The Biggest Ponzi Scheme of Them All

Since Bernie Madoff has put Ponzi schemes back onto the front pages, it’s worth considering whether we are all complicit in the biggest Ponzi scheme of them all, the idea that the global economy can grow indefinitely.

I grew up on the idea that humanity would grow out into space, and that resources were for all practical purposes infinite. It may well be that in some possible worlds, that could still be true, but it’s increasingly looking like we’re going to be stuck here with only one world’s resources to draw on. And while most reasonable people are aware that we’re using up much of our children’s inheritance, and handing them debt in exchange, I don’t think as a society we’ve really come to grips with the consequence of that knowledge.

We’re rather like the investors who were complicit in Madoff’s scheme, playing along while the getting is good. At least some of us know that the game is rigged, but we’re not going to be the first to blow the whistle.

Former World Bank economist Herman Daly wrote a vivid piece on the subject of the Ponzi economy back in October, entitled The Disconnection Between Financial Assets and Real Asssets:

The current financial debacle is really not a “liquidity” crisis as it is often euphemistically called. It is a crisis of overgrowth of financial assets relative to growth of real wealth—pretty much the opposite of too little liquidity. Financial assets have grown by a large multiple of the real economy—paper exchanging for paper is now 20 times greater than exchanges of paper for real commodities. It should be no surprise that the relative value of the vastly more abundant financial assets has fallen in terms of real assets. Real wealth is concrete; financial assets are abstractions—existing real wealth carries a lien on it in the amount of future debt. The value of present real wealth is no longer sufficient to serve as a lien to guarantee the exploding debt. Consequently the debt is being devalued in terms of existing wealth. No one any longer is eager to trade real present wealth for debt even at high interest rates. This is because the debt is worth much less, not because there is not enough money or credit, or because “banks are not lending to each other” as commentators often say.

Can the economy grow fast enough in real terms to redeem the massive increase in debt? In a word, no. As Frederick Soddy (1926 Nobel Laureate chemist and underground economist) pointed out long ago, “you cannot permanently pit an absurd human convention, such as the spontaneous increment of debt [compound interest] against the natural law of the spontaneous decrement of wealth [entropy]”. The population of “negative pigs” (debt) can grow without limit since it is merely a number; the population of “positive pigs” (real wealth) faces severe physical constraints. The dawning realization that Soddy’s common sense was right, even though no one publicly admits it, is what underlies the crisis. The problem is not too little liquidity, but too many negative pigs growing too fast relative to the limited number of positive pigs whose growth is constrained by their digestive tracts, their gestation period, and places to put pigpens. Also there are too many two‐legged Wall Street pigs, but that is another matter.

Growth in US real wealth is restrained by increasing scarcity of natural resources, both at the source end (oil depletion), and the sink end (absorptive capacity of the atmosphere for CO2). Further, spatial displacement of old stuff to make room for new stuff is increasingly costly as the world becomes more full, and increasing inequality of distribution of income prevents most people from buying much of the new stuff—except on credit (more debt). Marginal costs of growth now likely exceed marginal benefits, so that real physical growth makes us poorer, not richer (the cost of feeding and caring for the extra pigs is greater than the extra benefit). To keep up the illusion that growth is making us richer we deferred costs by issuing financial assets almost without limit, conveniently forgetting that these so‐called assets are, for society as a whole, debts to be paid back out of future real growth. That future real growth is very doubtful and consequently claims on it are devalued, regardless of liquidity.

This is economic heresy, something that goes so contrary to our every assumption that we’re convinced it must be wrong. Surely we can go on somehow, and get back to the way it was before the crash! If we can’t, we imagine a dreary world without possibilities, in which there is no motivation, no improvement, and no opportunity.

There is an alternative that Daly, in another piece, calls A Steady State Economy, and that others call “ecological economics“. Here’s Daly:

A failed growth economy and a steady-state economy are not the same thing; they are the very different alternatives we face. The Earth as a whole is approximately a steady state. Neither the surface nor the mass of the earth is growing or shrinking; the inflow of radiant energy to the Earth is equal to the outflow; and material imports from space are roughly equal to exports (both negligible). None of this means that the earth is static—a great deal of qualitative change can happen inside a steady state, and certainly has happened on Earth. The most important change in recent times has been the enormous growth of one subsystem of the Earth, namely the economy, relative to the total system, the ecosphere. This huge shift from an “empty” to a “full” world is truly “something new under the sun” as historian J. R. McNeil calls it in his book of that title. The closer the economy approaches the scale of the whole Earth the more it will have to conform to the physical behavior mode of the Earth. That behavior mode is a steady state—a system that permits qualitative development but not aggregate quantitative growth. Growth is more of the same stuff; development is the same amount of better stuff (or at least different stuff). The remaining natural world no longer is able to provide the sources and sinks for the metabolic throughput necessary to sustain the existing oversized economy—much less a growing one.

I like Daly’s distinction between qualitative development and quantitative growth. The consumption of electronic media perhaps gives a foretaste of an economy in which qualitative complexity might replace quantitative addition as the raw material of exchange. Obviously, we’re not there yet, as we’re still consuming lots of resources to build the substrate for our increasingly intellectual economy, but I love that he’s broken the naive assumption that if we don’t have growth, the only alternative is stasis.

It’s clear that getting to a steady-state economy will be hard, perhaps even impossible (although it’s worth noting that living systems have accomplished that feat.) But what a challenge! How do we keep the dynamism of modern capitalist economies without borrowing from the future? What does it mean to keep the real costs of what we consume on the balance sheet? Will the economy of the future be built on aesthetic value exchange (the whuffie of Cory Doctorow’s imagination), with renewable energy in harness and physical materials seamlessly recycled. Great questions, great opportunities for us to invent the answers!

  • At the Center for the Advancement of the Steady State Economy, we work hard every day to advance the steady state economy as a macroeconomic policy goal in the U.S. and around the world, almost entirely with volunteers. See the list of 2,100 signatories and over 50 organizations that have endorsed the CASSE position on economic growth:

    We are pleased to have Herman Daly’s endorsement as “the foremost organization in advancing the precepts of the steady state economy to citizens and policy makers — an indispensable resource!”

  • This was fascinating, uncomfortable reading.

    I feel like I must be part of a Ponzi scheme. If your bank account is in credit, you watch it go up a little each month of its own accord. Are you to believe that really your money is making the world wealthier? Or are you just watching the bubble grow.

    And if you’re in debt, you watch the amount you owe go up each month. Do you really believe that the value of the money you borrowed is increasing? That the money you borrowed is causing the world’s wealth, if not your own, to grow at that rate?

    The whole system doesn’t make sense. I think we have fooled ourselves that the reason it doesn’t make sense is because it’s too complicated to understand. It’s now starting to look like it really doesn’t make sense.

    I wonder if “wealth” is too crude a measure to be useful any more. It’s become just a number. We feel wealthy if we get bank statements with big numbers on… but it doesn’t mean anything about our world.

    And to keep “wealth” going up, increasingly the things we have to do end up making the world worse, not better.


  • Excellent. This NYT op-ed by Wendell Berry and Wes Jackson is just as relevant or more so:

  • Tim,
    You really should read everything you can find on Austrian School Economics (sometimes also called the libertarian school, but don’t let contemporary American political groupings “liberal” vs “conservative” with conservatives sometimes identifying themselves with libertarian leanings pre-dispose you on this).

    One of the things that Austrians would reject is that what is today called economic growth is an end in itself; the economy is a mere instrument for human liberty.

    It is a modern day perversion (perfected first in the Soviet Union of all places) that puts the macro-economic cart ahead of the individual liberty horse. You will find that soul-less macro-economic thinking, often using esoteric mathematics as a crux (again Soviet statisticians were there first!), pervade academia today, and dominate the Nobel sweepstakes. Perhaps the purest expression of this school of thought would be Paul Krugman, very appropriately this years Nobel prize winner. I believe the 2008 Nobel Prize is going to be memorable, but not for the reasons they think: it is going to signal the intellectual bankruptcy of an entire line of economic reasoning, fashionable in academia today.

