be asking what will happen to it when there’s not enough surplus energy left over to dedicate to growth.
This completes a (very) brief tour of energy, which will allow us to better appreciate the economy, the next “E” in our story. Trust us, this is important information that is leading somewhere.
ECONOMY
The economy is an easy thing to explain. While some describe it as the complicated sum of all the products and services a region produces, that’s a definition of what it is. In terms of what it does, the best explanation is that it grows.
We like our economy to grow by some percentage over time (be that a quarter, a year or a decade), which means that it is growing exponentially. This is a hugely important idea so let’s spend a bit of time developing the concept.
WATCH:
Chapters 9 - 22 of The Crash Course
TOPIC: Our Energy Predicament
URL and LINK: See Web Links
Anything that is growing by some percentage over some unit of time is growing exponentially. It could be a single percent (1%) each year or it could be 5% per month. It doesn’t matter by how much or for how long, all that matters is that this thing we’re measuring is growing by some percentage over time.
You’ve heard about this phenomenon endlessly, perhaps without realizing it. The newspapers and televisions constantly repeat the data points: Car sales are up 12% this month. House sales are up 5% year over year. The economy has grown by 3.2% this quarter.
If you look carefully, you’ll see that each of these is actually referring to a percentage increase over a unit of time – which means that the things we most carefully measure, track and report to ourselves are all growing exponentially.
So why is it so important to understand the concept of exponential growth? Because it is literally going to kill us if we don’t. We need to understand exponential growth because we are completely surrounded by it, and appreciating that will help us to both understand what’s happening today as well as predict what’s coming tomorrow.
“The greatest shortcoming of the human race is our inability to understand the exponential function”
—Albert Bartlett
Unfortunately, exponential growth is not an intuitive concept. We’re hard-wired to understand direct, linear relationships. We can hit a fastball, but slipping on ice surprises us. No matter how fast the ball is thrown it’s moving at a constant speed, while gravity accelerates exponentially. Exponential rates of change confuse most of us except for a very few well-trained mathematicians; so please don’t be put off by any doubts you may have about fully grasping this concept.
WATCH:
Chapter 3 of The Crash Course
TOPIC: Exponential Growth
URL and LINK: See Web Links
Fortunately, there are some relatable ways to understand how critical exponential growth is to our economy—one very good one is presented in the chapter on Exponential Growth within our online video series, The Crash Course. If you haven’t yet seen it, it’s worth taking a few minutes to watch it now, if you’re able to (it’s only six minutes in length). It really makes the concept easy to grasp.
Another good one is the Rule of 72, which works like this:
Suppose we said that we wanted our economy to grow by 5% per year. The Rule of 72 allows us to quickly answer the question: How long will it be before our economy has fully doubled in size?
To answer that question all we have to do is divide the rate of growth into 72. While 5% doesn’t sound like very much growth, the Rule of 72 tells us that in just 14.4 years (= 72/5) an economy growing at 5% per year will be twice as large.
As in “fully doubled” in just 14.4 years!
Everything will be twice as big: twice as much economic activity, twice as many cars sold, twice as much food grown and eaten, twice as many airline miles travelled and trips taken—everything will be two times bigger.
Imagine you live in a small city that is growing by this modest 5% per year and you have a child. Before that child’s 15th birthday, your small city now has twice as much of everything. By the time that child has almost reached her 29th birthday, the city in which she was born will now be 4 times as large because it has gone through two doublings. If the growth persists, by the time your child is 58 years old, her small city will be 16 times as large as when she was born. More frighteningly, just 14.4 years after that, at the ripe old age of 72, the city will now be 32 times as large. 32 times!
If that same economy were to grow at 7.2%, the current reported rate of China’s GDP growth, then that economy would double every 10 years.
Do you see the predicament here yet? If every economy in the world is growing exponentially, and they are all doubling away every decade or two, eventually they’ll run out of resources and room. That’s just common sense, right?
The world is already mired in low growth and saddled with some $200 trillion of debt, up a whopping $57 trillion just since 2007. Sadly, the world didn’t take on all that new debt because of clear-eyed confidence in the future, but because worried politicians borrowed it from scared central bankers, both of whom merely wanted to the keep the whole system from imploding.
The core of the problem, never publicly recognized by either the politicians or central planners, is that our system of money and our banking and financial systems are all hopelessly addicted to exponentially growing piles of debt and money. As long as they are growing exponentially, everything is stable, but the minute they stagnate or shrink(!), as happened in 2009 after the real estate bust, the financial and banking systems threaten to collapse.
Does having monetary and financial systems whose very stability are built around the idea of perpetual exponential expansion sound particularly robust or intelligent? If it doesn’t, then you are on the same wavelength as your authors.
WATCH:
Chapters 6 - 18 of The Crash Course
TOPIC: The Risks to our Economy
URL and LINK: See Web Links
Okay, we’ve got just one more topic to cover before we can assemble this all into a coherent call to action.
ENVIRONMENT
Even
