Can we predict long-run economic growth?

TL;DR

This paper proposes that global economic wealth is fundamentally linked to energy consumption, allowing for long-term growth predictions of about 2.2% annually based on energy-wealth ratios and historical inertia.

Contribution

It introduces the concept of a constant ratio between global wealth and energy consumption, providing a novel basis for long-term economic growth prediction.

Findings

Global wealth and energy consumption are proportionally linked over 40 years.

Inflation-adjusted global growth is predicted to be about 2.2% annually for the next decade.

Historical innovation rates influence current growth projections.

Abstract

For those concerned with the long-term value of their accounts, it can be a challenge to plan in the present for inflation-adjusted economic growth over coming decades. Here, I argue that there exists an economic constant that carries through time, and that this can help us to anticipate the more distant future: global economic wealth has a fixed link to civilization's overall rate of energy consumption from all sources; the ratio of these two quantities has not changed over the past 40 years that statistics are available. Power production and wealth rise equally quickly because civilization, like any other system in the universe, must consume and dissipate its energy reserves in order to sustain its current size. One perspective might be that financial wealth must ultimately collapse as we deplete our energy reserves. However, we can also expect that highly aggregated quantities like global wealth have inertia, and that growth rates must persist. Exceptionally rapid innovation in the two decades following 1950 allowed for unprecedented acceleration of inflation-adjusted rates of return. But today, real innovation rates are more stagnant. This means that, over the coming decade or so, global GDP and wealth should rise fairly steadily at an inflation-adjusted rate of about 2.2% per year.