    If you read his latest articles in NY Times, you will see him propose federalizing school education, health care, and … under the argument that these are all worth doing, so why leave them to the shifting fortunes of the States, but tie them to the federal cash machine. There is nothing more profoundly illiberal (in the original classical sense of the word Liberal) than what he is suggesting, yet, it barely merits a peep. The best part about America – sometimes an outsider can see these things more clearly – is its decentralized structure, which provides for a lot of local autonomy – classic example, of course, is the school system which is subject to local control.

    The best meditation of liberty I found was Hayek’s classic “The Road to Serfdom”. What Krugman is proposing is nothing less than a new road to serfdom, if only he would think through the consequences.

    And finally, once you realize the futility of much of what passes for “growth”, you will start to realize the value of the gold standard.

    Please chase your line of reasoning to its logical conclusion!

    Sridhar Vembu

  • Surely inflation + productivity gain = growth, real growth being the productivity gain.

    I agree with much of the first excerpt’s view on overvalued paper wealth, however, i do not buy “the world is full” argument. If that was the case I would give up being an entrepreneur as there would be no scope for improving the way we do things.

  • Todd

    Whoa. Wait. So if I have a $400,000 mortgage I have barely put a dent in, bought two brand new cars that I financed and have only made a few payments on, and have $18,000 in credit card debt…I am *NOT* really wealthy? No way!

    Sarcasm aside, I wonder if this is transferable to the slow death of Microsoft. Silverlight and Mesh claim to be “new growth” but it’s just the same 25 year old B.S. that wants to enslave us to Windows desktop OS.

    Has anyone in Redmond ever read any of this post’s external citations?

  • Oh come on now.

    It’s like they said in an article I read recently… the world has learned about Ponzi schemes, and now everything is a Ponzi scheme.

    At these macro-economic levels, there can be no talk of “Ponzi schemes”.

    The economy is not an investment vehicle, it’s a huge, loose, and fantastic agreement that enables all of us to get far more (in terms of technology, resources, comfort, life expectancy, health, happiness, etc) than we would if we didn’t have it. It doesn’t exist for its own sake, and it certainly has no need to be a mathematically correct, long-term sustainable, rigorous system designed by a computer scientist.

    The capitalist system, with all its problems, is the best system that we have. Who cares that it’s not sustainable indefinitely into the future? By the time we get there, things may well have changed so drastically that it becomes completely irrelevant.

    A human being is not a sustainable thing either. It overspends its resources instead of maintaining itself in good working condition and eventually dies. Oh shit. We better cancel humanity. It’s a Ponzi scheme!

    This Ponzi trend is really, really getting ridiculous. Enough with all that crap already! This article is a fancy label placed on a collection of dodgy conclusions drawn from dubious axioms.

  • Mike Phenow

    This is precisely the reason the world needs to move away from worthless, fiat, paper money and fractional-reserve banking to inherently-valuable, commodity-based money with 100%-reserve, free, private banking.

    Such a system prevents the 20 to 1 ratio of paper wealth to real wealth that we are seeing. It prevents us from borrowing from the future to pay for our excesses today. It enforces a sound balance sheet, whereas the inflationary system we live with today will always, predictably result in the kind of mayhem we’re experiencing.

    Until people understand free markets and the fact that free markets forces act on money just like everything else, we will continue to repeat all of our past mistakes and continue to apply the wrong remedies.

  • Malthus redux? Death of the Global Economy Predicted?

    There will continue to be economic bubbles, as people’s enthusiasm (or belief in the Greater Fool) outstrips actual growth, and recessions or depressions to correct for them, but there are so many untapped renewable resources (human and natural) that the economy has a huge amount of room to grow.

    Besides, there’s a natural ceiling: as people become more affluent, they have fewer children, so the world’s population might actually start declining in the next century.

  • Ed Sharp

    It seems we’re getting a towards a tipping point of public awareness. I’ve had this same message from four different places now! Here are some further resources that I have found interesting:

    For an easy-to-understand video that goes into more depth, see:

    For a more detailed paper that compares the economy to engineering and biological systems, see

    And finally read “Silent Weapons for Quiet Wars” which possibly implies that the whole thing isn’t as chaotic and surprising as you might think! You need to know a little about electronic engineering to understand this link.

  • We should beware of conflating different issues. Capitalism does require growth, but that is a problem only where we come up against real resource constraints.

    Take a simple example that we are familiar with in California, fresh water. California is perennially concerned about water resources to feed agriculture and cities. The problem is not that water is scarce, but that it is so cheap that we throw it away after a single use, rather than recycling it. Abundant energy would allow recycling and the problem would disappear.

    The same argument is relevant on your earlier thread about [over]producing. The problem isn’t the junk per se, rather that it isn’t recyclable and thus uses up resources that end up in landfills. This isn’t sustainable in a system that has finite raw resources and sinks.

    The Rx is not to restrain growth, but rather to change the economic system to become more closed to inputs and outputs which means discouraging activities that use raw resources and generate polluting outputs.

    Over the long term, I don’t believe that humanity will be constrained to this planets resources. The resources of the solar system alone are vast and they can be harnessed for people living on earth and ultimately off the planet. The Malthusian problem of food production is rearing
    its head again to be sure, but even if it becomes a real constraint we can continue to enjoy economic growth from productivity gains alone, rather than productivity + population growth. After all, isn’t personal “wealth” the goal of teh economic system?

  • I think the initial investors in Madoff’s schemes were people who had illegal money in the first place and wanted to multiply it on the sly. I am sure they were aware that his schemes were not straightforward. I guess this led the other larger banks to also put in money. I am just shocked as to how long he could run this charade.

  • Daniel,

    I largely agree with your statement, but to the extent we ignore negative externalities, we can pretend that we’re creating far more wealth than we actually are. We’ve been *extracting* wealth from underdeveloped nations for years; now some of them are going to start extracting it back.

    You say: “The capitalist system, with all its problems, is the best system that we have. Who cares that it’s not sustainable indefinitely into the future? By the time we get there, things may well have changed so drastically that it becomes completely irrelevant.” That’s probably what Madoff hoped too. According to some accounts, he made some bad bets, then turned to Ponzi in hopes that things would eventually turn around.

    I agree that the capitalist system is the best system we have. That doesn’t mean that it can’t be improved. Taking account of the true cost of our “borrowing” – from China and the Middle East, from our children and grandchildren, from the environment, is surely one of those improvements.

    Think about startups for a moment. If they provide a great new service to people, they can grow like crazy. But no matter how popular they are, they eventually need a revenue model. Their VCs won’t sustain them forever.

    Or take an old-line company that once innovated – the auto industry, say. Their continued “success” is the result of a convergence of externalities that are no longer holding up for them: tax incentives for profitable gas guzzlers (they gamed the system), American consumers able to borrow against the illusory rising value of their homes, or buy big cars that they didn’t need on easy credit; the artificially low price of fuel (yes, low prices are back but it won’t last for long); even the funding for the roads they drive on are baked into the system via taxes. (Wouldn’t other businesses like a similar subsidy! Why do railroads have to pay for their own right of way and rails, while auto companies get theirs at taxpayer expense? A hidden externality that distorts the system.)

    America is like the auto industry. Some good products still, but living on borrowed money, and hence borrowed time.

    This doesn’t mean that we’re totally out of luck. We just need to make real investments again, and build businesses (and an economy) in which the true costs are reflected, and the income is greater than those costs.)

  • Henry Yates: I think you misread “the world is full” argument. Daly explicitly calls out the kind of growth that consists of “qualitative improvement.” And I do agree that he perhaps misses the point that certain types of qualitative improvement can be quantitative improvement as well.

    Take agriculture for instance. There’s no question that domesticated grains are both a qualitative and a quantitative improvement over the food carrying capacity of the natural environment. Sustainable agriculture of all kinds is an improvement over hunter-gathering. But at some point, you start borrowing from the future. As Wendell Berry pointed out in the article that Chris Ryland links to in his comment above, current farming practices destroy topsoil, while other practices preserve it. At what point do we realize that the version that borrows from the future by stripping the soil and adding petrochemical fertilizer is NOT actually more productive than sustainable agriculture?

