Economic growth is generally understood as a process that delivers a material betterment of living standards over time. But growth had two other virtues, neither of which has until now received much attention. Both will be sorely missed now that meaningful growth has ended.
First, that economic growth can rescue us from the consequences of our own mistakes or misfortunes.
The obvious examples are the strong recoveries staged by Germany and Japan from the ruins of 1945. The quarter-century after the Second World War was a period of global economic expansion eclipsing anything ever experienced before or since, and it’s clear that the remarkable German and Japanese reconstructions could not have happened without these favourable worldwide conditions.
These curative properties of growth also apply to businesses and individuals. Governments, too, can grow their economies out of fiscal failures.
Growth, in other words, gives us hope. It’s associated with economic regeneration – we might even say ‘redemption’ – as well as with betterment, making it very important indeed from the point of view of collective psychology and expectation.
It was possible, over a very long period, to believe that each generation would enjoy a material improvement in living standards and opportunities in comparison with its predecessor – a belief that has only quite recently ceased to be true.
The second great virtue of growth was that it could allow some to prosper without inflicting worsening hardship on others.
In essence, ‘A can get richer without impoverishing B’ under conditions of growth. During the high-growth years between 1945 and 1970, fortunes were made by many, but the living standards of the generality continued to improve, certainly in the West, and inequalities of wealth and income actually decreased during this period.
Now that growth has ended, we face two fundamental shocks. The first is that we will have to own the consequences of our mistakes and can no longer rely on economic expansion to cure our ills.
Second, minorities will only be able to maintain or expand their wealth at the expense of the majority. This in itself is a massive political shift.
As we confront formidable social and political challenges, we will undoubtedly grieve the loss of the curative and reconciling properties of growth.
Colloquially, we employ the word “shock” to describe any unexpected event, a term whose use extends across the gamut from a severe loss of oil supply to a dramatic overturning of the form books in a sporting contest.
But medical professionals use the term more specifically, referencing “shock” as a condition of acute stress reaction. This is described as “a psychological response to a terrifying, traumatic, or surprising experience”. Unless treated effectively, this can develop into post-traumatic stress disorder.
So, shocks that change our assumptions and expectations can have very real physical and psychological consequences.
Further insights into human reactions to bad news are provided by Elisabeth Kübler-Ross’s five stages of grief. We handle serious setbacks by moving from denial and anger, into bargaining and depression, before we finally reach acceptance.
Those of us who aren’t medical or psychological specialists might be well advised to confine ourselves to Cyril Benstead’s observation that “the weaknesses of mankind are generally accentuated under strange and unaccustomed conditions”. There’s no doubt that the ending and reversal of economic growth count as “strange and unaccustomed conditions”.
The broad point is that an unexpected event, especially an adverse one, can shock people out of rationality. The term “unexpected” does not necessarily refer to something that couldn’t have been predicted. It might instead reference a bad outcome whose very possibility we have chosen to disregard.
Should we, then, start to think in terms of a post-growth derangement syndrome combining the destabilizing characteristics of grief and shock?
If we look at the world from a perspective of determined objectivity, it’s hard to avoid the impression that collective rationality has been breaking down.
There is, for a start, abundant evidence that the capability for economic growth is drastically lower now than it was in not-too-distant times. Some of us have been prepared to go further, noting that economic expansion has been reversing into contraction.
Yet society seems to be in the early – the denial and anger – stages of grieving over the loss of economic growth. Perhaps, more specifically, denial has become deeply entrenched, and anger is now starting to make its presence felt.
The aim of the Surplus Energy Economics project has, from the outset, been to interpret and quantify the observation that more than two centuries of meaningful economic growth have been drawing to a close.
You don’t need complex theories about economic growth, energy use or resource constraints to recognise what is really happening.
Problems with “the cost of living”, for example, are visible wherever we look, yet this is still described as a “crisis”, implying some purely temporary phenomenon that wisdom or simply the passage of time will resolve.
This delusion is reinforced by an episodic narrative which blames worsening hardship and insecurity on the ‘bad luck’ of experiencing, in quick succession, a pandemic, a war in Eastern Europe and, now, a conflict in the Persian Gulf.
SEEDS analyses indicate that, far from being temporary, pressure on essential costs has become a relentless, firmly established trend. These calculations are carried out by adding government expenditures on public services to the estimated cost of household necessities.
The real costs of essentials are rising rapidly and outgrowing any ongoing expansion in economic means.
Meanwhile, the basis of economic value has been shifting, away from all forms of income and towards capital gains. The only people to whom the entirety of real estate, stocks and any other financial asset class could ever be sold are the same people to whom they already belong. We have, then, been substituting paper gains for material-equivalent incomes.
Denial, a characteristic of collective economic self-delusion, is particularly visible in the growing faith placed in the two false promises of economic salvation. One is the notion that a deteriorating material economy can be reinvigorated with monetary tools. The other is that we can overcome material limits through the “limitless” capacity of human innovation and technology.
As you may know, both of these assertions are false.
No amount of money has the slightest value to anyone isolated from exchange, which is the predicament of a person stranded on a desert island, or cast adrift in a lifeboat. Air-dropping banknotes to people suffering from energy and food deprivation cannot help these people unless these commodities are available for purchase.
Meanwhile, the very idea that technology has limitless potential is illogical, since all technological possibilities are bounded by material properties and the laws of physics.
