Can Someone Teach The New Malthusians About Infinite Goods?

from the well-here-we-go dept

When we talk about economics and business models concerning "infinite goods" it may seem like we focus almost entirely on the entertainment industry. However, the reason for doing so isn't an infatuation with that particular industry, but simply the fact that it's the best "natural experiment" for showing how these infinite goods work to grow a market. But "infinite goods" impact every market and help them grow. Yet, every time there's some sort of larger financial crisis, people spring up and deny that economic growth can occur any more. It dates back to Malthus' incorrect belief that people were growing exponentially while food supplies grew linearly -- meaning we'd run out of food. The problem, of course, was that he failed to take into account economic growth. That economic growth came from new ideas and new technologies (infinite goods) that made the production of food much more efficient.

The Wall Street Journal at least admits that every previous "Malthusian" has been proved wrong (other than very limited, pre-technology societies) before diving headlong into a discussion of whether or not the latest generation of Malthusians might just have a point this time. The article includes lots of fear mongering about various resources running out -- but those were the same fears that proved overblown in past Malthusian outbursts. My favorite example of this is William Stanley Jevons, who predicted the end of British economic growth thanks to coal running out (four years before oil was discovered) and when he died, his study was found filled stacked high with scrap paper -- since he believed that the country was running out.

That isn't to say things just "work out," but that it's these new ideas and new technologies -- these "infinite goods" -- that help to solve the problems. But they can only do so if they aren't locked down and artificially limited. Every time we lock down these ideas, we cause more problems and actually limit growth. If you could invent a solution to creating drinkable water (which the article frets about, but which Dean Kamen believes he's done), you could patent it and make it expensive. Or you could give it away, and recognize how you've just created a booming market for goods in places previously decimated by drought and disease. Rather than selling the water cleaning device, I would think there's a much bigger market in giving it away free to trouble spots and then helping to sell everything else that a healthy population would then want. Unfortunately, it's not clear that this is what Kamen will do. He is, after all, one of the folks protesting against any kind of patent reform in Congress.

So, again, this isn't to brush off the concerns of the Wall Street Journal piece. The environmental and resource challenges described are real challenges. But resource constraints can be solved through growth, and that growth is supplied by new ideas (new infinite goods) that increase the pie by creating resources that are infinite, and which make other scarce goods more valuable. We've pointed to Paul Romer's excellent explanation of economic growth before, but it bears repeating:
Economic growth occurs whenever people take resources and rearrange them in ways that are more valuable. A useful metaphor for production in an economy comes from the kitchen. To create valuable final products, we mix inexpensive ingredients together according to a recipe. The cooking one can do is limited by the supply of ingredients, and most cooking in the economy produces undesirable side effects. If economic growth could be achieved only by doing more and more of the same kind of cooking, we would eventually run out of raw materials and suffer from unacceptable levels of pollution and nuisance. Human history teaches us, however, that economic growth springs from better recipes, not just from more cooking. New recipes generally produce fewer unpleasant side effects and generate more economic value per unit of raw material.

Every generation has perceived the limits to growth that finite resources and undesirable side effects would pose if no new recipes or ideas were discovered. And every generation has underestimated the potential for finding new recipes and ideas. We consistently fail to grasp how many ideas remain to be discovered. The difficulty is the same one we have with compounding. Possibilities do not add up. They multiply.
So, when we're discussing infinite goods, and using the entertainment industry as a model, it's not just about entertainment. It's about dealing with all kinds of challenges that the world faces, and doing so through spreading infinite goods that multiply and make existing resources more valuable.


Reader Comments (rss)

(Flattened / Threaded)

  1.  
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    am, Mar 27th, 2008 @ 4:21pm

    can we find a new argument please?

    I am so sick of hearing about "infinite goods" on this blog. You've made your point 1000 times over. Please find a new argument or stop talking about it.

    The money that record companies and others has nothing to do with what you are talking about. They will continue to charge whatever they can get away with for however long they can. They don't care about any economic principle besides that one.

    So please stop trying to refute their strawman arguments with your own.

    This is a good blog, but this line of argument became tiresome at least 6 months ago.

     

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  2.  
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    Anonymous Coward, Mar 27th, 2008 @ 4:46pm

    Re: can we find a new argument please?