    Or, more importantly for the argument I hinted at in my conclusion, I believe that there’s a wonderful economy of innovation to be found in qualitative improvement. Is the web not a wonderful demonstration of that fact? We’ve all got the same personal computers we had 20 years ago but we’re getting more out of them not because they are faster but because they are connected (and in fact the rise of netbooks shows that the idea held by the computer industry for so long that faster chips was the only way to grow the industry is wrong.) We hit the wall on certain aspects of quantitative improvement, and qualitative improvement took over.

    Or take my own industry: publishing. It’s not been growing much for years. But Amazon has certainly made a great business by creating a qualitative improvement in the way people can find and buy books. So I think you miss the point when you say that there’s no room for entrepreneurship in a steady state economy. If anything, there’s more room, because you really have to innovate if you can’t rely on the free ride given by unconstrained growth.

    As I said above, I do think that it’s not a binary choice of qualitative vs. quantitative. But it’s a useful tool for thinking about how “growth” and innovation can continue even in a steady state economy.

  • David Megginson –

    I don’t believe that this is a Malthusian argument. The steady-state economy isn’t “nasty, brutish, and short.” It’s just a business with a sound balance sheet.

    One image that might make sense is that we’ve been running a “P&L economy” where all the debt that keeps the profits coming is hidden. Eventually, though, the interest service on the debt outpaces the income, and you go bankrupt. This is what happened to the Tribune, for instance, and to many other leveraged buyouts. The hope is that the income will outpace the interest long enough t flip the property, but as we’ve seen, it doesn’t always happen.

    And I do agree that as people become wealthier, they have fewer children, and there is at least the hope that the system stabilizes. But isn’t this actually an argument that supports Daly’s steady state economy thesis? Getting it right will require a lot of careful effort though – as Europe and Japan show us, declining population causes its own difficult economic problems. The transition is going to be hard.

  • Alex Tolley –

    I totally agree about proper resource use being essential.

    I also would love to think that we get a “get out of jail free” card from getting beyond this planet. Elon Musk is certainly betting on that.

    I would LOVE that outcome. It would be game-changing, especially if in conjunction with harnessing of renewable energy.

    However, I don’t see us making the choices that will get us there, and there’s a real risk that we realize how essential it is too late, when we no longer have the economic resources or the will to really get our asses productively off the planet.

  • Henry, Tim is right… a “full” world is ripe for innovation and entrepreneurs. If we manage to reduce our consumption of fossil fuels to 10%, who’s going to knock that down to 5%? Innovators and entrepreneurs. (But we’ve got a lot of innovating to get it down to 10% already…) Someone will be needed to figure out a better tool for mining dilithium, etc., etc.

    While he’s going to be busy mucking out the last eight years of Augean stables left by his predecessor, I hope Obama highlights some really ambitious goals to move beyond where we are. On the space front, ways to move permanently into space, and, given the potential consequences, support for Rusty Schweickart and the folks looking at how to prevent asteroidal collisions. Let’s clean up the mess we’ve made in our house, but also look at expansion room, and keeping the whole thing from being squashed by giant rocks…

  • Stead-state is what the American Indians achieved until our “advanced” societies came along and destroyed it. From most indications, they had a pretty amazing lifestyle, accomplished primarily by staying below the limits of what the environment could sustain.

    Now, as pointed out here, we are starting to probe those limits. That said, it is through technology that we have been able to greatly expand what the planet could sustain. While steady-state seems utopian, it also doesn’t fit with our ambitions. Isn’t it possible that technology and innovation are without limits?

  • Kenny Stoltz

    This is by no means a new idea. There is a basic understanding from all macroeconomists that at the generational scale macroeconomics is a combination of productivity gains, inflation, increased population, decreasing supply of scarce natural resources, and many other “big picture factors” that could lead one to pose existential questions like “isn’t investment just a Ponzi scheme?”

    The answer is that the Ponzi scheme is the mechanism of investment without wealth creation. Macroeconomically, tech investment results in wealth creation because technology makes people more efficient. When they can do more with less time or money, they are willing to pay some of the savings to the company that creates that technology. But that means that if you needed 10 people to perform a task before and you now need 9 + some technology, 1 person doesn’t have a job. A percentage of that one person’s salary is paid to the tech company. So macroeconomically it balances out.

    So long as there are efficiency gains to be made, more people and resources to bring in to the global economy, and unaccounted for disparity, there will be growth in the global economy. It is not a Ponzi scheme. So long as each generation is increasing larger than the previous, there will be incentive to distribute that wealth to the larger generation.

    A Ponzi scheme of sorts (borrowing from past generations to give to future generations) would require that populations steadily decreased or credit continuously increased. As we know, the population isn’t decreasing at an exponential rate as would be required, and credit isn’t really continuous increasing… it only increased for about 12 years before contracting.

    This is the sort of discussion that happens in most first year macroeconomic courses, and it’s pretty simple to answer when you look at the big picture. The problem is that most people are suddenly aware of a credit mechanism without being aware of what the credit mechanism represents. It is giving from those that have to those that have not (for a modest fee), it is not the promise of infinite returns to the haves to the haves.

    Rather than reading more on the “steady state economy” (which we are far from approaching), or about the Austrian School (though a good point of reference) go pick up a basic macroeconomic textbook such as the very comprehensive “Principles of Macroeconomics” by Frank and Bernanke or take a course.

  • Another good one, Tim. An amusement and a criticism:

    Amusement: The distinction of “qualitative development” from “quantitative growth” reminds me of that Laurie Anderson lyric: “Paradise is exactly like where you are, right now / only / much / much / better.”

    Criticism: You leap awfully fast on the notion of “intellectual” exchange as a new basis for the economy. I don’t see how that leap is justified by anything other than your wishing that your and your friends assets continue to appreciate, on average, year over year.

    I’m not being a luddite, here. Intellectual exchange is intrinsically valuable and, sure, bring on “more”. However:

    Take an example of food production. As we (necessarily must) move away from petro-ag and GMOs the labor requirements of maintaining food security are going to sharply increase. We, literally, need many more people working the fields.

    Or take basic manufacturing. As we (necessarily must) move away from over-reliance on international labor arbitrage and towards decentralized manufacturing and approximations of regional self-sufficiency the labor requirements of manufacturing are going to sharply increase. We, literally, need many more machinists, cargo-cyclists, bus drivers, etc.

    Conversely, consider “intellectual products” from entertainment products to software tools to non-fiction publications to drug designs to whatever you’d like. What’s going on there? Well…

    As we (necessarily must) move away from naturally scarce means of publication (printing presses and record presses are expensive, at scale) to nearly non-rival means of publication (the Internet and its peripherals) the labor requirements of intelletual works are sharply decreasing.

    Consider, for example, the industrial film-making sound-stage studios of Hollywood and the enormous complex of skilled labor surrounding them. Or consider the really high-end recording studios of the 1960s and 1970s and the complex of skilled labor in those pipelines. Both are now vestigial, from a business perspective, kept around to the degree they are mainly because of aesthetic appreciation: they are too labor-expensive as means of production compared to what we can do today for much less. (This is sad: the big studio systems developed an artistic aesthetic around the skill-strengths of the kinds of labor needed to run them – that’s why some “big hollywood films” have such a recognizable and moving style in everything from set design, to lighting, to sound, to camera work, to…. for example. We’re losing that, by increments.)

    Labor costs are going in opposite directions in those two areas but they also have something in common coming up: decentralization and increased competition.

    For intellectual works, decentralization and increased competition will tend to drive the price of products down towards the marginal cost of their production, plus such premiums as legal monopolies like copyright and patent law will still be able to sustain (which is likely not to be a very high number).

    For real, essential commodities like food, decentralization and increased competition will have the same effect but with premiums coming from low tariff-like protections rather than copyright and patents.

    In other words, food will tend to cost the price (rather more than we’re used to) of the labor it takes to make it; intellectual works will tend to cost the price (rather less than we’re used to) of the labor it takes to make it.

