Growth is sustainable – answers environmental and other warrants – decoupling, dematerialization, innovation, and tech solve environmental/resource concerns and Jevons Rebound is wrong – government regulation and fiscal policy solve financialization and inequality warrants

What’s behind the broad and deep dematerialization of the American economy? Why are we now post-peak in our consumption of so many resources? In the next chapters I’ll present my explanation of the causes of dematerialization. First, though, I want to give a short explanation of what the causes are not. In particular, I want to show that the CRIB strategies born around Earth Day and promoted since then for reducing our planetary footprint—consume less, recycle, impose limits, and go back to the land—have not been important contributors to the dematerialization we’ve seen. Since Earth Day, we have demonstrably not consumed much less or gone back to the land in large numbers. We have recycled a lot, but this fact is irrelevant because recycling is a separate phenomenon from dematerialization. Much more relevant than recycling are the limits we’ve imposed in a couple of areas. The history of these limits is instructive because it helps us separate great ideas (limits on pollution and hunting animals) from truly terrible ones (limits on family size). All, Consuming The C part of the CRIB strategy—a plea for us to consume less for the planet’s sake—has largely fallen on deaf ears. To see this, let’s look at change in the real GDP of the United States. It grew by an average of 3.2 percent per year between the end of World War II and Earth Day. From 1971 to 2017, it grew by an annual average of 2.8 percent. Population growth also slowed down after the postwar baby boom, but it remained positive. America’s population increased by an average of 1.5 percent a year from 1946 to 1970, and by 1 percent annually from 1971 to 2016. So while we have slowed down some, we certainly haven’t come close to embracing degrowth in our population or consumption. But the American economy has changed significantly since Earth Day and has become relatively less oriented around making and building things. Services, ranging from haircuts to insurance policies to concerts, now make up a much larger share of the economy than they did in 1970. US personal consumption of services has risen from 30 percent of GDP in 1970 to 47 percent in 2017. So, has the decline in resource use come about because we don’t make or consume as many products as we used to? No. While it’s true that products have been declining in relative terms (in other words, as a percentage of total GDP) compared to services, our total consumption of products has still been increasing in absolute terms. So has our industrial production—the total amount of things made in America. What’s more, the United States has not recently shifted away from “heavy” manufacturing. We still make lots of vehicles, machinery, and other big-ticket items, just as we used to. But we don’t make them the same way we used to. We now make them using fewer resources. To see this, let’s add a line showing US industrial production to our graph from the previous chapter of GDP and total metal consumption. This updated chart makes clear that the country hasn’t stopped producing things. Instead, America’s manufacturers have learned to produce more things from less metal. So to summarize, growth of consumption has in some cases slowed down in recent years. But growth in resource use has done much more than slow down—it has reversed course and is now generally negative. We have not as a society embraced degrowth. Instead, we’ve done something far stranger and more profound: we’ve decoupled growth—in consumption, prosperity, and our economy—from resource use. Early in the Industrial Era, the French diplomat Alexis de Tocqueville published his 1835 book, Democracy in America. One of the first major investigations into the character of the then-young country, it remains one of the best.I De Tocqueville observed almost two centuries ago that the people of the United States liked their things: “In America, the passion for material well-being… is general.… Minds are universally preoccupied with meeting the body’s every need and attending to life’s little comforts.” What’s new is that providing for our needs and comforts now requires fewer materials, not more. Recycling: Big, and Beside the Point Recycling is big business: 47 percent, 33 percent, 68 percent, and 49 percent of all the tonnage of aluminum, copper, lead, and iron and steel (respectively) consumed in the United States in 2015 came from scrap metal rather than ore taken from the earth. Similarly, almost 65 percent of paper products came from recycled newspapers, pizza boxes, and so on rather than from felled trees. Yet recycling is irrelevant for dematerialization. Why? Because recycling is about where resource-producing factories get their inputs, while dematerialization is about what’s happened to total demand for their outputs. Paper mills, for example, get their raw material from two main sources: recycling centers and forests. American consumption of output from all paper mills combined has been declining since 1990, the year of peak paper in the United States. This decline is purely a matter of how much total demand there is for paper; it has no direct relationship to the amount of recycling taking place. But is there any indirect relationship? How much would our total consumption of resources such as paper or steel change without recycling? It’s impossible to answer with certainty, but my intuition is that if recycling didn’t exist, our total consumption of resources such as aluminum, copper, iron, and steel would be declining even more quickly. This seems counterintuitive; the conclusion is supported by a simple chain of reasoning. Recycling