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Economic growth and limitations (changes)

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This page is part of an (blog) article in progress?, written by Nadja Kutz. To discuss this article while it’s being written, please visit the Azimuth Forum.

A well-known problem with economic growth is that in a rather close future the limitations of this planet will have concrete impacts on economic growth. Peak Oil, Peak uranium, Peak phosperous are just some catchwords which sketch the upcoming limitations.

In particular the only energy sources which are available on earth without spacetravel are the energy which comes from the sun or the energy which comes from ressources on earth.

Up to this moment it is rather unlikely that -in an intermediate future- space travel and/or the discovery of new resources in new worlds would be a possible option to overcome the planets limitations. In fact space programs in some countries experience rather shortages then expansion. So even energy resources on nearby planets are not really in reach. Thus scientific innovation can currently sofar rather only postpone and mitigate the effects of scarcer and scarcer resources.

It is of course still possible that some kind of “miracle” happens and that e.g. “aliens” come to help out or that some unthought new physics finds new means to overcome for the limitations. But given the current knowledge there are no indications that a “miracle” may happen.

Nevertheless even if one waits for a miracle it makes sense to think about, what can be done, if there won’t be a “miracle”.

One should also remark not all scientific innovations may may have the effect of overcoming the planets limitations (see also rebound effect and in particular Jevons paradox, which states that some resource saving innovations may lead to more use of resources). See also the section Energy demand, economy and virtual values below.

The below discusses the role of resources, economy, waste and energy and something which shall be called recycling run away effect.

Reduce, Reuse, Recycle and energy demand

A scientific countermeasure to greatly slow down the depletion of resources is of course recycling. However any physical process - and recycling is a process - needs energy. This is a physical law. Thus the amount of energy which is e.g. needed to decompose a product back into its constituents is an indicator for its recyclability. The easier a product can be decomposed (and this is often a question of design) the better its recyclability. There may though be products, where the needed energy for recycling greatly exceeds the possible merits from recycling, there may be products where aspects of safety or demand (like for medication) are more important than recyclability, the recycling process may include risky technologies etc. in other words recycablitiy has to be balanced against these technological considerations. Recycling can be seen as a component of reuse. For reuse a product may be used again in a different context, i.e. reused. This includes often a “recycling component” like for the case of repair. A repair makes an unusable product usable by partial recycling and inclusion of new components. The border between recycling and reuse is often blurry, like if a product is not fully decomposed, but rather decomposed into highly integrated parts (like this is often the case for car parts) then the integrated parts are reused, however since the product itself had been rather disintegrated or decomposed into integrated parts some would probably also like to talk about recycling in this case. For a better analysis of the involved processes it is however useful to be able to distinguish between reuse and recycling . That is for recycling usually a higher degree of disintegration and reprocessing is assumed. Reuse and Recycling are parts of the socalled Waste hierarchy, which is e.g. known by the slogan: Reduce, reuse, recycle. They are in particular parts of the European Waste Framework Directive and aspects of Sustainable design.

Conclusion: technological limitations to recycling are mostly set by the technological feasibility of the recycling process and above all by energy demand.

Reduce, reuse, recycle and economic constraints

Economical considerations play and will play a role in the question of how much reduce/reuse/recycling does and will take place.

In particular the demand for recycling has to be balanced against the costs which arise due to the technological feasibility and energy demands. As a consequence:

If depletion is cheaper than these costs then in a (free) market economy recycling will generically not take place (A closer investigation of the basic economic mechanisms for that can be found in the essay Green Cherry-Picking: the Limits of Sustainability

As a consequence recycling is often only taking place in a (free) market economy if there are political counter-actions or if material resources are already quite depleted, like this is taking place in urban mining where for example rare metals are increasingly recycled from electronic waste (see e.g. the United Nations Environment Program status report on recycling rates for metals (2011) or the Recycling critical raw materials from waste electronic equipment (2012) article by the Oeko Institute Freiburg or the Step Initiative) and where the scarcity of the ressources leads already to political disgruntlement (see e.g. this article in the Huffington Post ).

For the case of reuse, eventual partial recycling costs need to be taking into consideration, but apart from this the attractivity and price of a new product vs. the old product and the logistical component will play a major role. If a new product appears to be much more attractive, dumping is easy and the price is about the same then reusing will take place less likely (this is especially the case for planned obsolence, where repair is unwanted for economic reasons). Here again psychology and especially branding plays an important role. Furthermore the less standard the reused parts of a product are the more the logistical aspect will play a role. Like a repair makes only sense if the costs of getting extra parts is not too high. International standards are thus important. Likewise the probability to find a new user for a freaky styled furniture is smaller than for a rather standard matter-of-fact counterpart, so in this example the logistical task of (re)-distribution is key. In general it is usually cheaper to transport a large amount of the same product on a well frequented path to one point (like a department store) than the same amount but with different products to a lot of different end users. In a (free) market ecomomy with a considerable market size the logistical infrastructure is thus less likely to be adapted to a refined (re) distribution. Amongst others for reuse often labour costs are important etc. In short -alone by these examples it is visible that market mechanisms may diminish reuse.