What’s interesting, from the perspective of a post-growth derangement syndrome, is the extent to which irrationality has been extending into the twin fields of technology and finance. Huge hope and vast amounts of capital have been invested in artificial intelligence, which has been called the most “money-losingest project the human race has ever attempted”, has no demonstrable route to profitability, and requires energy and other raw materials at scales which do not even exist.
Meanwhile, American stock markets have reached new highs, despite the closure of the Strait of Hormuz already inflicting enough material damage to ensure, at the very least, a pronounced economic hit.
Neither does anyone even seem to know what monetary responses to expect as this crisis unfolds – will decision-makers tighten policy in an effort to tame inflation, or will they loosen it to try to stimulate a sagging economy? Nobody really knows – but equities are continuing to climb the slope towards the cliff-edge.
Only in the oil markets has some kind of realistic thinking seemed to prevail.
The closure of the Strait is by far the worst shock the petroleum industry has ever experienced. Not only is it equivalent to the combined impact of the 1973-74 and 1978-79 crises, but it has also been greatly exacerbated by severe disruptions to shipments of liquefied natural gas (LNG), refined products, petrochemicals, and other critical inputs such as sulphur and fertilizers.
Under these extraordinary conditions, it was wholly to be expected that oil prices would spike, but, thus far at least, these responses have been strikingly muted. Brent crude has occasionally tested US$120 per barrel (bbl) before retreating back towards US$100.
This is a far cry from mid-2008, when Brent reached US$147/bbl, equivalent to almost US$190/bbl in 2026. That spike was driven not by supply shortages but by robust demand.
In essence, the markets seem to have recognised that demand destruction now occurs at markedly lower price points than in the comparatively recent past. This doesn’t mean that consumers can shift wholesale to alternatives to oil, since no such scalable alternatives exist in most of the applications where oil, in general, and diesel, in particular, are critically important.
Meanwhile, the crisis in the Persian Gulf has already lasted long enough to impair output from the summer planting season in the northern hemisphere, with yields set to fall by as much as 50% in some food categories.
What “demand destruction” actually means is that a price is reached at which consumers opt to do without oil rather than chase its price to ever-greater heights.
Because oil remains essential to modern economies, a lower threshold for cutting back on consumption suggests that households—and the economy as a whole—are poorer than they once were.
Fig. 1
We are, in essence, trapped between two truisms. One of these was stated by Kenneth Boulding, who famously explained that only “a madman or an economist” could believe in the promise of infinite, exponential economic growth on a finite planet.
But Upton Sinclair, equally famously, said that “it is difficult to get a man to understand something when his salary depends upon his not understanding it”.
We seem to have gone to almost any lengths to avoid admitting that economic growth has long been slowing toward decline.
Why, though, has growth come to an end?
Put simply, natural resources are becoming harder to obtain, while the economic benefits once delivered by fossil fuels are fading, with no equivalent replacement yet available.
One way to understand this trend is to look at how effectively economies turn resources such as minerals, non-metallic mining products, biomass and water into economic value. As Figure 2A shows, efficiency has gradually declined. This suggests that many resources are becoming more difficult to exploit than advances in technology can offset. More careful use of resources could help slow the decline, but environmental degradation may have the opposite effect by impairing the qualities of the land, water and ecosystems on which economic activity depends.
Meanwhile, the Energy Cost of Energy (ECoE), the share of energy used up just to obtain more energy, leaving less available for everything else, has been rising relentlessly.
Instead of focusing on the recent rise – from 2% in 1980 to nearly 12% today – Fig. 2B shows this trend as a curve inferred over a much longer period.
Because we don’t have long-term historical data, this curve is only illustrative. The key point is that ECoEs tend to fall at first, as wider geographic reach, economies of scale, and gradual improvements in access and use bring costs down.
Once the benefits of wider reach and scale have been exhausted, depletion becomes the new driver, using the cheapest resources first, while costlier alternatives are left for later.
As Fig. 2C shows, the amount of energy left after energy costs have been deducted starts to decline before rising producer costs and weakening consumer prosperity begin to reduce total supply. Fig. 2D shows that overall economic output still has a little room to grow, but prosperity after deducting energy costs is already beginning to fall.
Fig. 2
According to SEEDS projections, material economic prosperity is likely to be 16% lower by 2050 than it is now, but a continuing population growth could see the average person’s prosperity decline by around 30% over that period, and the costs of energy-intensive essentials could rise by more than 70% over the coming quarter-century.
In effect, affordability gets crushed.
None of this is all that difficult to anticipate, but even its early stages are proving remarkably hard to process.
So far, this reality has largely been met with denial, through ever-growing debt and a willingness to accept all technological change as “progress”, even where, as Charles Hugh Smith has explained, it often actually constitutes anti-progress.
It’s not as though it’s hard to predict that the undue faith invested in the false promises of limitless monetary stimulus and infinite technological possibility are likely to fail, both money and technology forming a combined crisis. In fact, we should anticipate a conjunction of technological disillusionment and a collapse of trust in money.
Will that be the point at which the limits to growth become impossible to deny, despite the powerful interests that benefit from looking the other way?
This piece has been edited for clarity. A version of this article was first published on the Surplus Energy Economics (SEEDS) blog. You can read the original piece on their website.
