John Quiggin writes: For most of us, the industrial economy is a thing of the past. In the entire United States, large factories employ fewer than 2 million people. Even adding China to the picture does not change things much. And yet the conceptual categories of the 20th century still dominate our thinking. We remain fixated on the industrial model of economic growth, where ‘growth’ means ‘more of everything’, and we can express our rate of development in a single number. This model leads naturally to the conclusion that economic expansion must eventually run up against constraints on the availability of natural resources, such as trees to make paper.

And yet in 2013, despite positive growth overall, the world reached ‘Peak Paper’: global paper production and consumption reached its maximum, flattened out, and is now falling. A prediction that was over-hyped in the 20th century and then derided in the early 2000s – namely, the Paperless Office – is finally being realised. Growth continues, but paper is in retreat. Why did this seem so unlikely only a decade ago?

The problem is a standard assumption of macroeconomics – namely, that all sectors of the economy expand at a roughly equal rate. If this ‘fixed proportions’ assumption does not hold, the theory used to construct GDP numbers ceases to work, and the concept of a ‘rate of growth’ is no longer meaningful. Until the end of the 20th century, these assumptions did in fact work reasonably well for paper, books and newspapers. The volume of information increased somewhat more rapidly than the economy as a whole, but not so rapidly as to undermine the notion of an overall rate of economic growth. The volume of printed matter grew steadily, to around a million new books every year, and the demand for paper for printing grew in line with demand for books. [Continue reading…]