explaining accelarating economic growth

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Eric Crampton is an economist who co-wrote an essay arguing that economic growth is New Zealand's panacea. I pointed out this was Growth Porn.

I also tweeted Eric a couple of links to arguments which laid out reasons why. His response to this one was:

Eric Crampton ‏@EricCrampton  2h2 hours ago2 hours ago@punkscience Data st derivative of distance with respect to time is speed; 1st derivative of GDP wrt to time is growth. Acceleration is 2nd.

Now, Eric's gone for a technical reply here, which I'm not going to go into. If you're interested then I'm not going to bother trying to better the Wikipedia article on the subject. For simplicity's sake I will also present an image showing the first and second derivatives of the top plot:

Suffice to say, I know what a derivative is and Eric has missed the point of the blog I linked to, which is that economic growth figures, as almost universally presented, indicate an acceleration of growth and not just a steady increase. And that is fucked up because pretending something can keep accelerating forever is even more dumb than pretending something can keep growing forever at a steady rate.

Look at these two columns of numbers:

100
102	2
104	2
106	2
108	2
110	2
112	2
114	2
116	2
118	2
120	2
122	2
124	2
126	2
128	2
130	2
132	2
134	2
136	2
138	2
140	2

The first column shows a figure of 100 growing by 2 every line. The second column the difference between each figure in the first column and the previous one. By the end of 20 lines the figure has grown from 100 to 140. The reasons for this are too obvious to elaborate upon. 

Now check out this series:

100
102		2
104.04		2.04		0.04
106.1208		2.0808		0.0408
108.2432		2.122416		0.041616
110.4081		2.164864		0.042448
112.6162		2.208162		0.043297
114.8686		2.252325		0.044163
117.1659		2.297371		0.045046
119.5093		2.343319		0.045947
121.8994		2.390185		0.046866
124.3374		2.437989		0.047804
126.8242		2.486749		0.04876
129.3607		2.536484		0.049735
131.9479		2.587213		0.05073
134.5868		2.638958		0.051744
137.2786		2.691737		0.052779
140.0241		2.745571		0.053835
142.8246		2.800483		0.054911
145.6811		2.856492		0.05601
148.5947		2.913622		0.05713

Once again you have a starting figure of 100 but this time the figure is multiplied by a constant of 1.02, or 102%. This represent a rate of 2% growth. In the second column you can see that the amount by which the figure increases is itself increasing. The first iteration it increases by 2. The 20th iteration it increases by nearly 3. 

In the third column I have calculated the difference between each value in the second column, just to demonstrate unequivocally to the hard of thinking that the rate of increase is also increasing.

The same applies to economic growth figures which are almost universally presented as percentage GDP growth per time period, normally per year. However, they are rarely presented in isolation, for a single time period. Instead they are inevitably presented in the context of historical growth figures and future forecasts. Any such presentation therefore communicates not only how much the economy has grown by, as an absolute figure within the time period specified, but also whether the rate at which that absolute figure itself is changing over time.

Edited for clarity @ 22:16

trollgasm

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I'm trolling this guy's post on the alleged absence of lefty alternatives to neoliberalism. I'm really quite proud of my work.

I rule.

the crisis of capitalism via RSA Animate

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classical economics is not a science

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This contains a great critique of classical economics.

"The classical theorists gradually adopted the math and some of the terminology of science. Unfortunately, however, they were unable to incorporate into economics the basic self-correcting methodology that is science’s defining characteristic. Economic theory required no falsifiable hypotheses and demanded no repeatable controlled experiments. Economists began to think of themselves as scientists, while in fact their discipline remained a branch of moral philosophy—as it largely does to this day."

Fortunately, there are people out there prepared to criticise the absurd assumptions of classical economics and keen to develop their own theories through the application of scientific principles.


Another couple of great quotes from this interview:

"More troubling still is the assumption free-market economics makes about nature: that we don't need it. Because everything is theoretically substitutable for everything else, when we run out of nature, we'll just substitute technology. That, says [Joshua] Farley, is a religious belief, not a scientific one."

"In ecology, if your theory is not supported by real life, you change your theory. In economics, if your theory is not supported by real life, you try to come up with policy measures that change real life to make it a closer fit to your theory."

"According to classical economics, financial crises don't happen – clearly, then, there is a lot wrong with classical economics."

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Brilliant article from New Scientist, titled: "Can science reinvent the economy?". Its subscription only so if you require access I will happily share a copy. Email me at punkscience at gmail.com.

the solution to the credit crunch

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This is simply incredible! William F Engdahl proposes that the US government takes into receivership the five largest financial institutions in America and fires their entire management with no recourse. The reason? - They own 95% of the dodgy financial vehicles that are clogging up the credit system and were primarily responsible for their creation in the first place. Its a simply astonishing prospect. Expect him to die in a tragic accident very soon.

the problem with neo-classical economics

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This is frickin rad:

". . . the situation in the current capitalist system whereby much of the surplus labour appropriated by capitalists and shareholders ends up unable to find genuine investment opportunities because workers whose surplus labour has been appropriated do not earn enough to provide a sufficient market for the goods or services that would have been produced or supplied. In other words, much of the capital derived from the surplus labour that people have performed ends up not being invested at all – at least not in any meaningful economic sense, in new productive activities. Indeed, this is the primary cause of the world’s current economic crisis – too much capital accumulating at the expense of wages and growth of economic demand."

My only gripe is that it lacks any mention of sustainable development. Just a small elephant in the room, there.

Rajendra Pachauri is a dude

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From Google News.

"(Yet) here, you've got agencies, you've got organisations that are not only responsible for their own failure but the failure of the entire economic system, and they get cheques worth 2.7 trillion dollars. I find this amazing... What can you say, what can you do?"

Rajendra Pachauri shared the Nobel Peace Prize along with the rest of the IPCC.

why sustainability makes sense

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I just read this article. The $2-5 trillion loss every year that they calculate for ecosystem services and functions lost to "development" dwarfs the banking crisis and continues each and every year unabated. This astounding annual loss from the planet's balance sheet is simply ignored by the neo-classical economic dogma that sees fit to pay failed business executives hundreds of millions. That this level of dystopia is the product of the prevailing dogma has been publically proclaimed by figures such as Karl Polanyi and Ernst Schumacher for decades. Its pretty much the whole reason the environmentalist movement exists. Back in the 1970s environmental economics was created as a discipline in order to put prices on the various externalities and services the ecosystem provides but this eminently sensible and egalitarian way of doing business has simply been marginalised by those in power at the behest of those who stand to gain fat bonuses and hefty dividends. This research reveals how unsustainable and unjust those practices are as they are based upon the exploitation and pillage of our collective, mutual heritage for the exclusive benefit of a small percentage of society.

So, do you want bankers to continue to earn multimillion bonuses for failing to perform or would you prefer the entire financial industry- that contributes and produces little tangible benefit for society- to continue to plunder our children's heritage.

I may sound like a tree hugging hippy but the facts to support my position are available for anyone who cares to see.