Increasing efficiency means doing more with less. In the U.S., the number of inflation-adjusted dollars generated in the economy for every unit of energy consumed has increased steadily over recent decades. Another way of saying the same thing is that the amount of energy, in British Thermal Units, required to produce a dollar of GDP dropped from close to 20,000 BTU per dollar in 1949 to 8,500 BTU in 2008. Part of this increasing efficiency has come about as a result of the outsourcing of manufacturing to other nations -- which burn the coal, oil, or natural gas to make our goods. (If we were making our own running shoes and LCD TVs, we'd be burning that energy domestically).
Economists also point to another, related form of efficiency that has less to do with energy (in a direct way, at least). I refer to the process of identifying the cheapest sources of materials, and the places where workers will be most productive and will work for the lowest wages. As we increase efficiency, we use less -- less energy, resources, labor, or money -- to do more. That enables more growth.
Finding substitutes for depleting resources and upping efficiency are undeniably effective adaptive strategies of market economies. Nevertheless, the question remains: for how much longer will these strategies continue to work in the real world, which is now governed less by economic theories than by the laws of physics. In the real world, some things don't any longer have substitutes, or the substitutes are too expensive, or don't work as well, or can't be produced fast enough, or are extremely dangerous, as we've just seen in Japan.
Efficiency follows the law of diminishing returns, which means that the first gains in efficiency are usually cheap, but that every further incremental gain tends to cost more than the last, until further gains become prohibitively expensive.
As wages rise elsewhere, we can't forever outsource so much of our manufacturing. Nor can we transport goods around the world with anything approaching the ever lower energy costs that will be necessary to profitably do so, and we can't forever count on enough workers to buy our products while paying ever more of them next to nothing (so that short-term profits for individual CEOs and stockholders can be maximized).
Unlike most economists, most physical scientists understand that growth within any functioning and bounded system eventually has to stop.
The simple math of compounded growth
The argument for an eventual end to growth is ultimately very simple. Here's why: If any quantity grows steadily by a certain fixed percentage each year, it will double in size every so-many years; the higher the percentage growth rate, the sooner the doubling. A rough method of figuring doubling-times is known as the "Rule of 70': Dividing the number from the percentage growth rate into 70 gives the approximate time, in years, required for the initial quantity to double. Therefore, if a quantity is growing at 1% per year, it will double in 70 years; at 2% per year growth, it will double in 35 years; at 5% growth, it will double in only (70/5) 14 years, and so on.
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