Rethinking Energy, Productivity, and the Illusion of Endless Growth
Society worships technology and innovation as modernity’s saviors, but the evidence says otherwise. Productivity gains are better explained by increases in world oil supply than by clever humans and our inventions.
The benefits of technology and innovation are overhyped. Over the last 75 years, U.S. productivity growth has rarely exceeded the long-term average by even 1% (Figure 1). That’s not very impressive. Since the Great Financial Crisis, it’s fallen below that mark.
I know—it’s not the mainstream story, but it’s true. Gains in semiconductors and electronics skew the narrative, while struggling sectors like apparel and coal drag down total productivity. All 89 sectors matter, and they all count in the final numbers.
The real story is the link between productivity and oil supply growth. U.S. productivity changes track closely with global oil supply, leaving little room for technology and innovation as the main drivers (Figure 2).
Energy is the economy. Oil has powered 75 years of productivity gains and improved living standards. So why credit technology and innovation when none of it happens without oil? It’s time to rethink what really drives productivity.
But here’s the real issue: the impact of oil and productivity on economic growth is fading. If that’s true, how do the IMF and World Bank justify their projections of 2.5% to 3.2% annual GDP growth over the next 25 years?
Maybe it’s time to rethink those assumptions too.
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I really find essential your discussions on what is going on with energy prices. It seems to me that one of the reasons Europe is doing so poorly now is its “energy crisis.” High nat gas prices due to Russia and the Ukraine War have hit both consumers and business costs in a big way. This was compounded by soaring public deficits and high interest rates. Lucky us with relatively cheap shale oil and gas! We do have the soaring deficit spending and debt overhang like Europe, but the cheap energy is saving us — for awhile anyway.
Edward,
Thanks for your comments. Europe’s oil and natural gas deficit is a serious problem for its productivity and economy. The loss of relatively cheap Russian gas was an extreme action that I discuss in my latest post: Oil, Power, and Statecraft: The Geopolitics of Energy in a Changing World
https://www.artberman.com/blog/oil-power-and-statecraft-the-geopolitics-of-energy-in-a-changing-world/
All the best,
Art
To what extent is productivity a function of supply-side push (eg. EROI or something like that), vs. demand? You’ve been telling us that we may have reached peak demand because the world can no longer afford to keep increasing consumption. What drives affordability? Is it the gross inequality of billionnaires playing winner-take-all, or is it the lower amount of energy available to us after subtracting the energy used to extract, refine, and transport it? Seriously, I need to get a better grip on these questions in the hope of convincing my municipality to limit growth in its current round of planning for the next ten years.
Oh, and my deep admiration for Kimberly Homer. My attempts to rewild a few patches of my yard have overwhelmed me. What she’s done is impressive.
Robin,
The simplest way to understand this is that growth inevitably entails increased complexity. Think of it like an army advancing, conquering territory and population, and needing continually more reinforcements and longer supply lines to keep the whole operation going.
Read Joseph Tainter’s “The Collapse of Complex Societies” — here’s a free download: https://www.sustainable.soltechdesigns.com/Joseph-A-Tainter-The-collapse-of-complex-societies.pdf
Or take the easier way and listen to Nate’s podcast with him: Joe Tainter: “Surplus, Complexity, and Simplification” : https://www.thegreatsimplification.com/episode/27-joe-tainter?rq=tainter
All the best,
Art
Brave Art!
Maybe there’s a different measure of productivity out there that has been ignored or crushed by our promotion of technology?
At least I like to think so!
I like Bhutan’s Gross Domestic Happiness, Robyn.
All the best,
Art
Dear Art,
Thank you for exposing the technology snake oil for what it is. My partners and I are planning one hundred years out for a small food forest, and we are assuming little to no electricity and very little communication or transport outside our river valley. We chose an already overburdened spot which has been carved out by the railroad, mined, timbered, and near the incineration zone for a fracked gas pipeline. Hopefully no one will want to build a data center there, or a subdivision. In a hundred years, the oaks, pawpaws, and serviceberries will feed whatever creatures still dwell there. And yet, I’m grateful for today’s technology which brings your words to us.
Thank you for your comments and for your dedication to the earth, Kimberly.
All the best,
Art