The Law of Diminishing Returns: it's a simple idea. But it affects us all and,
like it or not, it shapes our future. How? Well think about it.
The world has never spent more on military weaponry than it does today,
yet most of us feel less secure than ever. At the same time, while statistics say our
economy is growing, most people are no better off than they were a decade ago,
and increasing numbers are actually losing ground.
These are complicated problems we usually try to explain with political and economic theories.
But they're also examples of diminishing returns.
In economics, the Law of Diminishing Returns says
that increasing any factor of production beyond its optimum results in declining marginal returns in output.
Eventually returns go negative, so each added increment of input actually
makes us worse off. Here's a simple, intuitive way of grasping the concept.
If I have a cup of espresso before I sit down at my desk, I'll get more work done
If I have 2 cups, maybe I'll do more work—but the quality will begin
to suffer. If I have 3 cups I'll reach the point of negative returns on espresso.
I'll be a nervous, wild-eyed wreck, unable to accomplish anything worthwhile.
This same principle is also at work in the systems that run our world.
Let's look at money. We have a debt-based money system, so if we want the monetary economy
to grow then we always need more debt. Adding new debt to the economy has a multiplying
effect, because each new dollar in circulation changes hands many times. So more debt is good, right?
Unfortunately, the productivity of new debt has been falling for the several decades.
We're just about at the point where adding more debt doesn't
help the economy at all. It just adds burden and risk.
How about energy? Energy is more basic than money; it powers transportation, manufacturing—the real
physical economy. But it costs energy to get energy.
It takes energy to drill an oil well or to build a solar panel.
When we discovered fossil fuels,
we suddenly got a handle on amazingly productive energy sources. A single unit of energy invested
in digging or drilling for coal, oil, or natural gas could yield 50 or 100 units of energy
that could be put to work somewhere in the economy.
However, we've targeted the easiest and best fossil fuels first.
Extracting oil from tar sands or shale takes a lot of energy, so the amount of energy
we net is declining fast. The Economist magazine recently commented that, "the direction of
change seems clear. If the world were a giant company, its return on capital would be falling."
When we look at the relationship between industrial society and our natural environment it's absolutely
clear that we're on a path of diminishing returns. Over forty years ago, a team of scientists
programmed a computer to model the likely interactions between population growth, resource depletion,
and environmental pollution.
The resulting business-as-usual scenario showed
world industrial output starting to shrink before the middle of the 21st century.
Recent studies confirm that we're following that scenario closely.
But why worry? Humanity always solves its problems and moves forward, right?
Well, not always. Archaeologists say there were about 24 civilizations prior to our own
—complex societies with cities, full-time division of labor, writing, and money. But all of them
... all... eventually fell apart. After moving forward, they went backward. Why? Civilizations tend
to use complexity to solve their problems. Think specialization, technology, bureaucracy.
Historically, these societies' investments in complexity reached declining returns and,
finally, negative returns. The environment grew polluted, resources got used up, taxes
became unbearable, social tensions flared, and armies could no longer keep barbarians
at bay, much less extract further spoils from conquest.
Then collapse happened. Bummer. So what does this mean for us?
That we should just give up? No, but it does tell us that just doubling
down on strategies that worked in the past may not be a ticket to further success in the future.
Fossil fuels, debt, and societal complexity propelled us forward in the 20th century—but now,
not so much. Maybe we should prepare for a future of less debt and less fossil energy.
Rather than looking for someone to blame when our investments in complexity don't
bear fruit, we should change our expectations, and our strategies for achieving them.
Envision a future of less overall complexity.
Think slower, smaller, less population, less specialization, less resource consumption,
less pollution; more local, more renewable, more do-it-yourself.
If we plan for that kind of future, we can optimize the transition and the outcome.
If we don't, we could end up as just one more failed civilization to puzzle future archaeologists.