Chapter 12
Biophysical Limits to Economic Growth: The Neoclassical Perspective
Chapter Summary
This chapter examined the scarcity and growth paradigm of neoclassical (mainstream) economics.
Unlike Malthusians, proponents of the neoclassical school of thought are known for their optimistic
outlook on the economic progress of human society indefinitely. This optimism is based on two
factors: (i) the flexibility and resilience of human institutions, most importantly the market system,
and (2) the claim that the growth of human knowledge is not subject to any known physical laws.
According to this worldview, the scenario of perpetual economic growth cannot be ruled out. As
demonstrated in this chapter, this position is defended by the empirical studies that suggested
continued abundance of basic resources over the past two centuries. Other specific issues discussed
in this chapter are: (i) the major criticisms of the neoclassical empirical findings of decreasing
resource scarcity with the passage of time, (ii) a thorough discussion and critical appraisal of the
environmental Kuznets curve (EKC), and (iii) the economic and social factors that influence the
decision parents’ make on the number of children to raise and the policy implications of this
awareness to population control.
Review and Discussion Questions
1. Neoclassical economists have remained skeptical toward Malthusians doom-and-gloom
prophecies about the future economic condition of humanity. What three explanations are given
in your textbook to argue against the Malthusian prophecies of doom-and-gloom? Be specific.
2. In direct opposition to the traditional Malthusians view, Julian Simon (see Exhibit 12.1, p. 261)
made the following remark: “Incredible as it may seem at first, the term ‘finite’ is not only
inappropriate but downright misleading in the context of natural resources, from both the
practical and the philosophical points of view. As with so many of the important arguments in
this world, this one is just semantic.” Read the rest of Exhibit 12.1 to see how Simon explained
his position on this issue.
Do you think the concept of ‘finite’ within the context of natural resource availability is a sematic
argument, that is, questions raised about the definition of the word itself, and as such has no
practical meaning? Defend your position.
3. Neoclassical economists are latecomers to the environmental movement that ushered in the
early 1960s. However, by the early 1970s, they were joining the movement with more than tacit
recognition of market failure as it relates to environmental externalities. Furthermore, Robert
Ayres and Allen Kneese, ignited fresh interest by introducing the management of residuals and
pollution based on a ‘material balance approach’. This approach is used to show the ‘pervasive’
nature of pollution.
How did the material balance approach work? Why did the interest among neoclassical
economists on using the material balance approach to understand and manage pollution
dwindle as time passes?
© 2014 Ahmed Hussen
4. In Section 12.2 (p. 263–69), an effort was made to show the attempts neoclassical economists
have been making to empirically invalidate the core Malthusian doctrine with regard to
extractive resources (i.e. agricultural land, mineral ores, forestland, and fish stocks): ‘the
inevitability of increasing resource scarcity with a passage of time’. This was largely done using
statistical trend analysis. The cumulative evidence using this particular method of analysis
appears to suggest that, contrary to the Malthusian long-held belief on resource scarcity,
extractive resources are getting not more but less scarce with a passage of time (i.e. in the longrun).
(a) What are the four reasons given to support the empirical evidence for decreasing resource
scarcity? Be specific.
(b) The Malthusians’ response to the claim that extractive resources are getting less scarce in
the long run has been quick and it focused on what they considered to be the flaws of the
very model (i.e. the use of statistical tend analysis that depends on historical resource
prices) the neoclassical economists used to obtain their unwarranted conclusion of a future
with abundance of extractive resources. Your textbook offers three specific reasons given to
support the Malthusians attempt to discredit the empirical study on the basis of statistical
trend analysis of historical resource prices. What are they? In this specific issue, do you think
the Malthusians are making valid criticisms? Explain.
(c) In the past decade, it appears that serious reevaluations have taken place on the long-held
views of neoclassical economists on scarcity and growth debate. It is said that the new
reality deals with global ecological assets that are not traded in markets. Furthermore, there
appears to be increasing evidence that these kinds of resources are getting scarce. In the
‘new scarcity’ debate, it is argued, the depletion of ecological assets (i.e. natural capital) is
starting to emerge as the liming factor in the future. For example, fishing will be limited, not
by the number of fishing boats, but by the remaining fishing stocks; petroleum use will not
be limited by refining capacity but by geological deposits and the atmospheric capacity to
absorb carbon dioxide. To the extent that adequate response to this ‘new awareness’ of
impending resource scarcity requires serious modifications of the way natural resources are
priced (valued), do you think neoclassical economists will be capable of addressing this
seemingly vexing problem without rejecting the existing largely market-oriented economic
paradigm? Explain.
5. Section 12.3 (pp. 269–77) covers the mainstream economists’ view that economic growth may
actually be good for the environment. This is, of course, in direct contradiction to the neoMalthusian position that affluence is one of the major contributors to environmental
deterioration. The mainstream economists’ view on this particular subject matter is theoretically
argued using a general form of environment-income hypothesis known as an ‘inverted U’ curve
or environmental Kuznets curve (EKC). Make sure you understand the essence of explanations of
this hypothesis given in your text using Figure 12.3 (p. 270). Once you have done this, try to
answer the following questions:
(a) Are you convinced by the five reasons given to explain the eventual decoupling of economic
growth and environmental degradation using the EKC hypothesis? Why or why not?
© 2014 Ahmed Hussen
(b) As discussed in your textbook (pp. 272–74), there have been several attempts to empirically
validate the existence of the EKC. Given the rather mixed results of these studies, do you
think, as some critics would like to claim, that the whole attempt to empirically verify the
existence the EKC has been misguided and futile? If you disagree with this view, what
specific useful lessons did we learn from these studies? Please be specific.
(c) As discussed in your textbook (pp. 275–77), there have been numerous criticisms of the EKC
hypothesis. Do you some of these criticisms might have been a bit exaggerated? Be specific
and try to defend your position(s).
6. Section 12.4 (pp. 277–82) provides two theoretical explanations that mainstream economists
use to support the idea that sustained economic growth can be used as an effective remedy to
control population growth. These two theories are: the’ theory of demographic transition (TDT)’
(for an explanation see Figure 12.4 and Exhibit 12.2, p. 297) and ‘the microeconomic theory of
human fertility (MTHF)’ first advanced by Nobel Laureate Gary Backer.
(a) Can the fact Germany is recently experiencing an actual decline in its population (probably a
worrisome event for Germans) while at the same time the population growth rate in
Ethiopia is about 3 percent annually, be used as an empirical support to the theory of
demographic transition? Why or why not? Explain your position.
(b) Do you think the microeconomic theory of human fertility provides a better insight as to
what actually happened to the population growth in Germany and Ethiopia than the theory
of demographic transition? Why or why not? Explain your position.
(c) Taken together, what are the specific policy implications of these two theories? Be specific.
(d) While it may give a sense of comfort to argue that sustained economic growth can be used
as an effective ‘contraceptive’, it still remains the fact that this is only half of the story when
it comes to confronting the issue of general resource scarcity on a global scale. This
observation remains valid to the extent that we remain silent to the association of economic
growth and per capita resource consumption. As an example, it is said that “A child born in
the United States will create thirteen times as much ecological damage over the course of
his or her lifetime than a child born in Brazil,” Dave Tilford (Sierra Club). Is this a substantive
criticism of the neoclassical economics perspective on economic growth and population?
Explain.
7. Identify the major contribution(s) to the limit to growth debates of the following scholars: Julian
Simon and Herman Khan, H.E. Goeller and Alvin Weinberg, Robert Ayres and Allen Kneese,
Howard Barnett and Chandler Morse, and Gene Grossman and Alan Kruger.
© 2014 Ahmed Hussen