    I personally like the topic. As broken-record as it sounds, there's alot of people out there that have never even considered the value of infinite goods.

     

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  3.  
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    Anonymous Coward, Mar 27th, 2008 @ 4:49pm

    The problem with you argument is this

    "If you could invent a solution to creating drinkable water (which the article frets about, but which Dean Kamen believes he's done), you could patent it and make it expensive. Or you could give it away, and recognize how you've just created a booming market for goods in places previously decimated by drought and disease. Rather than selling the water cleaning device, I would think there's a much bigger market in giving it away free to trouble spots and then helping to sell everything else that a healthy population would then want."

    The problem is this. Dean Kamen may have nothing else himself to offer these markets. By having patents, he's encouraged to go ahead and invest in his idea, because he can make money off the water cleaning device. Then other companies can go in and make money off of the new markets.

    Not every infinite good has another product that can be tied to it, and not every person who creates an infinite good has a product or service THEY can tie to it.

    Not only that, but if all of this really is a "business model issue," as you like to say over and over again, and its really the best business model, people will start using it. Remember, in all of your examples, you are talking about people who are trying to make as much money as they can off of their product (its called capitalism). If it works more and more on a micro level, more businesses will try the model and we'll be able to see IF it works on a macro level. On the other hand, if more business try it and realize they are making less money then before they gave away goods for free, they'll go back to their old model. Either way, it'll work itself out,so let it go.

     

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  4.  
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    SteveD, Mar 27th, 2008 @ 5:06pm

    Re: can we find a new argument please?

    Remember that not everyone who reads TechDirt is a return visitor. How many other blogs out there deal with this issue?

    The blog doesn't just exist to entertain you with posts bashing the industry, but help understand issues that (as Mike tried to point out) are relevant to a lot of different industries and people.

     

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  5.  
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    Mike (profile), Mar 27th, 2008 @ 5:07pm

    Re: can we find a new argument please?

    I am so sick of hearing about "infinite goods" on this blog. You've made your point 1000 times over. Please find a new argument or stop talking about it.

    Actually, the point of this post was a different argument -- showing how it applied to much more and was a much bigger deal. And, considering how much trouble many people have grasping the concept, showing how it works in other fields and practical applications of it seems worthwhile.

    The money that record companies and others has nothing to do with what you are talking about. They will continue to charge whatever they can get away with for however long they can. They don't care about any economic principle besides that one.

    But if the point is that they can make more money by understanding these principles, doesn't that seem important? And I can say, definitively, that you're wrong that record labels don't care about these principles... They're not only coming around, they've started seeking advice on how to apply this stuff. Keep watching...

    Besides, this post isn't about the recording industry at all.

     

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  6.  
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    Mike (profile), Mar 27th, 2008 @ 5:18pm

    Re: The problem with you argument is this

    The problem is this. Dean Kamen may have nothing else himself to offer these markets. By having patents, he's encouraged to go ahead and invest in his idea, because he can make money off the water cleaning device. Then other companies can go in and make money off of the new markets.

    To me, that's like saying the problem is that someone doesn't have a product he can sell in a market, so we need to artificially pretend something is a product just so one guy can make a living.


    Not every infinite good has another product that can be tied to it, and not every person who creates an infinite good has a product or service THEY can tie to it.


    On this, I disagree. Every infinite good has scarcity that can be tied to it, and even if you personally can't tie that scarcity, then that's a good reason to team up with someone who can.


    Not only that, but if all of this really is a "business model issue," as you like to say over and over again, and its really the best business model, people will start using it. Remember, in all of your examples, you are talking about people who are trying to make as much money as they can off of their product (its called capitalism). If it works more and more on a micro level, more businesses will try the model and we'll be able to see IF it works on a macro level. On the other hand, if more business try it and realize they are making less money then before they gave away goods for free, they'll go back to their old model. Either way, it'll work itself out,so let it go.


    Yup. On this I agree absolutely. I'm optimistic that it absolutely will work out. I'm just trying to speed it along. :) The problem is that too many businesses take a very short-term view of things, rather than the longer term view. This requires more of a long term view.

    But, yes, in the end I agree that companies will figure this out. In the short-term, though, I don't see any problem with trying to educate them of the long term opportunities.