metals makes economic sense exactly because it’s cheaper to melt down and reuse scrap than it is to dig out and process ore. Without this scrap, a ton of metal would probably cost more, all other things being equal. And as a general rule, we use less of a thing when it costs more. So it seems most likely to me that we’d use less metal overall in a hypothetical zero-recycling economy than we do in our actual enthusiastic-about-scrap-metal-recycling economy. This does not mean that I think metal recycling is bad. I think it’s great, since it gives us cheaper metal products and reduces total greenhouse gas emissions (since it takes much less energy to obtain metal from scrap than from ore). But recycling, whatever its merits, is not part of the dematerialization story. It’s a different story. Back to the Land Is Bad for the Land The back-to-the-land movement is a fascinating chapter in the history of American environmentalism, but a largely insignificant one. There were simply never enough homesteaders and others who turned away from modern, technologically sophisticated life to make much of a difference. Which is a good thing for the environment. As Jeffrey Jacob documents in his book New Pioneers, the back-to-the-land movement in the United States began in the mid-1960s and continued into the next decade. According to one estimate, as many as 1 million North American back-to-the-landers were living on small farms by the end of the 1970s. This, though, was a weak current against the strong tide of urban growth; the number of American city dwellers increased by more than 17 million between 1970 and 1980. Going back to the land might have been widely discussed, but it was comparatively rarely practiced. We should be thankful for this because homesteading is not great for the environment, for two reasons. First, small-scale farming is less efficient in its use of resources than massive, industrialized, mechanized agriculture. To get the same harvest, homesteaders use more land, water, and fertilizer than do “factory farmers.” Farms of less than one hundred acres, for example, grow 15 percent less corn per acre than farms with more than a thousand acres. And bigger farms get better faster. Between 1982 and 2012 farms under one hundred acres grew their total factor productivity by 15 percent, whereas farms over a thousand acres grew theirs by 51 percent. So more homesteaders would have meant more land under cultivation, more water and fertilizer used, and so on. Second, rural life is less environmentally friendly than urban or suburban dwelling. City folk live in high-density, energy-efficient apartments and condos, travel only short distances for work and errands, and frequently use public transportation. None of these things is true of country living. As economist Edward Glaeser summarizes, “If you want to be good to the environment, stay away from it. Move to high-rise apartments surrounded by plenty of concrete.… Living in the country is not the right way to care for the Earth. The best thing that we can do for the planet is build more skyscrapers.” And if homesteaders decide not only to ignore Glaeser’s advice but also to leave modernity further behind and heat their homes with coal or wood, they do still more environmental harm. Coal home furnaces create lots of atmospheric pollution, much more than comes from other kinds of fuel. Poland, for example, today has 80 percent of all homes in Europe that burn coal, and thirty-three of the Continent’s fifty most polluted cities. And burning wood means chopping down trees. A lot of them. It’s almost certainly the case that the English turned to coal for home heating in the middle of the sixteenth century because they’d cut down such a huge percentage of their trees that the price of wood skyrocketed. So if we care about the environment, we should probably be glad that the back-to-the-land movement stalled out, and that industrial-scale, high-yield agriculture has become the norm. A comprehensive review published in Nature Sustainability in 2018 concluded, “The data… do not suggest that environmental costs are generally larger for [high-yield] farming systems.… If anything, positive associations—in which high-yield, land-efficient systems also have lower costs in other dimensions—appear more common.” Imposing Limits: The Worst Idea, and the Best One Of the four elements of the CRIB strategy, the drive to impose limits has by far the most checkered history. It yielded both the most harmful strategies, and the most helpful ones. The Population Implosion In 1979 the government of the People’s Republic of China announced its new family planning policy, which soon became known as the one-child policy. It was enacted despite the steady decline in the country’s birth rate throughout the 1970s. But after reading Limits to Growth, A Blueprint for Survival, and other books limning the looming dangers of unchecked population expansion, the missile scientist Song Jian came to believe that even faster birth rate reductions were required. He became the architect of the new policy, the main effect of which was to limit ethnic Han Chinese families to a single child. Exceptions to this restriction included giving some couples the right to a second child if their first was a girl, but the one-child policy soon became a central fact of Chinese family life. It is hard to see it in a positive light. After the policy was officially abandoned in late 2015, journalist Barbara Demick wrote its unflattering obituary: “Family planning became a powerful bureaucracy, with officials who terrorized parents. They beat and burned down the houses of people who violated the family-planning limits. They snatched over-quota baby girls from the arms of their mothers and gave them to orphanages, which in turn put them up for adoption, earning a three-thousand-dollar ‘donation’ for each baby.” The Chinese government maintains that approximately 400 million births were prevented by the one-child policy, but this is probably a large overestimate. As the economist Amartya Sen points out, “The additional contribution of coercion to reducing fertility in China is by no means clear, since compulsion was superimposed on a society that was already reducing its birth rate.” In their 2013 essay “How Will History Judge China’s One-Child Policy?” the demographers Wang Feng, Yong Cai, and Baochang Gu compared the policy unfavorably to two of their country’s great twentieth-century convulsions: the Cultural Revolution and the Great Leap Forward. They wrote, “While those grave mistakes both cost tens of millions of lives, the harms done were relatively short-lived and were corrected quickly afterward. The one-child policy, in contrast, will surpass them in impact by its role in creating a society with a seriously undermined family and kin structure, and a whole generation of future elderly and their children whose well-being will be seriously jeopardized.” History, in short, will judge this government-imposed limit on family size harshly.II Rational Restrictions Imposing limits on family size is a terrible idea for reasons both practical and moral. But it’s an excellent idea to impose limits on pollution, and on hunting some animals and selling products that come from their bodies. Such restrictions have yielded the great triumphs of the conservation and environmental movements in America and other countries. In 1970, the same year as the original Earth Day festival, the United States established the federal Environmental Protection Agency and made major amendments to 1963’s Clean Air Act. This was the start of a cascade of laws and regulations aimed at reducing pollution and other environmental harms. These have worked amazingly well. For example, atmospheric levels of sulfur dioxide in the United States have dropped to levels not seen since the first years of the twentieth century, and other kinds of air pollution have also dropped sharply. From 1980 to 2015, total emissions of six principal air pollutants decreased by 65 percent. As lead was banned from paint and gasoline, the concentration of that element in the blood of young children dropped by more than 80 percent between 1976 and 1999. Because lead retards brain development during youth, these declines are tremendously important. According to one study, American children in 1999 had IQs that were on average 2.2 to 4.7 points higher than they would have been had lead concentrations remained at their 1970 levels. More work certainly remains, but thanks to the limits imposed on pollutants, America’s soil, air, and water are all much cleaner than they were on Earth Day. The conservationists who grew concerned in the early years of the twentieth century about what hunting was doing to the populations of many animals were the predecessors of Earth Day’s environmentalists. Conservationists were spurred to action by the shocking extinction of the passenger pigeon. That such an abundant bird could be eradicated stunned many and spurred new laws restricting trade in animal products. The first of these was the Lacey Act, passed by Congress in 1900 and named for John Lacey, a Republican representative from Iowa. As he said during debate on the bill, “The wild pigeon, formerly in flocks of millions, has entirely disappeared from the face of the earth. We have given an awful exhibition of slaughter and destruction, which may serve as a warning to all mankind. Let us now give an example of wise conservation of what remains of the gifts of nature.” The Lacey Act and its successors imposed three kinds of limits on taking and consuming animals. First, hunting of some animals was fully banned. Protected species include the sea otter, which was protected by a 1911 international moratorium; the snowy egret, which was ruthlessly hunted for its gorgeous plumes until passage of the Weeks-McLean Law Act in 1913; and dolphins and manatees, which were sheltered by 1972’s Marine Mammal Protection Act. Second, many limits have been imposed on when and where animals can be hunted. Sport and food hunting are illegal in most national parks, for example, and duck, bear, deer, and many other animals have well-defined hunting seasons. Third, bans have been imposed on the commercial trade in many animal products. The most sweeping of these is probably the nationwide ban on the sale of hunted meat. You may see venison or bison meat at a butcher’s counter or on a menu in America, but it always comes from a ranch, not a hunt. These imposed limits have brought many iconic American animals back from the brink of extinction. North America now has more than half a million bison, for example, and over three thousand sea otters live off the coast of Northern California. Some previously threatened animals have come back so well that they’re now widely considered pests. People in many American neighborhoods today feel that there are too many white-tailed deer, Canada geese, and beaver. The story of dematerialization is not the story of following the CRIB strategies. Except for the excellent idea of imposing limits on polluting and pursuing animals, these strategies were ignored (we didn’t embrace degrowth and stop consuming), abandoned (we stopping going back to the land), irrelevant (dematerialization has nothing to do with recycling), or deeply misguided (China’s attempt to limit family size was a huge mistake). So how did we finally start getting more from less? How did we become post-peak in our use of so many resources? The next three chapters will take up this critical question. CHAPTER 7 What Causes Dematerialization? Markets and Marvels The triumph of the industrial arts will advance the cause of civilization more rapidly than its warmest