Buttonwood’s notebook | Energy use and growth

An optimistic view

Maybe we can grow without using more energy

By Buttonwood

IT IS a common (if a bit vague) view that economic growth is all about creating more stuff and that, given the finite supply of raw materials in the world, this process must come to an end. On the specific issue of energy, your blogger has occasionally aired some pessimistic thoughts along these lines.

So it was nice to read a more optimistic take on the issue from Tim Harford in his new book, "The Undercover Economist Strikes Back". (Conflict of interest alert; Mr Harford is an old colleague and endorsed my last tome. But, regardless of our acquaintance, he is an exceptional writer and economist, as shown by the success of his books and his radio programme on the use and misuse of statistics, More or Less.)

He points out that US GDP growth per capita between 1986 and 2011 averaged 2.5%; energy use per capita fell 0.17% a year over the same period. The same effect appears elsewhere. The peak of energy use per person in Britain occurred in 1973; in Germany, it was 1979. Some of this, of course, is because the oil shock of the 1970s made us shift to more efficient cars and heating systems; more generally, the economy is dematerialising. You are reading this article online; these blogs are an additional service to the reader that were not available 20 years ago. Individual journalists are more productive in the sense that, as well as articles in the printed magazine, they blog, tweet and do podcasts - all of which require very little use of physical resources.

As Mr Harford points out, New York is a pretty advanced city - but it uses much less energy per person than the US as a a whole, and indeed uses less than the average of any other state. The key point is that

economic growth and energy growth are not the same thing, and there are good reasons to believe they're already in the process of decoupling from each other

While his point seems right, there must be some economic significance in the fact that new sources of energy, when they are discovered, are more expensive (in terms of energy input) to exploit than old ones. This is even true of shale oil which takes a lot of water and sand to get out of the ground.

There are plenty of thought-provoking points in the book which gives the general reader a very good grounding in the current macroeconomic debate - in a wonderfully calm and rational tone that gives credit to Robert Lucas as well as John Maynard Keynes. He stops to give a kicking to the occasional misuse of statistics such as the New Economics Foundation's Happy Planet index of 2006, which ranked Vanuatu as the happiest place in the world even though no-one asked Vanuatans how happy they were. The ranking was heavily weighted in favour of carbon footprint; so much so that Americans would need to have been in a state of perpetual bliss, and have had a life expectancy of 439, to equal Vanuatu's score. He writes that

The whole episode isn't pretty: a ranking was constructed to publicise the priortiies of a particular think tank, the media lapped it up without reading the small print (or indeed, much of the large print) and the country that made the headlines should never have been included in the ranking at all because the relevant data didn't exist.

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