Can Economic Growth Continue Forever? Of Course!

Tim Harford, who writes the Financial Times's  “Undercover Economist” column, has appeared on our blog many times. This guest post is part of a series adapted from his new book The Undercover Economist Strikes Back: How to Run or Ruin an Economy

Can economic growth continue forever? The internet seems to be full of physicists explaining that economists are clueless on this topic. There’s the late Albert Bartlett’s hugely popular videos – or Tom Murphy’s article “Exponential Economist Meets Finite Physicist.” The key issue is that exponential growth will eventually take you to impossible places. And by eventually, the physicists mean “sooner than we expect.”

Exponential growth is any kind of growth that compounds like interest payments. The classic example is the rice on the chessboard. According to an old story, the inventor of the game of chess was offered a reward by a delighted king. He requested a modest-sounding payment: one grain of rice on the first square of the chessboard, two on the second, four on the third, doubling each time. Yet this is actually a colossal amount—many times the annual rice production of the entire planet.