     

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  7.  
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    Oliver Young, Mar 27th, 2008 @ 5:53pm

    Re: Re: The problem with you argument is this

    Not every infinite good has another product that can be tied to it, and not every person who creates an infinite good has a product or service THEY can tie to it.

    I have got to agree with Anonymous on this one, shifting into new businesses, markets, and products, even if it just means partnering, is much harder than I think we are assuming. Resources simply don't reallocate that quickly.

     

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  8.  
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    Oliver Young, Mar 27th, 2008 @ 6:05pm

    Simple Feedback Loop

    That isn't to say things just "work out," but that it's these new ideas and new technologies -- these "infinite goods" -- that help to solve the problems.

    Mike I'm disappointed! You missed a great opportunity to explain the simple feedback loop that causes technological advances: price. When whale oil got scarce and started to constrain economic growth the price jacked up. That increase gave even more incentive for scientists and tinkerers to look into new solutions and push the boundary of technological understanding. The simple fact that something became scare ensured we would find a solution.

    Now where we get into problems are cases where the costs are not manifest in the price mechanism but are instead a shared cost (i.e. pollution)in which case a well regulated government is key, OR in cases where some non-market force (usually the government again) is holding prices below their optimal level, like the situation we are in right now with the price of oil. Its not mistake that economists keep griping that the price of oil is too low; if it were to rise the incentives for technological breakthrough (infinite goods as you like to call them, and I don't) would be enough to find a reasonable solution. Hence the reason we now have hybrid cars and ethanol fuel, but didn't in the 90's when gas was $0.95 a gallon.

    (Its nice when economic theory puts a nice neat bow on things. Just don't look too close.)

     

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  9.  
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    JohnOpincar, Mar 27th, 2008 @ 6:05pm

    Does Capitalism Work In A World With No Population

    Infinite goods are fine and dandy, but I think the real issue facing us now is finite goods. We really will reach the carrying capacity of the Earth at some point. My concern is that when we do, will we have the economic/political concepts in place to make the world work with 0 population growth.

     

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  10.  
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    Anonymous Coward, Mar 27th, 2008 @ 6:06pm

    Re: Does Capitalism Work In A World With No Popula

    Lol, there should have been a "Growth" at the end of that title.

     

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  11.  
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    Mike (profile), Mar 27th, 2008 @ 6:39pm

    Re: Simple Feedback Loop

    Mike I'm disappointed! You missed a great opportunity to explain the simple feedback loop that causes technological advances: price. When whale oil got scarce and started to constrain economic growth the price jacked up. That increase gave even more incentive for scientists and tinkerers to look into new solutions and push the boundary of technological understanding. The simple fact that something became scare ensured we would find a solution.

    True, true. I had thought about that, but thought it was sort of an obvious point. But, in retrospect, it's probably worth emphasizing.

    Now where we get into problems are cases where the costs are not manifest in the price mechanism but are instead a shared cost (i.e. pollution)in which case a well regulated government is key, OR in cases where some non-market force (usually the government again) is holding prices below their optimal level, like the situation we are in right now with the price of oil. Its not mistake that economists keep griping that the price of oil is too low; if it were to rise the incentives for technological breakthrough (infinite goods as you like to call them, and I don't) would be enough to find a reasonable solution. Hence the reason we now have hybrid cars and ethanol fuel, but didn't in the 90's when gas was $0.95 a gallon.

    Yes, I agree for the most part. Though, I did just see a fascinating presentation by a professor suggesting that the structure of the oil industry, and with the way things are regulated, that the higher the price of oil, all it really does is give them more incentive to find more oil and block out alternatives. In other words, thanks to the nature of the industry and the lack of a real free market there, the market correction mechanisms won't function properly.

     

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  12.  
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    Oliver Young, Mar 27th, 2008 @ 6:55pm

    Re: Re: Simple Feedback Loop

    In other words, thanks to the nature of the industry and the lack of a real free market there, the market correction mechanisms won't function properly.

    Interesting, I would have argued the exact opposite: finding more oil in previously barren land, or squeezing more out of dead wells sounds like technological breakthrough to me. Granted it does not solve the pollution problem (since that is market failure #1 from above) but it does result in more oil, and that should lower prices (ignoring oligopoly power).

