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GDP, Energy and Debt

Paul Luke

An examination of historical data on per-capita GDP, energy use, and debt revealed a heretofore unnoticed relationship among these three quantities. Prior to 1960, world GDP and energy use are tightly correlated, but after 1960, GDP starts to diverge from energy use, with GDP continuing to grow while energy use levels off. The magnitude of the divergence is found to be directly proportional to the magnitude of the accumulated debt. Nearly identical behavior is observed for individual countries. Analysis of these and other economic data indicates that the divergence between GDP and energy use is a financial artifact related to debt growth, and not the result of improving energy efficiency as is commonly perceived. This implies that the true GDP of an economy is determined solely by its energy consumption, and that there has actually been very little global per-capita economic growth since 1970 when per-capita energy use plateaued. In order to understand the relationship between GDP and energy, a new theory of value is proposed. The theory considers the economy as a system of labor exchange, rather than production and consumption. In such a system, economic growth is not possible when work is carried out by human labor alone. It is only when humans utilize non-human energy to do work that economic gain is achieved. In effect, energy acts as an additional source of labor (Le), reducing the amount of human labor (L) needed to produce a product. Based on this theory, an analytical expression for GDP is derived: GDP = 1+ Le/L. It is shown that the data presented are consistent with theory predictions. This indicates that economic activity is the consequence of energy use, not the other way around.

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