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General News    H2'ed 11/20/16

The Growth Trap

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Message Charles St Pierre

The Growth Trap

Every economy, every self-organizing system which is not also self-limiting within the bounds set by its environment, grows until it exceeds the ability of that environment to support and sustain it. It then collapses.

The collapse of a modern economy can be expected to be catastrophic.

When an economy first develops, acquiring resources is difficult and expensive. There is little surplus to be invested, and growth is slow. This is despite the fact that resources are often accessible and plentiful. The methods of extracting the resources are primitive and inefficient, and there is little surplus. The demand for and uses for new resources are limited, and efforts at developing new resources are often desultory.

However, as infrastructure is invested in and developed, the relative cost of acquiring and developing resources decreases. More uses are found for extracted resources, providing motive for ever greater extraction. Since it is easier and cheaper to develop uses for resources, rather than new sources, demand, in general, outstrips supply, keeping the profit margins of producers high. For the producers, this means more resources are available to invest in expanding extraction and distribution, thus increasing the supply of these extracted resources available to be put to other uses in the economy.

With growth, the economy is able to exploit resources at an accelerating rate. The limiting factor is now no longer the costs of extraction, but the limitations in demand, the final uses for the resources, and the necessary distribution systems, which also must be developed.

In order to extract, distribute and employ the resources, it is necessary to develop an infrastructure, There is a cost, in resources consumed, to developing this infrastructure, There is also a cost to maintaining this infrastructure, and there is also a cost to operating this infrastructure.

When resources are still plentiful and cheap to extract, these costs are relatively low. The infrastructure grows robustly, both because the costs of extraction are low and because it is still new, maintenance costs are also low.

Clearly, however, with finite resources, or even a finite average density of resources, there are limits to any economy's ability to grow.

Indeed, as the plentiful and inexpensive resources are consumed, ever more marginal resources, resources more costly to extract and process, more distant and difficult to transport, become necessary to expand and sustain the economy. The infrastructure must be expanded to develop these resources, and at an increasing cost. What is more, the increasing cost of extraction must be passed on, and this increases the maintenance cost of the entire infrastructure. Less and fewer resources are available for expansion of that infrastructure, which is necessary both to supply other uses and to extract the ever more marginal and distant resources. These costs are compounded by the fact that the increasing cost of extraction also increases the cost of operating the infrastructure.

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Eventually, as the availability of resources decreases, and their cost of extraction increases, the cost in resources necessary to develop new infrastructure, and more importantly, the cost in resources necessary to maintain and operate the infrastructure already built, exceeds the ability of the economy to extract benefits from those resources.

Increasingly, maintenance will be sacrificed to cover the increasing costs of operation. The result will eventually be a stage where the infrastructure can no longer be maintained, when the maintenance budget passes below a critical threshold, but will be subject to increasing catastrophic failure. This threshold is roughly when the budget is no longer able to cover both preventative maintenance and essential repairs. Essential repairs will increase, eating into the budget for preventative maintenance. As the budget for preventative maintenance decreases, the demand for essential repairs will increase, in a vicious spiral. This process is sped by increasing costs of operation, which it also enhances, and by the increasing rate of extraction of money and real resources from the real economy by the financial economy.

In the case of the modern economy, then, there are two relevant systems: The real economy itself, and the financial economy which feeds off the real economy. The financial economy produces nothing of substance itself. When useful it serves as a multiplier of production, by increasing the efficiency of allocation of resources. When overgrown it diverts more resources to itself than it saves the real economy by that allocation of resources.

To be Continued.

 

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Dropped out of MIT after 4 enjoyable years. Managed to arrange my life so I could think about what ever I wanted to. Recently retired from a career in mental health. Current hobbies: Philosophy and Economics.
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