     

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  13.  
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    Mike (profile), Mar 27th, 2008 @ 6:57pm

    Re: Re: Re: Simple Feedback Loop

    (ignoring oligopoly power).

    Yeah, his point was that you can't ignore oligopoly power in this situation (especially given the history of the industry).

     

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  14.  
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    angry dude, Mar 27th, 2008 @ 8:20pm

    horseshit

    finite goodies, infinite goodies, blah, blah, plah
    yada yada yada
    more nonsensical abracadabra from mikey...

    Far and few, far and few,
    Are the lands where the Jumblies live
    Their heads are green, and their hands are blue
    And they went to sea in a sieve.

    Amen mikey
    call it a day

     

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  15.  
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    DanC, Mar 28th, 2008 @ 6:39am

    Re: horseshit

    more nonsensical abracadabra from mikey...

    If you fail to understand basic economics, shouldn't it be your responsibility to correct your lack of education? Dismissing ideas and concepts you don't understand as 'nonsense' is a fairly ignorant position to take.

     

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  16.  
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    angry dude, Mar 28th, 2008 @ 6:56am

    Re: Re: horseshit

    Basic economics ????
    Let me guess..
    you mean giving away your music or books or patentted inventions for free to everybody, and start selling T-Shirts, LOOOOOOOOTs of T-Shirts to make up for the losses...

    Hillarious
    You call it basic economics ?
    I call it horseshit

     

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  17.  
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    Bill Royds, Mar 28th, 2008 @ 7:29am

    Malthus still may have had a point.

    What has happened is not that technology has solved the problem of finite resources, but that technology has allowed us to substitute one finite resource (whale oil say), with another finite resource (petroleum).

    But this does not create more of the finite resource. One of the problems of modern economics is that it assumes an open system (infinite resources, infinite sinks) and so does not properly value the finite capacity of our environment. Human beings, unlike corporations, have material needs that are limited to certain resources. We cannot substitute food as easily as a corporation can substitute one supplier of money with another. The economy only has infinite goods in an infinite world. We don't live in one.

     

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  18.  
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    Carl Zetie, Mar 28th, 2008 @ 8:22am

    The New Malthusians may have a point... possibly..

    IANA New Malthusian by any means, but I am willing to concede -- and be concerned about -- one thing that /might/ be different. This time around, we have a much better idea of just how finite resources are. We have a reasonable idea of how much oil is available, at what cost. We have a good idea of how much coal is left. And we have a much better understanding of the laws of physics that constrain the possibilities for their successors. For example, we know that wind and solar are not panaceas, we understand about energy density of alternative fuels, and so on. We know how long we have before we need an /unforeseen breakthrough/ to bail us out. I hope for the best, but I fear for the worst.

     

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  19.  
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    mjr1007, Mar 28th, 2008 @ 11:26am

    Almost got it right

    With all due disrespect Mike almost got it right. I don't buy in to this infinite scarce stuff, it's more the incremental cost of production. Some enterprising local should buy some land that is drought stricken but otherwise quite good, near the ocean. At this point it should be quite cheap. Then buy some of these devices. Use the devices to grow crops on the land. The land is now more valuable and other residence can do the same.

    There is very little real info on the device but it seems to be a sterling which produces pure water and electricity. While it's not guaranteed that drought areas will have lots of sunshine most do. It is possible that an area will have clouds and no rain. Anyway, find a nice sunny drought stricken area near the ocean and set up shop. Use the sunlight with concentrators to produce the heat necessary for the sterling engine. With enough power and water to live and farm things should take off. Of course you will want to farm corps that can tolerate a drier climate but other then that it should be wide open. If there really is a lot of sunshine a resort might also be a good idea. Again electricity and water pretty much make the area quite livable.

    This way Kamen get rewarded for his work, and other can use it to make money for themselves. Once the land becomes productive, either growing crops or tourist, then the economy can take off, employ locals who in turn can buy more of Kamen's devices.

    Why ask Kamen to finance their development, didn't he do enough by making it possible. Kamen's time is obviously better spent inventing new world changing devices then it is farming and building hotels.

