Production Possibility Frontier & GDP ASSUMPTIONS Given Quantity of Labor (education & Skills) Capital (machines, tools, factories) Land (natural resources) Fully Employed Technology Constant Housing CD’s  A  M  J GDP = Gross Domestic Product Dollar value of all goods & services produced in one year

Measuring Growth Rates Page 18 GDP = Population x GDP per capita “Growth”GDP = “Growth" Pop + “Growth”GDP per capita 5% = 3% +2% Economic Growth, Population Growth, per capita Income Growth

Traditional Econ View of Growth GDP Growth > Pop Growth   Std Living 5% = 3% + 2%  Productivity of Population (ie, labor)  Capital  Technical Improvements Traditional Economics “no limits”  Requires

Traditional View cont’d Housing CD’s  A  M  J “Unlimited Growth”

Ecological Econ View of Growth GDP Growth > Pop Growth   Std Living 5% = 3% + 2%  Productivity of Population (ie, labor)  Capital  Technical Improvements Requires Add as requirement  Energy  Natural Resources  Waste  “Limited” Amt Using up  Absorptive Capacity of Environment

Connection between Human Economic Activity & Environment GDP Growth > Pop Growth   Std Living  Productivity of Population (ie, labor)  Capital  Technical Improvements Requires Add as requirement  Energy  Natural Resources  Waste  “Limited” Amt Using up  Absorptive Capacity of Environment Takes us to “Limits to Growth” Model

MIT’s Limits to Growth Model

Structure of Model Flow-Chart representation of Mathematical Model STOCKS: dark shaded boxes Population Cultivated land Pollution Industrial Capital Non-Renewable Resources STOCKS w/ LIMITED SUPPLY Cultivated Land Non-Renewable Resources VARIABLES Inserted  Estimates or Historical From other boxes or loops Fertility %, life expectancy, Desired food/person, efficiency of capital %, Investment rate %, Average lifetime of capital

Based on: 1) EXPONENTIAL GROWTH Population Industrial Output 2) FIXED RESOURCES Cultivated land non-renewable resources 3) FEEDBACK LOOPS Positive  reinforce Negative  self-limiting

If POS > NEG  Exponential Growth

Negative Loop Industrial Output Uses up Nonrenewable resources Lesser quality Lower grades More effort  Cost Offsets Output growth

Plug in numbers for variables and Run Model

# 1 “Standard” World Model Assumptions: No change: physical Economic Social Relationships Exponential Growth in: Population Food Industrial Output   Resources

“Force” “Precipitous Collapse”  Industrial Output (Massive Unemployment)  Food Production  Death Rate  Population

#2 “Piecemeal” Approaches Recycling, Efficient Irrigation, New energy Sources Change Assumptions: A.Double Resources (run model) Still Collapses but not caused by depletion of Resources! Caused by Excessive Pollution created by Faster Industrialization permitted by  Resources

#2 “Piecemeal” Approaches Recycling, Efficient Irrigation, New energy Sources Change Assumptions: B.Double Resources & Eliminate Pollution (run model) Still Collapses  Population vs. Available Food Conclusion: remove one “limit”  bump up against another

# 3 Avoid “Overshoot” & Collapse Only if limit growth of what now  exponentially Population Industrial Output Will happen A) Conscious Policy  self-restraint B) Collision with natural limits

Criticisms of “Limits to Growth” Julian Simon, The Ultimate Resource …the natural world allows, and the developed world promotes through the marketplace, responses to human needs and shortages, in such a manner that one backward step leads to steps forward, or thereabouts. That’s enough to keep us headed in a life-sustaining direction. (con’t next slide)

Julian Simon, The Ultimate Resource The main fuel to speed our progress is our stock of knowledge, and the brake is our lack of imagination. The ultimate resource is people – skilled, spirited and hopeful people who will exert their wills and imaginations for their own benefit, and so, inevitably, for the benefit of us all.

Lesser, Dodds, Zerbe, Environmental Economics & Policy …there is little reason to fear the catastrophic collapse of societies postulated by the authors of The Limits to Growth. The substitution of competitive markets for rigidly regulated ones has provided new incentives to explore and develop energy and mineral resources. Reserves of many important commodities have been increased, through new discoveries or greater incentives to recycle products that were formerly treated as wastes.

Limits to growth being criticized for not recognizing: Human ingenuity   technology Adaptability The end