Although the above mentioned principle mechanisms at work are rather evident, there is still a lot of discussion about the issue of free market and market regulations. That is there seem to be even incoherent views on what may constitute a market regulation, like for example it is perceived in some economical reasonings that e.g. opening borders (which apriori means there is more global free market, which appears rather to be a feature of deregulation) may constitute a “political regulation”, because it may affect the respective national free market economy in a negative way. In part these discussions are due to the fact that elder economical reasoning had to be based on a global market which was way less permeable and environmentally more robust. The interconnectedness of the planet with regard to its resources and environment, the rapid expansion of speeding trade are relatively new features. Likewise it is often difficult to establish, which political regulation will have what effects. However there are already quite established guidelines. Like in 2011, the OECD will deliver a socalled “Green Growth Strategy”, which is “providing a host of policy recommendations that can help governments green their economies;” the UNEP just published its green economy report and there are institutes like the Global Green Growth Institute which offer information on political directions towards more sustainability.

Example: Recycling of CO 2CO_2

A very wellknown example for the problems of recyclability can be seen in greenhouse gases like CO 2CO_2. It may seem strange to look at CO 2CO_2 in terms of the aspect of “recyclability”. So let’s explain this a bit more. CO 2CO_2 is appears produced of rather course as a byproduct ressource of and industrial processes (like for energy production) than as a “product” waste in the traditional sense, but the question of reuse and recyclability is the same as for “products”.carbon cycle. However CO 2CO_2 is also produced as a byproduct of industrial processes (like for energy production). It is here rather a “byproduct” than a “product” in the traditional sense, but the question of reuse and recyclability is the same as for “products”.

So let’s look at the example of CO 2CO_2 and the conclusion that recycling is usually only taking place in a (free) market economy if there are political counteractions or if material resources are already quite depleted: it is clear that the resource “carbon” or “oxygen” isn’t yet scarce enough so that the excessiveCO 2CO_2 in the air of our planet would be recycled based on pure market demand. Hence in a (free) market economy “recycling” of CO 2CO_2 sofar basically doesn’t take place. Due to climate change it is however known thatCO 2CO_2 has either to be recycled (this holds somewhat in the long term also for carbon sequstration), reused and/or that its production has to be diminished ( The author is aware of the fact that there are still debates about climate change and its consequences, however the reader is kindly asked to read further also if there is disagreement about this point). In principle there are some possibilities to “reuse” CO 2CO_2 like for the case of biofuel production (e.g. with genetically modified blue algae) hence here the logistical aspect and its economic context will play an important role (thus in some cases it may even be cheaper to produce CO 2CO_2 than to use the byproduct CO 2CO_2 from energy production). Up to now the reuse options of CO 2CO_2 are still very small in size and it is not clear how big the market for this kind of CO 2CO_2 reuse can grow. Here investments in research are again important, moreover there may be other limitations, like for the case of blue algae e.g. area need plays a role, eventually toxins etc.

As a consequence the reuse/recycling costs or the additional costs of not producing the “byproduct” CO 2CO_2 have to be currently included into economy via political counter-actions, like by laws or cap-and-trade etc. There is basically almost no (free) market mechanism, which would encourage the “recycling” or “reuse” of CO 2.CO_2.

Energy demand, economy and virtual values

In the section Economic growth and labour it was already stated that part a share of economic wealth may go into “machines”, i.e. tools which may eventually enhance productivity. In this context one should of course mention that “machines” in particular computers are not only used for enhancing productivity for a real world economy. That is while a better knowledge retrieval, or better means for communication may still be seen as “enhancing real world productivity” (especially in a knowledge/information based economy) there is a growing economic share devoted to the production of “virtual values”, like within game environments, which may not necessarily enhance real world productivity and eventually do not necessarily enhance and/or support efforts of a more sustainable economy.

The game industry is currently rather growing. For example on the website of the entertainment software association (subsection Games: Improving the Economy Feb. 25, 2012) one finds:

The video game industry is one of the fastest growing sectors in the U.S. economy. In fact, according to PricewaterhouseCoopers, the North American video game market will continue growing by approximately five percent annually through 2015. From 2005-2009 the industry’s real rate of growth was more than seven times the real rate of growth for the entire economy.

