AM EST
[ Parent ]
Lots of entertaining thoughts to pursue. I might get into assembling my own thoughts. Right now, I'll pick up one bit that particularly stuck out to me:

It is not the actual greatness of national wealth, but its continual increase, which occasions a rise in the wages of labour. It is not, accordingly, in the richest countries, but in the most thriving, or in those which are growing rich the fastest, that the wages of labour are highest.

How then can USA Congres still justify the continuous stagnation on labour wages? Didn't the USA GDP grow altogether? bonddad on DKos (one of the authors I still track) had a good post on that some two days ago, in which he also discussed the growing inequality within the States, another subject repeatedly flagged there and here.

I also read that union power in China has begun building, and unions are starting to clamour for higher wages and educate workers on their rights...

by Nomad on Thu Jun 29th, 2006 at 07:08:50 AM EST
[ Parent ]
Did the USA GDP grow below productivity?

A society committed to the notion that government is always bad will have bad government. And it doesn't have to be that way. — Paul Krugman
by Migeru (migeru at eurotrib dot com) on Thu Jun 29th, 2006 at 07:12:44 AM EST
[ Parent ]
Check this chart out (scavenged from the SF federal reserve bank via google


A society committed to the notion that government is always bad will have bad government. And it doesn't have to be that way. — Paul Krugman
by Migeru (migeru at eurotrib dot com) on Thu Jun 29th, 2006 at 07:20:21 AM EST
[ Parent ]
We should be cross-posting these comments on the front-page debate, shouldn't we?

A society committed to the notion that government is always bad will have bad government. And it doesn't have to be that way. — Paul Krugman
by Migeru (migeru at eurotrib dot com) on Thu Jun 29th, 2006 at 07:13:21 AM EST
[ Parent ]
Typical to spawn two debates in different places. I'll copy paste my previous post to Colman's diary.
by Nomad on Thu Jun 29th, 2006 at 07:42:57 AM EST
[ Parent ]
In modern language, I think that Adam Smith is simply saying that wages are in a direct correlation to GDP per capita,

No, he writes about GDP growth per capita. In his time, an English worker earned less than an American one, though British GDP per capita was much higher. I think his point was valid in his time, but not today: Small-growth European countries or Japan still maintains high wages, while high-growth developing countries or Ireland or Slovakia don't show high wages.

*Lunatic*, n.
One whose delusions are out of fashion.

by DoDo on Thu Jun 29th, 2006 at 07:33:54 AM EST
[ Parent ]
You're right... Colman has flagged the same quotation in the front-page thread.

I think the link that Adam Smith was talking about underlies much of economic conventional wisdom. It's just that, as you point out, it doesn't seem to hold any longer.

Now, we've talked about how real wages are stagnating (a negative way to look at "still maintaining high wages") in the developed economies and have been for a long time.

A society committed to the notion that government is always bad will have bad government. And it doesn't have to be that way. — Paul Krugman

by Migeru (migeru at eurotrib dot com) on Thu Jun 29th, 2006 at 07:40:22 AM EST
[ Parent ]
It is of course axiomatic that we must have GDP growth

was a comment that contained irony™, feeding back to many discussions we have had here on the usefulness of growth, and of GDP as a measure.

And the question you draw from my final paragraph is the question I was suggesting.

by afew (afew(a in a circle)eurotrib_dot_com) on Thu Jun 29th, 2006 at 09:14:58 AM EST
[ Parent ]

In fact, though it's a bit late, to what degree has cheap oil undermined potential economic growth over the last century? Think about this in terms of efficiency (most industries are absurdly inefficient because energy is so cheap), waste products (a lot are produced), labour (machines are used for many tasks they're ill-suited for because of the perceived cheapness of energy over labour), etc.

by Egarwaen on Thu Jun 29th, 2006 at 06:19:09 PM EST
[ Parent ]


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