    The only way it can happen that intellectual works take up the slack of growth is if you imagine a society in which the much increased number of farm workers would be willing to sell all of their crops to a handful of buyers in exchange for, say, some cash and some books. Yet, if that became the case, competing book-sellers would quickly enter the market and strike a deal far more favorable to the farm workers.

    Anyway, you’re leaving out the big thing:

    Fiduciary control of money flows – at financial market scales – has become a proxy for rank among an essentially martial or fascistic elite. For example, those who buy and sell whole firms are unique in their ability to become sovereign over the economic lives of huge sets of employees. That power devolves to “those who sit on many boards” and further to corporate (aptly named) “officers” and further to budget managers.

    As we see in the unfortunate case of Mr. Madoff, the economic actors in the upper reaches of that spectrum of power are very largely making their purchasing decisions based on little more than nepotism and echo-chamber group-think among themselves.

    That group’s (abstract, financial) assets went through a huge bubble here because the power of that group found such strong influence over the monetary and regulatory powers of nation states.

    Look at how we measure the economic health of a nation state. Basically, we ask the most powerful people in the state to report how they think things are going, and then we tweak regulation and monetary policy to try to make them happier. “Say, how are the people doing, Mr. Bossman Q. Plutarch?” “Looking at my balances, I say they’re doing pretty well!”

    He who measures benefits from the measurements reported, in situations like this.

    With control over measurement and thus indirect control over regulation and monetary policy, the plutocracies of the world played a game of “My Dad Makes More Money Than Your Dad” – a very important game in mathematical game theory. The game’s rules are simple: The player with the first move says how much money his dad is likely to earn next year. The player with the second move then does the same. The player who names the higher figure wins. You go first.

    Well, strictly speaking they didn’t play a two-player, one-iteration version of the game. They added an additional rule: After other players have named an amount, a player who has already named an amount can revise his statement.

    The second version of the game doesn’t formally end, of course. It stops when people stop believing it means anything.

    Financial assets inflated in a bubble because state powers, under the influence of the martial hierarchy of the plutocracies, played iterated “My Dad Makes More Money Than Your Dad.”

    The financial asset bubble is now bursting. Nothing wholesome can possibly re-inflate it precisely because of the historical, material necessity of shifting much more labor to distributed, decentralized, more competitive forms of production.

    It is as if the elites were in the middle of a friendly bridge game to decide who would be the “biggest dog” next year – only the game was interrupted by a global realization that “it doesn’t matter”.


  • Wait, Tim –

    The way I remember it, in the 60’s and 70’s “we” knew these things already, and shouted them loudly (though, indeed, there were many loud shouts then). If there’s some confusion on these points today, it’s because you and I and the others of our age neglected to fill in those immediately behind us. And some of our age are the “two-legged pigs” still foisting the ponzi.

  • Steve Howard

    Thank you!

    I’ve been saying for years that an economy built on growth (and bowing to shareholder greed) is doomed – eventually that tower gets so tall and rickety that there is only one place for it to go… But I’m just a peon so no one listenes to me :-)

  • Mark Smallwood

    Sridhar Vembu, if Paul Krugman is a proponent of Austrian School economics, then Milton Friedman must be a Keynesian. You might want to read a few of Krugman’s books before making such a wild assertion. Krugman generally repudiates the Austrian School, particularly in his book “Conscience of a Liberal.”

  • Robert Young

    Tim, and your cites, have gotten around to what I described in my 1971(!) senior thesis (economics). The paper was a discussion of the plight of Uruguay, at that time. The country’s movers and shakers (mostly, the rich capitalists with complicit government), had decided, in the early 1960s, that the country would be better off if it were a purely finance based economy; no more of Real Stuff. By 1971 the economy had collapsed. I don’t remember citing Soddy, or even knowing his work. I can claim independent discovery.

    As to capitalism being the best way; only for capitalists, of course.

    As to technology being the way out: agronomists now concede that the Great Plains soils are now so depleted, that their only purpose is “to hold up the plants”. Chemical fertilizers are required to grow them.

    Water is in short supply, just about everywhere. The laws of thermodynamics mean that turning sea water fresh is a less than zero sum game; assuming we had an infinite supply of energy and consumables to do so.

    In 2000, the top 1% of American households took 10% of income. In 2007 it was 21% of income. Keynes was right: depressions are caused by income inequality. That is, if one concedes that depression exists, rather than being the “natural state of the nation”. Capitalists tend that way.

    The “free market” is what gave us this crisis (again, if one concedes that what we face is not the preferred norm); what the “too big to fail” financial actors did was beyond the regulators, who, Bush being Bush, looked the other way. Those who attribute the current situation to Liberal Meddling are simply lying.

  • I’m thrilled to see someone talking about this, because we’ve been seeing a total tragedy of the commons. I’m much behind a move to a steady-state economy, but I’m extremely concerned about the potential human cost to get there. I can foresee some very severe transitional chasms, and am concerned about doing it in a way that’s as gentle as possible (very much aware that it may not be able to be gentle).

  • Tom Barnes

    Great stuff Tim. Simple question: How does one then value information. Is information not a asset? If not, I have a bone to pick with my very expensive alma mater. Kenny’s comment above colors this in well.

    What I think must happen is a “build down” of assets and asset collection. Things are simply too big for humans to manage. When that happens they collapse and we build again. Entropy happens even as things grow more complex. This is a tough paradox to unwind. Clearly too tough for Government level regulators @ the SEC.

    What inhales must at some point exhale and, unless dead, will inhale again. Nevertheless– it hurts. Everything that rises must converge.

  • I grew up in the early 70s reading The Limits to Growth and Small Is Beautiful for a basically pessimistic viewpoint. Buckminster Fuller and Tim Leary for an aggressively optimistic viewpoint. And John Brunner (and numerous other SciFi authors) for something somewhere in the middle. I’ve been lurching back and forth ever since. I usually end up with a belief in the technological fix in the foreground and nagging doubt, waiting for the axe to fall, in the background. Living in the West, I inevitably end up with some vague hypocrisy about “enjoy it while you can”.

    But just look around and take the long now view. Wealth is being created at a faster rate than ever before in history. We haven’t even begun to exploit the amount of energy falling on the earth let alone the energy tied up in the mass of a single cubic metre of water. Man will still be around in 1000 years, probably 10,000 years. What do you mean its over? We haven’t even begun!

  • And Tim, please get somebody to sort out the comment system on all the O’Reilly properties. It sucks. And not just here but on Make as well.

  • Adam

    Its all a big ponzi scheme! We’re doomed.

    I agree that debt can slow growth and it’s easier to get a high-interest loan than improve productivity.

    I also agree that we aren’t going to be able to consume more energy than radiates to the planet indefinitely.

    I fail to understand why economies can’t grow indefinitely. A product that uses less resources can be valuable and creating a lot of them instead of the less efficient ones would actually grow our economy. Thats scalable.

    Lets not excerpt a bunch of informed criticisms and throw our hands up “its all an illusion” Cynicism is only going to make our problems worse. Lets learn the shortcomings and merits and engage in the debate to improve what is in my opinion a very worthwhile system.

  • Whatever became of that MIT cheap-hydrogen-from-sea-water announcement of maybe a year ago?

    I’m very much looking forward to a more honest discussion of the “big picture” than we’ve gotten during the last eight years (and even before… Clinton wasn’t a criminal neocon, but he also didn’t speak much to the “where are we, in the grand scope of things?” question).

    We ought to be speaking more to limits, on a finite world, than papering everything over with exhortations to grow our way out of any near-term discomfort, at our long-term peril.

  • @Sridhar Vembu Mises will not be tolerated in the valley. ;)

  • Tim,

    Your post is an impressive intellectual Tour de Force. It’s unfortunate that your clear logic is unlikely to be heard, at least for now.

    Here’s why. First, our political system appears to have been bought and paid for by the “financial asset” crowd. After all, they have, as Daly says, have a 20 to 1 advantage in terms of paper assets. Those assets still spend pretty well in PR and political spaces. Data point: the financial asset crowd has, so far, managed to influence bailout policy towards the protection of those baseless assets.