As a motivation for the possible economic scope of “virtual values” it should also be remarked that despite the fact that on a global scale governments have recently been rather “pumping money” into their economies, real economies currently (2012/2013) rather suffer from liquidity problems. The reasons for these liquidity problems may be manifold, however in this context it should be asked how much value is actually “stored” in virtual values and in which way is it stored. In particular virtual values like for example that of a villa (which we regard here as an example of a “virtual product”) in some Computer game may just as in the real world be part of a “bubble” (i.e. temporarily overpriced) or constitute a real value. If it would constitute a real long-term value (but of course this is rather difficult to assess), then this -depending of its economic share- could eventually diminish the danger of an inflation, due to “money pumping”. Likewise it is to be asked, how much money is burned in this context. The waste of a “material product” is usually rather visible. If one throws away half-new clothings or unused food this can e.g. be depicted in a fotography. If one throws away half-new software then this is usually a process which is rather unseen and which happens thus comparably unnoticed. A main reason for this is of course that sofar the “materials” (e.g. storage units on a hard disk etc.), which are used e.g. for the construction of a virtual villa in a game are rather small and that the “construction work” for a villa could e.g. done by one person (via programming). Rapid prototyping may change though the material use of “virtual products” (and blur the boundary to real products), likewise will higher demands in “software crafting” change the needs for the coresponding human workforce.

Virtual products may be seen as products in a socalled knowledge economy. There seems to be a global tendency to devote more and more attention and assets into the socalled knowledge economy.

However apart from economic considerations it is to be asked, how much energy should be devoted to virtual products and services, especially if these are in competition for immediate real world demands, like heating and food.

It will thus in particular become more and more necessary to distinguish between the different “products” of the knowledge economy with regard to their effect on the lifes of people and their costs in terms of use of energy and resources.

It should be noted that apart from virtual values which are produced within a socalled virtual economy it may be useful to enhance the term “virtual value” to “virtual values”, which are “virtual” in a broader sense then the current meaning of “virtual” may indicate in the context of “virtual economy” (the term “virtual economy” has up to now been usually reserved for computer games). These could include values which belong to “products” without concrete physical, material form, like “immaterial products” (data, software etc.) in a computer environment (note that immaterial means here rather “very few material”), but it could includes also values which consist not exclusively of (individual human) knowledge per se, but of aspects like connectivity and manageability. The value of a bureaucracy as such, or of parts of a financial, or of parts of a trading system may here be seen as an especially interesting object of study.

Rather drastic examples of inefficiences which are due to the use of machines and burnt money within the creation of virtual values can be found in high frequency trading (HFT). Apart from expensive errors (see for example the recent problems of Knights trading algorithms as reported in Bloomberg Business Week: Knight Shows How to Lose $440 Million in 30 Minutes) the overall computer traffic which is connected with trading increased by an tremendous amount. E.g. the company Nanex provides some charts which display this rather clearly at the example of stock quotes on their Exhibit A site, the company also compared the quotes of one specific exchange in one second with typical amounts of Google and Twitter messages in that time (see this nanex page). Some share of this increased traffic is apparently due to quote spam, whith which traders may want to hide their strategies. Likewise it seems that a lot of trades are rather trades among traders rather then trades between traders and investors, which means that high frequency trading may have no positive impacts on liquidity (see e.g. High Frequency Trading: A Liquidity Hoax. In the same article it is also noted that:

“It’s estimated that 50-75% of total equity trading volume is attributed to high-frequency trading.”

The article Financial black swans driven by ultrafast machine ecology analyzes data from HFT “extreme events”, socalled Black Swans (“the stock had to tick up at least ten times before ticking down and the price change had to exceed 0.8%…”). It is found that:

“Our proposed theory associates these findings with a new fundamental transition from a mixed phase of humans and machines, in which humans have time to assess information and act, to an ultrafast all-machine phase in which machines dictate price changes.”

It is clear that values which are generated from trade are in some sense “taken away” from the supplier of a ressource/product and the consumer. That is the pure mediation of the transfer and interchange of products within a “supply versus demand market” may redistribute values. For simplicity “trade assurances” (hedging) and other financial components of trade are here also seen as part of a “mediation of interchange”. Values are of course also assigned via trading, which often blurs a bit the mechanism of redistribution, but trivially speaking: if a supplier and consumer would be directly connected then there would be no need and costs for a trader, who usually gets a share for the mediation of interchange of products.

If one keeps this simple mechanism in mind then it is clear that the costs for (high-speed) trading have to be paid as well in part by supplier/producers and consumers. Likewise more indirect means of mediation of interchange (like hedging, speculations) have to be paid a well. Alone by this it is clear that these costs may -depending on scope- have a result on the market and market prices themselves. In view of this e.g. the role of machines in HFT in connection to food markets is of a special brisance.

Aspects of virtual values and especially virtual values which are in connection to “machines” are adressed again in part in the game draft Utopia.

This should also put intellectual properties and the mechanisms which are involved in the creation of their market value into focus (see also Tracing intellectual properties).

Conclusion, Recycling-run-away-effect

The more the material resources are going to be depleted the higher the energy demand for recycling and/or reuse will be. At the same time due to climate change and other environmental concerns the percentage of recycling/reuse needs of energy production itself (like for the CO 2CO_2 byproducts) may rise. One can call this combination a Recycling run away effect. Moreover this increased energy need goes along with a rising energy demand by a growing population and higher civilization standards.