Resources

Greg Mankiw, a Harvard economics professor, made reference to this piece by John Tierney on his blog. I recommend it highly. For anyone under the age of 40, I believe it discusses the most important question we'll deal with in our lifetimes, which is, "are there natural limits to growth?"

Economics is the field of perpetual growth. When an economy is healthy, economic growth exceeds inflation, and wealth and prosperity improve. When economic growth is below inflation, or if inflation is below zero, most economists would say that the economy is unhealthy, and economists with the power to impact such things, such as the heads of Central Banks, including the Federal Reserve's Ben Bernanke, tinker with the money supply to try to right the ship and make growth happen again. As cynical as people are towards Ben Bernanke and the Federal Reserve, high-level economics is an ingenious, nuanced field, and ever-more-complicated the more you learn.

The big question for me, a largely ignorant outsider, is how well their models fit reality, and whether their basic assumptions are correct. All models are imperfect representations of reality, and they would be the first to admit that. But at the heart of their models of growth, there is a question of whether there are limits to growth.

I believe that there are, though I don't think they are necessarily what Peak Oil theorists would have us believe (see link above). I think the limits to growth are a function of the weaknesses of human nature and our human social organizations. To wit, there are wars and there are conflicts. Civilizations rise and fall. Because we are human, what we do is inherently unstable. And the more complicated and interdependent we are, the more unstable we become.

I think oil futures will never cost $300 a barrel in real terms, because by the futures markets will become totally unhinged long before they do.

Right now, we are more interconnected than ever. An economic glitch in Greece or N. Korea negatively impacts access to credit in Topeka and Namibia. And our society is so utterly dependent on credit, that, as we found out two years ago, when we lose it, everything starts to spiral.

So as long as the spigots of credit continue to run loose, we should have growth. But the moment we lose it, or if it even starts to decline in size, we can expect a decline in worldwide standards of living. Perhaps not permanently, but for an extended period of time.