    Also, the financial asset crowd has elevated their baseless asset system to a religion. The faith-based foundation is the “fact” that an increase in financial assets repersents an increase in real wealth. Further, the financial asset crowd has us convinced that “over time markets always go up”. If they don’t, it’s the government’s fault… See the slick WSJ video for a good example of that propaganda.

    I find a lot of hope in your post, Tim. I hope that eventually your logic will upend the current political and cultural bias toward baseless assets.

    Not holding my breath, but optimistic,


  • I don’t know if everybody believes in this scheme or not. But what is wrong with ungrowing (or however you call it)? Why do people think the right thing is to have an increasing economy? The really good thing is to have everybody being fed and happy. It’s enough with this.

  • Susan

    The paper trade never made sense to me. The laws of the physics say you don’t get something for nothing. And in all my years of studying ecology, there was never a system heavily biased toward one component that was considered “stable” or “well-balanced”. I have no doubt that the global system will readjust itself, but it may include 4.5 billion people dying real quick!

  • That’s a brilliant analysis by Daly.

    This idea shouldn’t be difficult for us to grasp:

    “Growth is more of the same stuff; development is the same amount of better stuff (or at least different stuff).”

    But, it is because as a group, particularly in the US, we’re somewhat shallow.

    More depth is needed all around.

  • B Damberger

    Growth based systems will always eventually fail when working against a fixed resource. Its just a fact of physical reality.

    Pretending that science, or some new technology will save us is folly. Compounded growth consumes resources at an accelerating rate, and if those resources are fixed (as the earth is a fixed “resource”), eventually all resources will be consumed.

    So in some ways I think the ponzi scheme analogy is appropriate.

    For more see

  • Jason

    @Mark Smallwood: this is the conversation that just happened…

    Sridhar Vembu: “Austrian school of economics is good, and Paul Krugman is the complete opposite of all of that.”

    Mark Smallwood: “Sridhar, you are totally wrong! Paul Krugman is NOT a proponent of the Austrian school of economics. In fact, he is an opponent of it!”

    Mark, learn to actually read a post before you start attacking it.

  • Kenny Stoltz -You aren’t taking into account the “off balance sheet” accounting required to pretend that resource depletion doesn’t matter. I can certainly imagine a world in which resources are efficiently conserved and recycled, with renewables rather than consumables the major component of the resource base, but until we get there, we are in Ponzi economics. It’s not just a measure of labor.

    I’d say the same thing to Tom Lord – there’s no assumption in anything I wrote that labor goes out of the equation. I labor hard each day at intellectual work that I’m compensated for by other people who value that work, but I also find ways to do useful physical work. For example, I cut and split wood to heat my house, I grow fruit and vegetables in my garden, I make jams and other canned produce from what I grow myself, I walk or bike whenever possible to transport myself. We could all do with a lot more of this kind of balanced lifestyle, which isn’t available only to people like me who live in a rural setting. By the end of World War II, 40% of America’s food was grown in victory gardens (and the agribusiness of the day initially opposed Eleanor Roosevelt’s initiative as “bad for business.”)

    The whole Make: diy movement is about physical work with technology.

    There’s also work (and competitive advantage) in reducing waste. Consider Walmart’s recent reduced packaging initiative (inspired by a commitment at the Clinton Global Initiative) or Amazon’s stress free packaging program. This is doing more with less.

    Adam – I don’t think anyone is saying “we’re doomed,” or being unduly cynical. And yes, capitalism is a great system, which needs to be improved, not thrown out. But as to your comment, “I fail to understand why economies can’t grow indefinitely,” all I can say is “It’s math.”

    I remember a great quote (I think from Edward Teller) repeated by Freeman Dyson to me on stage at OSCON a few years back: “We don’t need a department of homeland security. We need a department of homeland arithmetic.”

    The link that B Damberger gave above to addresses this issue.

  • Adam Smith

    When I first read this article’s title I thought it was going to be about AdSense.

  • I hope that you at CSSE harbor no delusions concerning the possibility of a sustainable market economy. Permit me to assure you that such a thing is impossible for all the reasons that I have put forth on my website at

  • Alex

    The idea of infinite growth as an economic policy in a world of finite resources seems foolhardy at best, maniacal at worst. It’s telling to read business articles that quiver at the thought of this years sales growth of a product equaling last year’s, let alone a year of no growth. For capitalist business and economists, stability is death while unrealistic expansion and “growth” that lead to massively disruptive financial disasters are “part of the business cycle”. In a mindset that 0 growth is failure, another school of thought might see stability. The bailouts and stimuli that have been and will be proposed world-wide are nothing more than denial of reality; that constant growth is necessary, required and normal; that a drop in consumption must be averted by borrowing against the capacity of future generations to produce and consume to keep up the current desired present “growth”. The Agent Smith comparison of humans to a virus comes back to me, but I disagree with his assessment. Humans can find balance, it’s capitalism that is the unmanageable problem.

  • Michael Terry

    Actually, I’m convinced he’s wrong because his view of what an ideal world should look like (what some people mistakenly would call “his politics”) is clouding his analysis. As soon as he starts saying crap like atmospheric CO2 saturation and wealth disparity is retarding real wealth growth, I know I can dismiss the rest of what he has to say.

  • happy to see you addressing basic assumptions (finally) …

    keep going … we have to redefine what it means to be a human being

  • I’d say to Tim that he has a funny way with the subjunctive voice.


  • Magrit Kennedy has been writing and speaking about the inevitable doom coming from compound interest for years. Re-purposing/diy is such a rich way to practice living into being together here on this planet. The qualitative has taken a back seat far too long. Seems it may be time for art to step in and help re-imagine being and doing. Thanks for writing this piece, Tim. Look forward to continuing the thinking about it all.

  • Paul


    You need to break out your negative mindset.

    The global economy is not a ponzi scheme. It is actually the exact opposite.
    As new technologies are discovered and introduced, future people (in your example: your kids) gain benefits of improved productivity and increased purchasing power.

    Aggregating something (into a Global economy) only hides the fact that at the base of everything people and companies are just trading value for value, the only economic actor(s) who can trade nothing for value is the government or government sponsored/regulated actors.

    I suggest you go and read Julian Simon (his books are freely available online), plus take the advice to read Hayek. Plus there many many good economic bloggers out there.

    The mindset that the resource pie is fixed leads to a whole bunch of BS.
    The benefits of a free market based on market allocation of resources is that long term trends of everything get cheaper. This cheapness can be hidden by inflation or Government interference.

    How does your fixed pie mindset account for the very thing you and I are writing on.

    Steady state economies are statist ideal (read communism, fascism) a status quo, where resource allocation is controlled by committee rather than individual choice.

    Don’t swallow the green lie, all they want is another go at a control-command economy even though it has proven to fail over and over, with the human misery and death as its only outcome.

    Hopefully the popularity of your article will be enough that some more qualified economists show up and comment or write articles arguing against your opinions of debt as well.

  • Paul,

    I don’t think it’s a negative mindset, just a realistic one. I do agree that economic activity creates value, but I also think it’s clear that there’s a lot of faux value created in a ponzi economy that relies on debt in the form of a) US consumer culture that is being funded by the people who are making the stuff we consume (that’s not sustainable); b) resource consumption that is treated as free or below replacement cost. These things don’t go on forever!

    As I said above, I think it’s a mistake to consider “steady state” as stasis. If you look at life, the richness and complexity that life adds to its inputs is clearly more than the sum of the parts. So too with an economy. But just as an ecosystem can be depleted and no longer as robust or productive if it is mismanaged, so can an economy.

    Anyone who’s managed their own garden knows this. If you don’t put stuff back in the soil, it gets depleted. Well managed, with compost, rotation, etc, you get seemingly endless productivity. But if you just consume, eventually you get less.

    That’s the ponzi bit: taking out more than you put in, and hoping to cover the fact with new inputs from outside the system. Only works as long as you can get those new inputs.

    A functioning economy creates wealth. A ponzi economy (like far too many elements of the US economy today) creates apparent wealth by hiding all the debt in “off balance sheet” accounts a la Enron.

