I have been wondering about the long term prospects for the economy as I am trying to get things like retirement accounts and a 529 savings account set up. All the investment advice talks about the wisdom of holding stock for the long term. This advice makes sense because for the past few hundred years, there has been continual exponential economic growth (see great exploration of the economic growth at Max Rosen’s Our World In Data site).

But I am skeptical of anything growing exponentially forever. Exponential growth is relentless; it keeps getting faster and faster. There are lots of things that grow exponentially for short amounts of time, most commonly populations whether they are bacteria, rabbits, or people. At some point something will limit the growth. Are economies different? Can they grow exponentially forever?

I have read articles arguing both ways. The optimists feel that we will keep on innovating our way to growth (see for example a Freakonomics post). The pessimists (or realists) argue that economic growth is tied in some way to energy use (for example see this blog post). Consequently if we kept economic growth going then at some point the earth would would burn up from the waste heat emitted from all of the energy use. The optimists counter that we can have immaterial economic goods so production does not have to be tied to energy.

I would argue that gaining and maintaining knowledge requires a significant amount of energy. While computers make it look effortless to spreading knowledge, in fact every web page that is visited costs a little bit of energy. It is hard to see how we could create an ever more impressive virtual world without increasing energy costs in the real world. So for now I side with the realists!

Of course even if the growth does stop someday it is hard to know when it will stop. I have given up predicting when that will happen exactly. If I had to guess we might have some economic struggles in the short term, but over all keep with the exponential growth for a couple more decades.

If there are limits on growth, how do they work? Economic value depends on perception of value, but it is not clear to me how perception is related to physical quantities. How is energy related to economic transactions? How is knowledge, economic value, and information related?