Exponentials to love

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Doom sayers like to point to the problems implicit in exponential growth within a finite system. There are of course causes for concern, but I believe the picture is a lot more complicated. http://www.macrobusiness.com.au/2012/03/dangerous-exponentials-leith-van-onselen/“>Unconventional Economist cited Dr Tim Morgan’s view that we are on a collision course with disaster because of the intersection of exponential growth and scarcity:

We believe that an exponentials analysis can alone explain an impending collision between an economic system which, by its nature, must grow, and a finite resource set which, ultimately cannot grow. When this collision eventuates, it is likely to be one of the most important changes in the lifetime of anyone reading this report.

 The Prince made a similar point in his blog about exponential population growth:

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Where I think this type of analysis is severely limited is that it only takes account of one aspect of exponential growth. The claims of futurist Ray Kurzweil are no doubt exaggerated, but his comments about the exponential advances of IT and innovation are certainly close to capturing the speed of advances. As the cliche goes, if the car industry had advanced as fast as computer power, you could now buy a Rolls Royce for a couple of bucks.

What I think we are witnessing is a “clash” of exponentials: tangible and intangible. It is overlaid against another trend, which is the movement of developed economies into a post-industrial era even as developing economies go through an intense process of industrialising.

The tangibles are things like population and the consumption of physical resources. Witnessing exponential growth in those areas leads to a sense of doom because they are finite; the growth cannot continue. The intangibles are just the opposite; they have few limits. There seems to be little or no limit to the advances in computer power. There are no limits to the creativity that leads to innovation. There are few or no limits to the ability to create transactions — the greatest area of intangible growth has been the explosion of the financial markets of the last two decades, all of which is intangible (agreements, rules etc.). It has been a largely malign trend, but it is nevertheless an example of how few limits apply to intangibles.

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So what we are witnessing is a clash of exponentials: tangibles, which cannot end well, and intangibles, which can go who knows where. The reason why the doom sayers are so often wrong — one remembers the Paul Ehrlich’s Population Bomb predictions, or even Malthus — is that they assume that only tangibles are real. And they project forward from current practice when humans have consistently shown a dramatic ability to change their practices.

This “tangible bias” is at its most flawed when it is claimed that economic growth cannot continue forever because resources are finite. This is a simple error of definition. Economic growth is, literally, a record of transactions. Transactions are intangible. Resources are tangible. Transactions can grow without the consumption of resources necessarily increasing. When high frequency traders transact at ever higher speeds on their computer screens, for instance, it has little or no effect on the consumption of the world’s scarce resources.

What is needed, I suggest, is a way of analysing co-existing exponentials: tangible and intangible. Understanding their inter-relationship and their respective dangers. Exponential growth in financial transactions, for instance, creates systemic risk, as we have all seen, and will no doubt see again. Exponential growth in population may or may not be a danger, depending on how that population inter-relates with the natural world.

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It also needs an understanding of how the post-industrial developed world, which is heavily moving towards intangibles (including declining population, plus probably a shift away from finite sources of energy to more sustainable forms) intersects with the industrialising developing world, where populations are still tending to burgeon and consumption of finite resources remains intense.

It is a complex picture, but it is closer to what is going on. We are not as doomed as we might think, but neither are we saved. In this clash of the exponentials there will be many surprises. Volatility is certain.