    Ponzi, off balance sheet, et al are all metaphors. None is exactly right. But the balance sheet metaphor is a good one. If you don’t have a healthy balance sheet, all the growth in the world won’t matter. Eventually your company will fail.

  • Mike Phenow

    I have to further echo Sridhar’s comments that there is a desperate need for people to read up on the Austrian School of economics. (And thanks Jason for setting Mark straight.)

    I’d suggest starting at and A great first read is Murry Rothbard’s “What Has Government Done to Our Money?” available for free here:

    It makes me deeply sad to see the incredible amount of confusion over “capitalism” and “capitalists.” It is not capitalism that is the unmanageable problem, as Alex suggests. It is always and everywhere a restriction or perversion of true capitalism that is the problem. “Capitalism” and “free markets” have been unfairly saddled with all sorts of unsavory connotations.

    “Capitalism” is nothing more than the idea that free individuals ought to own the means of production. Before you start railing against the evils of greed, understand that the alternative is that the state owns the means of production and the people are nothing but wage earners. You get compensated for the amount of time you put in–no opportunity for profit or innovation because you don’t own the means of production.

    And before you go any further about those evil capitalists, take a look at the capitalist reflected in the monitor in front of you: you are typing away on a very advanced piece of capital. You have in your possession and at your disposal the most impressive array of personal capital available to any generation that has ever lived. With nothing more than your personal computer, access to the internet, a collection of world-class open source software, and a little know-how (freely available on the internet) you can create new wealth by producing things of value that serve the needs of others. Because we live in a capitalist society that lets you own the means of production, you actually get to keep the profit for yourself (what the government doesn’t extort from you).

    The term “free markets” describes nothing more than the uninhibited natural forces of the marketplace. To attempt to change, regulate, or limit them is as nonsensical as trying to do the same to the force of gravity–and yields results about as impressive. To deride, chastise, or lament it is just as pathological.

    Many of you have expressed sentiments that I wholly share: that we ought to work for more sustainability, that we should develop alternative sources of energy, that we need a lifestyle that is qualitatively better rather than ever-expanding, that externalities ought to be properly accounted for. What is so sorely misunderstood is that capitalism, free markets, and sound money provide the best (if not the only) way to achieve these ends.

    For an excellent treatment of how a true free market (with enforced property rights) is the best system for accounting for externalities, see the interview with Walter Block on Free Market Environmentalism available on YouTube. The first video in the set is here:

    Finally, it is not because of lax regulation, greedy investors, the “unfettered market” or any of these things that we have unsustainable growth. Inflation-based money is the prime reason for unsustainable growth, the business cycle, and these catastrophic crashes (and we have yet to see anything close to the worst of this one). Inflating the money supply (be means of artificially low interest rates, fractional reserve banking, and monetized debt) causes mal-investment whereby otherwise perfectly sane, rational people make investments and take on risks that appear eminently reasonable by all available indications at the time, but that, in the larger scope of things, are doomed to fail. When the pace of money-creation slows or when faith in the investment starts to falter, it all comes crashing down–as it ultimately must, since its value was based on mal-investment induced by the cheap money.

    Printing money does nothing to create real value. It is only through real money that has inherent value that you can have a sustainable economy. With sound money, investment is funded through savings, not vaporous credit. With sound money, money retains its value and even appreciates over time rather than constantly depreciating. With sound money, there is little that Wall Street or Washington could do to steal the value of your savings, much less ruin the entire world economy.

    The biggest ponzi scheme of them all is perpetrated by the fraudulent Federal Reserve Bank (not federal, no reserves) and all the other fraudulent central banks of the world. It is imperative that everyone comes to understand this. Please have a look at Rothbard’s piece above–if nothing else, it’s a fascinating read.

  • Tim and Herman Daly are right on. In terms of real wealth, we are already engaged in deficit spending. The conservative Ecological Footprint accounts we publish at Global Footprint Network ( that human demand on ecosystems has exceeded their capacity to keep up with this demand since at least the late 1980s. In 1961, when our accounts start, demand was less than half the planet’s capacity; by 2005, overshoot had reached more than 30%. This mean that the biosphere can no longer regenerate resources at the rate we are using them, or absorb wastes at the rate we are emitting them. As a result, ecosystem stocks are being drawn down, and wastes are accumulating in the air and oceans. And unlike funny-money, there is no bailout for ecological debt.”

  • haig

    Paul Romer’s work seems appropriate here:

    “Economic growth occurs whenever people take resources and rearrange them in ways that are more valuable. A useful metaphor for production in an economy comes from the kitchen. To create valuable final products, we mix inexpensive ingredients together according to a recipe. The cooking one can do is limited by the supply of ingredients, and most cooking in the economy produces undesirable side effects. If economic growth could be achieved only by doing more and more of the same kind of cooking, we would eventually run out of raw materials and suffer from unacceptable levels of pollution and nuisance. History teaches us, however, that economic growth springs from better recipes, not just from more cooking. New recipes generally produce fewer unpleasant side effects and generate more economic value per unit of raw material.
    Every generation has perceived the limits to growth that finite resources and undesirable side effects would pose if no new recipes or ideas were discovered. And every generation has underestimated the potential for finding new recipes and ideas. We consistently fail to grasp how many ideas remain to be discovered. Possibilities do not add up. They multiply.”

  • Hi Tim,
    Thanks for your reply

    I would agree that growth or productivity gain is usually overstated. Qualitative vs. quantitative is an interesting way of looking at things. You could argue that GDP growth is a crude way of measuring progress anyway and that more of a “balanced score card” quality of life metric would be more useful.

  • Tim

    These words from you, a person of your stature, and influence now officially makes you a hero in my book!

    The Truth Shall Set you Free

    Your write-up here gives me hope that brighter days are ahead and human freedom maybe is on the horizon.

  • Truth

    In response to Daniel Tenner …

    You wrote … “By the time we get there, things may well have changed so drastically that it becomes completely irrelevant.”

    Well, yes, hopefully. And how will things change? By people realizing that the current system is not sustainable. By questioning things and proposing alternatives. Not by guffawing at people like Mr. O’Reilly and believing that things will somehow just work themselves out.

    Nothing will change if we all had an attitude such as yours.

  • While it could be argued that we may not have the “infinite” resources of all of space because we have not figured out the means by which to go faster than light, we do have enormous resources in our own solar system. As to energy, I point to the giant gas planets which have huge quantities of methane – the precursor to all of our “fossil” fuels. Add to that the moon and asteroids and indeed we can build enormous space colonies within our solar system.

    You may be accurate in saying that we won’t – but not in that we can’t. We could already be doing it if we had wanted to.

    –David T. McKee

  • Real Economic!

    We appear to play a game of Infinite Money. That game provides substantial leverage to the country with the reserve currency. That’s us. That confers major advantages over, say, Argentina when its economy collapsed a few years back. But Joseph Stiglitz compares our current policy to getting massive transfusions to a patient with internal bleeding. The architect of China’s fiscal management says that we ignore the real economy at our great peril.

    Current financial management policy generally overlooks the real economy. Financial institutions concentrate instead on creating investment opportunities that resemble a hall of mirrors. They believe they manage more wealth than exists on this planet in the real economy. The institutions that lend money utilize leverage get to generate credit and turn high volumes of digital currency. The real economy — the engine of goods and services and accumulated wealth (especially infrastructure) falters. Infinite Money policy benefits a tight group of world bankers, especially the real owners of all central banks. In the United States that cash flow ties varies strongly to our military-industrial complex.

    Since one can only play the game of Infinite Money if one controls the reserve currency, we will have a major fall if we continue to behave the way that we have. All our major debt currently denominates in US dollars. That will soon mix with euros, yen, and yuan. Our advantage will disappear, and we will need to do something else.

    If we have to rely on decision makers in central banks, especially the Fed, how can we change? Does an attractive option exist that only requires household level or local decisions? Decisions real folks can make?

  • David McKee –

    “The difference between theory and practice is always greater in practice than it is in theory.”

