The other day I came across an article by Paul Krugman where he uses an example of "slow steaming", a process enacted by cargo ships following the spike in oil prices in 2008, to attempt to show that you can indeed "produce" more for less. His example sounds great taken out of the context of the larger macro economic implications and ignoring externalities. Let's take a look:
After 2008, when oil prices rose sharply, shipping companies — which send massive container ships on regular “pendulum routes”, taking stuff (say) from Rotterdam to China and back again — responded by reducing the speed of their ships. It turns out that steaming more slowly reduces fuel consumption more than proportionately to the reduction in speed.
So what happens when you switch to slow steaming? Any one ship will carry less freight over the course of a year, because it can do fewer swings of the pendulum (although the number of trips won’t fall as much as the reduction in speed, because the time spent loading and unloading doesn’t change.) But you can still carry as much freight as before, simply by using more ships — that is, by supplying more labor and capital. If you do that, output — the number of tons shipped — hasn’t changed; but fuel consumption has fallen.
And of course by using still more ships, you can combine higher output with less fuel consumption. There is, despite what some people who think they’re being sophisticated somehow believe, no reason at all that you can’t produce more while using less energy. It’s not a free lunch — it requires more of other inputs — but that’s just ordinary economics. Energy is just an input like other inputs.
In economics, the Jevons paradox (/ˈdʒɛvənz/; sometimes Jevons effect) is the proposition that as technology progresses, the increase in efficiency with which a resource is used tends to increase (rather than decrease) the rate of consumption of that resource. In 1865, the English economist William Stanley Jevons observed that technological improvements that increased the efficiency of coal-use led to the increased consumption of coal in a wide range of industries. He argued that, contrary to common intuition, technological improvements could not be relied upon to reduce fuel consumption.So let's take the example of this shipping company and let's say you're in charge of it. Now that you have discovered slow steaming which (excluding the "other inputs") has reduced your operation costs, what do you do? Do you say "thanks for the savings we're going to keep shipping the same amount"? Or do you say "now that we can ship more for less we have gained additional capacity to ship more"? Well for the company, and economy, to have growth they're going to have to expand and thus any company interested in "growth" is going to redeploy those saved resources in their efforts to expand. If the company gets a 50% cost saving then they will have gained 100% more capacity now able to double the amount of product shipped with the same amount of inputs. Being that the economy demands expansion, which is growth, it is inevitable that any energy saved by increased efficiency will be spent by expansion.
The issue has been re-examined by modern economists studying consumption rebound effects from improved energy efficiency. In addition to reducing the amount needed for a given use, improved efficiency lowers the relative cost of using a resource, which tends to increase the quantity of the resource demanded, potentially counteracting any savings from increased efficiency. Additionally, increased efficiency accelerates economic growth, further increasing the demand for resources. The Jevons paradox occurs when the effect from increased demand predominates, causing resource use to increase.
This sort of example extends all the way down to households: let's say that out of nowhere the cost of food for you is cut in half, is it more likely that a household will cut its food budget in half, or is it more likely they will deploy the same amount of resources either on more food, or higher quality food? It's easy for a family to expand their lifestyle, not so easy to contract it, and expansion tends to be the default when the extra capacity for expansion is made available.
If you look at the last 100 years of human development this is very evident. We have gained incredibly in energy efficiency yet energy usage has never been higher, and the more efficient we become the more energy we use. Krugman's example doesn't examine the likely results of the energy gains simply assuming that the amount the company decides to ship will just stay the same forever (which isn't growth at all, now is it?).
The fifth problem in his argument is that claiming a little bit of energy efficiency translates to a justification of infinite growth ignores all of the other types of inputs required. It ignores the heavy droughts in California and Texas where entire towns no longer have drinking water and which is severely hindering agriculture and other industrial processes such as fracking. It ignores peak oil (and peak everything) where energy efficiencies being made come nowhere close to offsetting the rapidly rising cost of extracting the oil (and other resources) in the first place. It ignores the 99% fit between GDP growth and resource consumption as shown by Chris Martenson.
Finally, Krugman doesn't touch the exponential nature of GDP growth using an example of linear growth to justify it (increasing "production" directly relative to energy efficiencies gained). The nature of GDP growth is exponential, so when we say the economy grew "1%" last quarter it might not sound like much but that 1% is relative to the size of the economy. A multi-trillion dollar economy requires hundreds of billions to achieve even a small percentage increase in growth which can easily dwarf a multitude of total production from the previous years leading up to it.
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Richard Fantin is a self-taught software developer who has mostly throughout his career focused on financial applications and high frequency trading. He currently works for eQube gaming systems.
Nazayh Zanidean is a Project Coordinator for a mid-sized construction contractor in Calgary, Alberta. He enjoys writing as a hobby on topics that include foreign policy, international human rights, security and systemic media bias.