Economic Growth Theory: Discounting the Future

In [William Nordhaus’] model, the welfare of future generations is given less weight than the current generation’s welfare […] given that future generations will be much richer than those now living.

Hal Varian, 2006[1]

[W]e must then ask whether we can candidly acknowledge that general affluence simply cannot last in the face of a carrying capacity deficit. That fact is perhaps only a trifle less repugnant than the idea that the buried remains of the Carboniferous period must not be taken as fuels.

William Catton, 1980[2]

The goal of perpetual economic growth would be seen as nonsensical, partly because the finite material base cannot sustain it, partly because human fulfillment does not demand it.

Dana Meadows, 1998[3]

Figure 1: William Nordhaus, 2018[7] [emphasis added]

Don’t let anyone distract you from the work at hand, which is economic growth.[13]

If humanity wishes to preserve a planet similar to that on which civilization developed and to which life on Earth is adapted, paleoclimate evidence and ongoing climate change suggest that CO2 will need to be reduced from its current 385 ppm to at most 350 ppm, but likely less than that.[15]

At the current rate of growth in CO2, levels will hit 500 ppm within 50 years, putting us on track to reach temperature boosts of perhaps more than 3 degrees C (5.4°F) — a level that climate scientists say would cause bouts of extreme weather and sea level rise that would endanger global food supplies, cause disruptive mass migrations, and even destroy the Amazon rainforest through drought and fire.[16]

Nordhaus reasons that the sectors most vulnerable to global warming — agricultural, forestry, and fishing — contribute relatively little to global GDP, only about 4 percent. So even if the entire global agricultural system were to collapse in the future, the costs, in terms of world GDP, would be minimal.

These arguments obviously offend common sense. And indeed, scientists have been quick to critique them. It’s absurd to believe that the global economy would just keep chugging along despite a collapse in the world’s food supply. And mass extinction of species poses a very real threat to the web of life itself, on which all of human civilization depends. Plus, Nordhaus doesn’t factor in the possibility of feedback loops that could kick in — Arctic methane release, ice-albedo feedback, and others we can’t yet predict — pushing us way beyond 3.5 degrees. No amount of wealth would be enough to help future generations navigate such a total system collapse.[17]

In the late eighteen-hundreds, the best science available was statistical physics or thermodynamics, the study of the state of a piece of some matter like a liquid or a gas where you can have mathematical tools to tell you things like temperature, pressure, and density, all of which are bulk measures of the statistical properties for trillions and trillions of atoms or molecules. The mathematics they had back then required them to add up the average values for these different molecules assuming that they were at equilibrium because they didn’t have any way of doing the calculations in any other way at the time.[18]

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r3.0 is a pre-competitive & market-making non-profit delivering groundbreaking Blueprints, Transformation Journeys and Conferences for system value creation.

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r3.0 is a pre-competitive & market-making non-profit delivering groundbreaking Blueprints, Transformation Journeys and Conferences for system value creation.

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