Economics at the Jesus Creed: Michael Kruse 4

Last updated on: September 30, 2009 at 6:16 am by Scot McKnight

Economics at the Jesus Creed: Michael Kruse 4 2009-09-30T06:16:51-05:00 Scot McKnight

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This series is by Michael Kruse and it concerns economics — a basics in economics. Most of us, and I include myself, no next to nothing about how economics work and so this series is here for the education of all of us. (Thanks Mike.)

Division of labor, mechanization, and trade has given rise to prosperous societies. Economic prosperity is spreading around the globe. Most people welcome the improving material quality of life. But is this prosperity sustainable? Commodities and natural resources are limited. We are told to reduce consumption so there will be more for others … we should “live simply that others simply may live.” It seems so intuitively obvious. But is it true? Malthusians would be inclined to think so.

Scholar and clergyman Thomas Malthus, published the first edition of his landmark work, An Essay on the Principle of Population, in 1798. Malthus was skeptical of his contemporaries’ optimistic visions for human improvement. His historical analysis showed that agricultural resources grow arithmetically (i.e., 1, 2, 3, 4, 5 …) while populations grow geometrically (i.e., 1, 2, 4, 8, 16 …). Population outgrows the supporting resources. Societies must either expand their territory or experience a check on population size via war, disease, or famine. Greater prosperity tends to follow these checks as population comes back into balance with resources. That leads to new population growth and the cycle repeats itself. This is the Malthusian trap. It is a fairly accurate characterization of the world’s experience prior to the Nineteenth Century.

Looking
forward, Malthus failed to anticipate two things. First was the nascent revolution
in agricultural and industrial productivity. For the first time, agricultural productivity
outpaced population growth. For instance, in the United States, the ratio of population
to acreage of cropland in production stayed fairly constant until 1910. Total
cropland in production then was 310 million acres. The population increased
threefold over the next century. Keeping the ratio constant, 700 million more
acres of cropland would have been needed … a land area equivalent to the land
area east of the Mississippi River. How many acres are in production today?
Approximately 310 million acres … and we export more than we import. Productivity
has increased dramatically. Globally, appropriation of land for agricultural
production is still increasing as the population grows but the rate of appropriation
has slowed since the 1960s.

The second
issue Malthus missed was innovation and substitution. The Bronze Age did not
end due to a lack of bronze and the horse and buggy age did not end due to a
lack of horses and buggies. Neither will the fossil fuel age end due to a lack
of fossil fuels. As technologies become too expensive or problematic,
innovations are made and substitute products are brought into the market.

Turn back
the clock one hundred years in the United States. Urbanization is underway and
accelerating. We can project that the population will grow as much as threefold.
Personal transportation is powered by horses. As the cities grow, we will need
more horses with corresponding increases in feed and water. The problem of
manure filled streets means increased odor and unsanitary conditions. If we project
the status of life in 1900 forward into the future it is unsustainable … absent innovation! Even before 1900,
inventors had been experimenting with motorized buggies. Twenty-five years
later we overcame the transportation obstacles (though new challenges soon emerged.)

Imagine
telling most people thirty years ago that the world would soon be connected by
an audio/visual/data communication infrastructure built on sand. (Fiber optic
cable is made of glass, which is made of sand.) It has reduced the need for other
commodities like copper while empowering communication at levels unthinkable
not long ago. Should we have frozen life at 1900 living standards (or some
other date) and figured out how to sustain that world? Should we be locking in
the world of 2009 today?

Economist
Donald Hay noted twenty years ago in Economics
Today: A Christian Critique, that nearly everything we use today could eventually
be made and powered by renewable resources. The economic pressure has not been
sufficient to move us in that direction but as people become more prosperous,
environmental concerns rise in priority, creating demand for more
environmentally friendly technologies and products.

Also
consider that as a commodity becomes scarce its price should rise. Yet as we
look at the price of commodities, their inflation adjusted prices have been on a
century long trend of decline. Prior to the price shocks of 2008, major commodities
cost a fraction of what they did a century ago and, despite occasional spikes,
the trend for the foreseeable future is declining real costs. Commodities are
actually more abundant today than they were a century ago because there has
been greater incentive to locate and extract them.

Malthusian
visions of societal collapse from exhausting resources have been a recurring
theme over the past two centuries. Writing in 1865, noted British economist
Stanley Jevons claimed that Britain would run out of coal by the end of the
century and oil would not be able to meet the demand. Writing in the late 1960s,
activist Paul Ehrlich wrote “The Population Bomb,” predicting massive
population growth, exhaustion of fossil fuels and other commodities, and the collapse
of agriculture. It would all lead to massive famine, war, and chaos, by
century’s end. The Club of Rome and the Carter administration’s Global 2000 Report echoed these
concerns.

Similar
Malthusian predictions have resurfaced in recent years under some versions of
sustainable development. If by “sustainable” we mean development that protects
bio-diversity, reverses deforestation, doesn’t foul the atmosphere, and doesn’t
turn the planet into a toxic waste dump, then, yes, we need more sustainable
development. But if we mean exhaustion of energy sources and commodities, then
we have barely scratched the surface of the earth’s energy sources and we are
only beginning to understand the potential of engineered substances that have
wide application. Economic growth is not a threat.

I think most
mainstream economists would embrace the above characterizations, although they
might vary considerably in how they weight the challenges we face. Personally,
it seems to me that we run two dangers. One is obliviousness to the
environmental impact of our economic actions and the failure to incorporate environmental
costs into our economic systems (and that is a tricky thing to do.) The other
is a Malthusian anti-technological mindset that wants to halt economic growth,
innovation, and trade. To me, both are an abandonment of our cultural mandate
to be stewards over creation and bring it to its fullness. Furthermore, living
simply (which has profound wisdom for holistic health) will not help others
simply live. Redistribution within a zero-sum game is the wrong framing. What
others need to simply live is productive, sustainable, and growing economies.

That’s
enough from me. Are you persuaded by the
economists’ observations of a dynamic system that involves continuous
innovation and substitution? What else needs to be considered that I’ve
omitted?

Economics

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