     

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  20.  
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    Reason, Mar 28th, 2008 @ 1:24pm

    Re: Re: Re: horseshit

    Ironic how artists make more money from a single T-shirt sale or concert ticket than several CD sales, no?

     

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  21.  
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    Dave Gardner, Mar 28th, 2008 @ 4:16pm

    To infinity, and beyond!

    I got a good laugh out infinite goods. I'll tell you what, why don't we put you on an acre of land, enclose it, and you start cooking. Try all the recipes you want, so you can avoid running out of things to eat, clean air, places to put your excrement (other than this blog), etc. Let us know how it goes. You be creative. This can be a great small-scale demonstration. Same concept - you believe 7 billion, 8 billion, 9 billion people can perpetually come up with new ways to rearrange the natural capital of the planet. Eventually they'll average an acre apiece (and keep on growting), so you ought to be able to do fine with your acre. Good luck creating infinity out of that acre.

    Mr. Science

    actually,

    Dave Gardner
    Producer/Director
    Hooked on Growth: Our Misguided Quest for Prosperity
    www.growthbusters.com

     

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  22.  
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    Mike (profile), Mar 28th, 2008 @ 7:12pm

    Re: To infinity, and beyond!

    Well, it looks like a new Malthusian has visited us. Welcome. Can you explain why the people on earth have always been able to do exactly what you claim is impossible in the past? And how come it will suddenly stop now? I'm curious.

     

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  23.  
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    Porter, Mar 30th, 2008 @ 3:39am

    tired of tiredness

    Everyone seems to be tired of this subject. I'm tired of reading the complaints. Why not leave this blog and find another one to refresh ourselves, or start a fresh subject here, by ourselves?

     

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  24.  
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    JohnOpincar, Apr 8th, 2008 @ 7:54pm

    Re: Re: To infinity, and beyond!

    Mike, I'm disappointed. You usually have beter arguments than this. I'm sure the dinosaurs were saying the same thing right before they went extinct.

    Just because something's never happened before (which in this case, is just recorded history, a very small sliver of time) doesn't mean it's not going to happen in the future.

    Have you read Hume at all?

     

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  25.  
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    Mike (profile), Apr 9th, 2008 @ 2:56am

    Re: Re: Re: To infinity, and beyond!

    Just because something's never happened before (which in this case, is just recorded history, a very small sliver of time) doesn't mean it's not going to happen in the future.

    I'm not saying it won't happen because it's never happened. I'm saying it won't happen because of fundamental economics (assuming politicians don't screw those up with bad laws).

    Have you read Hume at all?

    Quite a bit, actually. Why?

     

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  26.  
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    clint maffett, Dec 14th, 2008 @ 5:34pm

    Re: Re: To infinity, and beyond!

    I thought there were many examples of civilizational collapse due to biological factors.................
    now, explain to me how climate change will be solved
    through infinite goods? gas prices have gone up for
    eight years and where is my electric car?

     

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  27.  
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    Klw, Jun 30th, 2010 @ 11:45pm

    But . . .

    you can't deny that the human race has continuously used more and more of the earth's material resources. Populations have continued to grow and more land has been occupied. The overall percentage of the earth's material resources in use at one time has also increased. You can look at Jevons' coal theory and laugh about the fact that a replacement was suddenly discovered to disprove it. But we aren't talking about coal, or oil, or any one resource. We're talking about the entire planet taken as a whole. The last time I checked, there is no foreseeable material alternative to the earth except another planet. In other words, to say that we will invariably and infinitely manage to discover new technologies that will allow our economy and population to keep growing is to say that we will invariably find new planets to live on whenever one becomes too crowded or depleted(That or we will figure out how to convert pure energy into solid matter or even into new planets). Given current resource consumption rates and present space/physics technology, that doesn't seem like a bet I would take. I'm not saying that it's impossible but I am saying that finding a new planet to live on may prove to be a much harder task than simply stumbling over some new flammable stuff in the ground. We may have to stop growing in the meantime - something we would not have to do if our economic system wasn't based primarily on exponential growth in the first place. Your argument does have some merit, I'll admit, but to me it just doesn't sound realistic. At least you didn't go for the "decoupling" theory and say that our economy can keep growing as long as we ban profits in all industries that use material resources.

     

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