    While I agree that even a solar-system-based spacefaring civilization would have much greater access to resources than we have on our own planet, we’re a LONG way from the technology and economy that would make that feasible, especially at the necessary scale. Imagine for a moment what the mining pipeline looks like to get methane from the outer planets (leaving aside the environmental impact!)

    The key question is, in any event, whether we have the courage to turn our back on the Ponzi financial economy, and reinvest in the real economy of goods and services that we actually depend on.

    (BTW, there’s no question that the financial economy plays an important role, like lubrication in an engine. But when it masquerades as the engine itself, we’re in trouble.)

  • Real resources we depend on for survival are limited, but value is virtually infinite. One thing that people value and work hard for is status. Status is what keeps people working hard even when they have more than enough in their bank accounts to have access to enough resources for them and their family to live happily. You don’t build a $100M yacht because you need it, but because of status.

    The problem is:
    1) when the same measure unit is used for status and for access to limited resources,
    2) when this unit of measure is a promise on future access to limited resources

    The hard solutions are wars and/or quotas.

    The soft solution IMO is the creation of new reputation currencies (virtually infinite) along with currencies aligned with limited shrinking resources (ex. CO2 credit), but more importantly a cultural shift in which our high-status elite trade their resource-oriented wealth to more status-oriented one (ex. reputation in a given social network).

  • John Faust

    Chris Ryland,

    Thanks very much for the wonderful link to Wendell Berry and Wes Jackson’s beautifully written and concise commentary on the related catastrophe of unsustainable farming practices.

  • As painful as it may, the transition to a steady-state economy is something that is necessary as we fill up all available ecological and territorial niches on the planet.

    You’re right: without new space (mass emigration to the moon, or a terraformed Mars, or space habitats) there cannot be unfetter economic growth.

    To survive, we need to equalize the inputs and outputs.

  • Daly makes some basic physics mistakes in the snippet you cite. That “the inflow of radiant energy to the Earth is equal to the outflow” is irrelevant. The key is that the radiant inflow is higher quality (lower entropy) energy than the (higher entropy) outflow. The energy in from the Sun is more useful than the energy that flows out. In essence, the earth is a huge heat engine. At a physical level, there is no energy crisis and never has been. Energy can neither be created or destroyed. There can be an *entropy* crisis. When we “burn” energy, what we’re really doing is converting from one high quality form to a lower quality, less useful form (heat).

    The Sun is a huge supply of negative entropy, and will continue to be for a billion years or more. It is responsible for effectively all of the “energy” used on the planet today in almost all its forms: wind, petroleum, solar, etc.

    Anyone who doesn’t understand this can’t talk sensibly about the planetary scale ecology, or what the limits on growth really are, I’m afraid.

  • Michael

    In the biggest picture, the earth is always a zero-sum game, or so close to it that we can’t account for any individual’s (or country’s) wealth gains by way of some lame ‘added productivity’ argument. So, anybody who has gotten ahead is doing it at the expense of somebody who has lost.

    Maybe Social Darwinists think that’s a good thing — Fine for them.

    But, don’t pretend it’s because there’s more pie to pass around. It’s just less pie for the other guy.

  • Elliotte –

    I think you overstate the case when you say that “Anyone who doesn’t understand this can’t talk sensibly….”

    The point you make doesn’t change the conclusions at all.

    The math of compounding returns still applies, as does the idea that when we use non-renewable resources we are running a ponzi game, even if there are other resources that, as you correctly note, are, for our practical purposes, infinite.

  • Greg

    McKibbenesque; thoughts of Bill’s Deep Economy and his preferred use of the term durable over sustainable, a practical Yankee working definition of sustainability and the thoughts that the nightly business report’s growth indicators and how we view them positively or negatively, might soon become reversed in an economy of truly sober folks. And I agree that my conversations at the local farmer’s market are typically much more interesting than those I have at the local chain of plenty. Food distribution is it’s own Ponzi scheme.

  • What I find so remarkable is the degree to which people assume that we have considerable time before resource depletion catches up with us. I’ve felt for some time that it is not coincidental that, at least in the US, the effective real wages for all but the top 1% of wage earners have gone down starting almost exactly at the time when we oil production peaked in the US.

    Most of the underlying financial instruments that existed worked upon a model that was valid in 1965 when production was still peaking, but there has been a steady drain in wealth as our resource bases in oil, natural gas, water, topsoil and nearly every other “core” resource has also declined or been used to create iPods for road trips to Disneyland.

    Global oil production peaked in 2005, and the largest oil fields – Ghawar in Saudia Arabia, Cantarell off the coast of Mexico, are now in rapid decline. This is going to set off a series of economic shocks the likes of which we’ve never experienced before.

    My suspicion is that while there was a fair amount of fraud and theft going on as well, a big part of the disappearance of “virtual” wealth from the system occurred because every financial model built has been made on the assumption that the primary attribute for growth, energy, would continue to be a net positive whereas its become an increasing net loss. We worry about bankrupting our grandchildren through debt, but in point of fact we’ve been bankrupting ourselves – the game of musical chairs stopped sooner than all of us would have preferred.

    I’m not optimistic about the concept of the sustainable economy. This assumes that energy inputs are in fact steady state as well. The reality is that energy inputs are in decline, and it will take ever larger amounts of physical work and innovation just to keep us at a steady state equilibrium, even at a lower level than we’re at now.

    Unfortunately, with the exception of beginning waves of layoffs and vanishing 401Ks, the reality of the situation hasn’t hit most of us yet. The next few years are going to be tough, and it will take all of our vaunted innovation and intellect just to make it through them.

  • On distinguishing growth from development, Herman Daly has been a fount of crucial clarification. Here are a few others.

    Distinguish globalization (the free flow of capital) from internationalization (the increasing importance of international relations and communications – as well as trade based on competitive advantage.)

    Distinguish among the three economic questions: scale (what is the size of the human economy relative to the planetary ecosystem?), allocation (what is an efficient apportionment of resources among competing ends? – this one is the purview of the vast majority of economists), and distribution (what is the fairness of the allocation?).

    Distinguish between resources as complements (with separate ledgers for financial capital and natural capital) and resources as substitutes (which allows, as currently, conversions of natural to financial capital without subtractions from the balance sheet). Daly: “You cannot make the same house by substituting more saws for less wood.”

  • river

    Tim, I don’t think our economy is going to get magical until our cities are willingly surrounded, bounded, encouraged, vitalized, and connected by miles wide re-gifts of lost Wilderness properties for wilderness’s sake. The carbon-sink is the least of it’s value. Joseph Campbell has spoken better than me about it.

    Think of finding salamanders and crawdads under creek rocks, in early stages of the next generation.

  • Michael, the economy is not a zero-sum game. There’s more food on the planet today than there was 100 years ago. There’s a lot more than there was 1000 years ago. And there’s a lot more art, music, buildings, transportation, washing machines, and other goods too. Most importantly, there are a lot more people, and on average they live better than their ancestors did a hundred or more years ago. Where’d they all come from if it’s a zero sum game?

    There are times, especially in war, where one country grows its economy at the direct expense of another. Iraq looted a lot of goods from Kuwait. Now the U.S. is looting oil from Iraq. However over time periods of centuries that’s a rounding error. The world economy taken as a whole has been growing for hundreds of years, probably longer. That’s not an illusion.

  • I read Daly’s books back around 2000 so none of this is new to me, but its about time more people picked up on it so thanks for writing about it :)

  • Robert

    Here I thought it was Social Security.

  • Elliotte –

    There’s a lot more food, but a lot less topsoil, a lot more food but a lot less of the petroleum used to create fertilizer, a lot more buildings and equipment but a lot less of the materials used to make those things. So don’t be so quick to dismiss the zero-sum game argument.

    I don’t think it’s zero sum to the extent we harness true renewables, so that we’re capturing energy that would otherwise be lost.

    It’s a super-complex system, but it’s clear that the only things that are not zero sum are solar energy and the processes driven directly by solar energy, including photosynthesis, wind, and the water cycle.

    Civilization is not zero sum to the extent we capture those things more effectively. But there are way too many parts of our society that are wasteful in ways that will eventually catch up with us.

