The Myth of the Myth of Infinite Growth

One weird trick for infinite growth. Degrowthers hate it!

A popular proof of the unsustainability of capitalism goes as follows:

Premise the first: Capitalism requires infinite growth.

Premise the second: Infinite growth is impossible in a world of limited resources.

Conclusion: Capitalism cannot be sustained indefinitely.

This is a most elegant proof whose only shortcoming is that neither of its premises is true in any practical sense.

First, it simply isn’t true that capitalism requires infinite growth. One of the first economic models taught in introductory macroeconomic classes is the steady-state economy, an economy in which:

1. Life expectancy is constant and births are precisely balanced by deaths, leading to a fixed population.

2. Savings by workers are precisely balanced by retirees spending their savings in retirement, leading to a fixed capital stock.

3. Total factor productivity is constant, i.e. there are no productivity-enhancing improvements in technology.

Under these conditions, real wages and GDP are constant—there is no growth at all. This is very unlikely to occur in practice, because none of the three conditions above is likely to hold true for any significant length of time, but there is no reason, in principle, that a capitalist economy could not continue to operate under these conditions.

If I were to make the best case for this premise being true, it would depend on human psychology, rather than on economics. Many people seem to have a cognitive bias which causes them to underestimate economic growth, such that they perceive real wage growth of approximately 1% per year as a rapid collapse in real wages. They will point to, e.g., the fact that tuition has risen at an annual rate of 6% for the last 47 years, and insist that this is the true rate of inflation—the only price that matters—despite the fact that spending on education is still only 1.8% of total consumer spending¹.

With actual 0% growth, voters might get angry enough to vote for a bunch of destructive socialist policies, and in that sense, we might say that capitalism cannot be sustained without infinite growth. But the masses wouldn’t be terribly happy with 0% growth under socialism, either, so capitalism isn’t really the issue here.

Anyway, this issue is moot, because to all intents and purposes, you can have infinite growth with finite resources. Speaking very broadly, there are two types of economic growth:

1. Extensive growth: If you think I’m full of it, this is the kind of growth you’re thinking of. Extensive growth is when growth is achieved by increasing inputs such as energy, labor, and raw materials. In short, making more stuff.

2. Intensive growth: Intensive growth is when growth is achieved by improving processes to higher-quality goods with the same inputs, or even with reduced inputs. In short, making better stuff.

Growth skeptics are correct to note that extensive growth cannot be sustained indefinitely. However, intensive growth can. Perhaps the best example of this is computer hardware. Computers contain roughly the same amount of material as they did decades ago, but are much more powerful. But there are many other examples. OLED lamps produce as much light as incandescent lamps using a fraction of the energy. Newer automobiles are more durable and get better gas mileage. A cell phone is a radio, watch, alarm clock, calculator, phone, music player, camera, video camera, and portable TV all in one device. Modern medicine is more effective than old medicine.

Most importantly, the idea that we can decouple growth from increased resource consumption isn’t just theory. In advanced economies, it’s already happened. In the US, per-capita CO2 emissions peaked in 1973, and total CO2 emissions peaked in 2007.

But that’s just because we outsourced our emissions to China!

While US emissions are a bit higher when we account for imports, a consumption-based measure of total emissions peaked in 2005, and has declined about 16% from the peak as of 2022. Despite this decrease, real GDP has increased by 49% since 2005.

Globally, CO2 emissions are projected to begin declining this year, and in any case have roughly doubled since 1980 while real global GDP has roughly quadrupled over the same time period. That’s intensive growth!

Granted, CO2 emission is only one measure of resource consumption. The University of Michigan’s Center for Sustainable Systems publishes a measure of total material usage, which also peaked in 2006, although it is worth noting that this is mostly a proxy for housing construction. According to the EPA, total garbage production increased slightly between 2005 and 2017 (note that the increase in 2018 is an artifact of a change in measurement), but that per capita garbage generation has been stable since around 1990. Real GDP per capita is up about 70% since 1990.

Of course, even if the rate at which resources are consumed is not increasing, consumption of finite resources at any non-zero rate is unsustainable in the long run. But again, this is not a problem unique to capitalism. Furthermore it is a tractable problem, and very real progress is being made towards a solution via renewable energy and recycling.

A very unimportant caveat is that there must be some theoretically optimal state of the world, and if we were to reach this state, further economic growth would be impossible. However, “No further growth is possible once things get as good as they can possibly be” is so far from the spirit of the original criticism that I think it’s fair to say without qualification that it’s just plain wrong.

1. For those who insist that it can’t possibly be that little, consider that a person who earns a bachelor’s degree at a state university might, on the high end, spend a total of $60,000 in tuition over four years, and then go on to earn a median salary of $80,000 per year for 40 years: $60,000 is about 1.9% of $3.2 million. Yes, in net-present value terms, the front-loading of the tuition makes it more significant, but most students pay well under $60,000 in total tuition costs, and many people never go to college at all. 1.8% percent is about right as an average.