    You may consider peak oil to be a fringe idea, but in fact, even the oil companies expect it; they just try to pretend its further off than others think.

    Once you get used to that idea, you realize that a lot of other key materials that our civilization depends on are also constrained.

    Yes, we can develop alternatives, but only if we act with forethought. If we wait too long, we won’t have the resources to develop the alternatives.

    So ultimately, this discussion is about what we need to do so that what you naively assume to be true actually becomes true. We don’t get non-zero-sum for free; we have to make it so.

  • As we note on our FAQs at, to think there is no limit to economic growth on a finite planet is precisely, mathematically equivalent to thinking that you may have a stabilized, steady state economy on a perpetually shrinking planet. Now for more on why publics and polities have been stripped of this common sense, see “Taking on the Economic Triangle:”

  • ONE MORE THING – Might I also ask Radar’s readers to take a small step toward fixing this problem by signing the CASSE position on economic growth? We are working toward real economic policy reform, beginning with getting the goal right, and this takes the empowerment provided by a long list of signatories. We think 10,000 is a threshold level and we have 2,000. Readers can find it and sign it here:

  • Hank

    Thanks for starting this and thanks for staying with it and continuing to try to explain it to people.

    I grew up barely after the first introduction of both antibiotics and atomic bombs and I’m not quite retirement age yet. Sure there have been improvements.

    But when I was a kid I could stop anywhere and as long as the creek smelled and looked clean I could swim in it. I could stop anywhere along the Appalachian or any other hiking trail with my flat Sierra Club cup made for dipping from trickles and drink the water.

    I wish the passenger pigeons had lasted.

    The inability of the young to even imagine what’s been lost is profoundly astonishing to those of us old enough to remember or have heard first hand about how rich the world was, fifty and a hundred years ago.

    Gone, most of it. Unimaginable to recreate.

  • Tim,

    While there’s a lot of truth to multiple parts of what you say, I think you’re oversimplifying or otherwise being sloppy with terminology to a rather drastic extent.

    Your implied assumption that there are two economies — “financial” and “real” — makes little sense as it stands. Better healthcare or greater joy from reading books is an economically real benefit just as a bigger house or more food is. So the first modification we need to make to your theories is to up the total from two to three “economies”:

    1. Resource-heavy physical
    2. Total real
    3. Financial

    It is certainly reasonable to argue that the physical resources available are limited by the contents f the planet, plus for the foreseeable future whatever energy we can capture or beam down from orbit, plus for the long-term foreseeable future the rest of the resources of the solar system. And you’d certainly be right to argue that there’s a general shared assumption to the effect that those resources are sufficient to provide to the entire population of the human race:

    1. Fully adequate food and beverage.
    2. Some hundreds of square feet (i.e., tens of square meters) of living space per person, clean and climate controlled.
    3. Enough energy to generously power vehicles and gadgetry.
    4. The aforementioned vehicles.

    But you know what? That assumption, so far as I can judge from the metaphorical backs of a few envelopes, is eminently reasonable.

    Beyond those physical requirements, wealth starts being based more on factors and resources such as:

    A. Freedom and safety
    B. Education
    C. Skilled health care
    D. Skilled entertainment
    E. Computer/communications/information technology/entertainment technology gadgetry
    F. Drugs and medical devices

    I imagine this kind of stuff is what you had in mind when you referred to the “steady-state economy.”

    But where I think you went off the rails is in the implicit assumption that the financial economy needs to be tied to the resource-heavy physical economy. It doesn’t necessarily. It can also be tied to the real economy overall.

    True, the parts of the economy that aren’t tied to scarce physical resources have less obvious pricing power than those that are. So whether they provide sufficient backing for financial instruments is harder to assess. But in any case, the analysis is much more complex than simply computing, say, the worldwide debt-to-oil ratio.


  • Curt, I don’t know where you think I make the assumption that “the financial economy needs to be tied to the resource-heavy physical economy.” In fact, I believe, like you do, that it can be tied to the real economy overall. That was my whole point at the end about qualitative vs. quantitative, and the exchange of aesthetic value.

    But there’s a great concept that I remember from Frank Herbert, which he referred to as “the law of the minimum.” (Googling, I find it here: This states that growth is limited by the necessary nutrient that is present in the least amount.

    The physical economy provides a set of constraints for the real economy as a whole. We forget that at our peril.

  • I had a related article on my blog that was remarkably more nearly simultaneous:

    There, I express some enthusiasm for a related article:

    And I just came across this example of exactly the sort of thinking we need:

    I’m very interested in finding new ways to tune the social fabric so it tends to cohere rather than to proceed along positive feedback paths to spectacular failures.

  • Just like current treasurer of the Bush administration, he first asked China to buy more US debt, then mentioned the high deposit in China caused the current finance crisis.

  • Thanks, Tim, for drawing out the responses that help me understand something that’s been puzzling me for years: What mental gymnastics do people use to convince themselves that we as a species can continue to behave the way we have been behaving?

    I anticipated that someone would say that “God” (in whatever guise) would intervene to save his chosen people, but I guess the segment of the population that accepts that concept does not post on your blog.

  • This is a patently obvious point, just not a matter for conjecture. Biologists have known it for decades but economists avoid dealing with the messy physical world that won’t fit in a spreadsheet. Therein lies the ignorant detachment of Man from what’s really keeping us alive.

    Nothing can physically grow forever in a finite world so a steady-state system is inevitable. All other species have been playing by nature’s rules because they lack the technological means to temporarily override them. If they grow too much, nature kills them off. It’s been happening to Man as well, but mostly in malnourished third-world nations with glassy-eyed, fly-covered kids.

    The critical word above is “temporarily.” People naively (or greedily) think we can push limits forever.

    The real question is how much environmental destruction is acceptable up to the point where nature forces us to adopt a steady-state economy. Many, like myself, think that point was passed when the world had 4 or 5 billion people. What’s the purpose of running this massive overcrowding experiment? 210,000 more people on the Earth each day is not something to cheer on.

    If you look beyond the paper hype, most economic growth in developed nations is driven by population growth. We wouldn’t need constant housing-starts if there weren’t more people all the time; 77 MILLION more annually, per CIA figures. That’s why immigration pressure isn’t letting up.

    The construction industry alone is a massive Ponzi scheme. Without 3 million more people in the U.S. each year, remodeling would become their steady income. A steady business, not constantly growing, which is the way it should be. A shift to steady-state thinking can’t happen soon enough. People need to get over the idea that money is a resource unto itself.


    They should be noting the decline of physical resources around the world; oil, water, timber and fisheries, to name a few. The “global economy” has become an elaborate borrow-from-Peter-to-pay-Paul shell game. When consumption lets up in one region, population growth elsewhere is sought out as a consumer base. Clearly the whole mad game has limits.

    As for an end to growth meaning an end to compound interest and stock profits, that’s just something we’ll have to face anyhow. Might as well “aim lower” while we still have some resource slack left.

  • Did someone say “Ponzi Scheme”?
    How about a “Water/Berry Ponzi Scheme”?

    …the problem is we can’t print up any more water.

  • lauren

    are you kidding me???? with all your “macroeconomics” and other fancy terms for describing the financial sector, you’ve all lost sight of the obvious. God’s laws are what we should be living by. if we were, there wouldn’t be any reason to have this debate because we would all be living happily ever after with plenty of resourses to sustain us all. what you are talking about is clearly described in the book of life (bible) there are no liberal and/or conservative views there…plain and simple. we have been pitted against each other long enough. meantime, the greedy hands of the government and finacial sector take us to the cleaners, laughing all the way to….what used to be so long ago…a bank of the people.

  • jak jones

    Great article: The first talks about the elephant in the room. The second offers a glimpse of hope. This may blow your mind: The Future. No money. No No capitalism. Collective good. It will take a rise in consciousness from me to us, from mine to ours, from greed to sharing from Bad to good. Its cant be phoney like communism or capitalism, both built on lies.

    In the the new Earth All are not equal, but all are valued. Like I said its a world away from the current mindset and would involve high science and a lower population.

    How to get there from here? Well lets see what happenes when the shit hit the fan….soon.