advocates could have hoped. —Charles Babbage, The Exposition of 1851; or, Views of the Industry, the Science, and the Government of England, 1851 If CRIB strategies aren’t responsible for the large-scale dematerialization of the American economy that has taken place since Earth Day, then what is? How have we got more from less? I believe that four main forces are responsible, and that it’s helpful to think of them as two pairs. In this chapter we’ll look at the first pair, then take up the second in chapter 9. Capitalism and technological progress are the first pair of forces driving dematerialization. This statement will come as a surprise to many, and for good reason. After all, it’s exactly this combination that caused us to massively increase our resource consumption throughout the Industrial Era. As we saw in chapter 3, the ideas of William Jevons and Alfred Marshall point to the distressing conclusion that capitalism and tech progress always lead to more from more: more economic growth, but also more resource consumption. So what changed? How are capitalism and tech progress now getting us more from less? To get answers to these important questions, let’s start by looking at a few recent examples of dematerialization. Fertile Farms America has long been an agricultural juggernaut. In 1982, after more than a decade of steady expansion due in part to rising grain prices, total cropland in the country stood at approximately 380 million acres. Over the next ten years, however, almost all of this increase was reversed. So much acreage was abandoned by farmers and given back to nature that cropland in 1992 was almost back to where it had been almost twenty-five years before. This decline had several causes, including falling grain prices, a severe recession, over-indebted farmers, and increased international competition. A final factor, though, was the ability to get ever-more corn, wheat, soybeans, and other crops from the same acre of land, pound of fertilizer and pesticide, and gallon of water. The material productivity of agriculture in the United States has improved dramatically in recent decades, as we saw in chapter 5. Between 1982 and 2015 over 45 million acres—an amount of cropland equal in size to the state of Washington—was returned to nature. Over the same time potassium, phosphate, and nitrogen (the three main fertilizers) all saw declines in absolute use. Meanwhile, the total tonnage of crops produced in the country increased by more than 35 percent. As impressive as this is, it’s dwarfed by the productivity improvements of American dairy cows. In 1950 we got 117 billion pounds of milk from 22 million cows. In 2015 we got 209 billion pounds from just 9 million animals. The average milk cow’s productivity thus improved by over 330 percent during that time. Thin Cans Tin cans are actually made of steel coated with a thin layer of tin to improve corrosion resistance. They’ve been used since the nineteenth century to store food. Starting in the 1930s, they began also to be used to hold beer and soft drinks.I In 1959 Coors pioneered beer cans made of aluminum, which is much lighter and more corrosion resistant than steel. Royal Crown Cola followed suit for soda five years later. As Vaclav Smil relates, “A decade later steel cans were on the way out, and none of them have been used for beer since 1994 and for soft drinks since 1996.… At 85 g the first aluminum cans were surprisingly heavy; by 1972 the weight of a two-piece can dropped to just below 21 g, by 1988 it was less than 16 g, a decade later it averaged 13.6 g, and by 2011 it was reduced to 12.75 g.” Manufacturers accomplished these reductions by making aluminum cans’ walls thinner, and by making the sides and bottom from a single sheet of metal so that only one comparatively heavy seam was needed (to join the top to the rest of the can). Smil points out that if all beverage cans used in 2010 weighed what they did in 1980, they would have required an extra 580,000 tons of aluminum. And aluminum cans kept getting lighter. In 2012 Ball packaging introduced into the European market a 330 ml can that held 7.5 percent less than the US standard, yet at 9.5 g weighed 25 percent less. Gone Gizmos In 2014 Steve Cichon, a “writer, historian, and retired radio newsman in Buffalo, NY,” paid $3 for a large stack of front sections of the Buffalo News newspaper from the early months of 1991. On the back page of the Saturday, February 16, issue was an ad from the electronics retailer Radio Shack. Cichon noticed something striking about the ad: “There are 15 electronic gimzo type items on this page.… 13 of the 15 you now always have in your pocket.” The “gizmo type items” that had vanished into the iPhone Cichon kept in his pocket included a calculator, camcorder, clock radio, mobile telephone, and tape recorder. While the ad didn’t include a compass, camera, barometer, altimeter, accelerometer, or GPS device, these, too, have vanished into the iPhone and other smartphones, as have countless atlases and compact discs. The success of the iPhone was almost totally unanticipated. A November 2007 cover story in Forbes magazine touted that the Finnish mobile phone maker Nokia had over a billion customers around the world and asked, “Can anyone catch the cell phone king?” Yes. Apple sold more than a billion iPhones within a decade of its June 2007 launch and became the most valuable publicly traded company in history. Nokia, meanwhile, sold its mobile phone business to Microsoft in 2013 for $7.2 billion to get “more combined muscle to truly break through with consumers,” as the Finnish company’s CEO Stephen Elop said at the time of the deal. It didn’t work. Microsoft sold what remained of Nokia’s mobile phone business and brand to a subsidiary of the Taiwanese electronics manufacturer Foxconn for $350 million in May of 2016. Radio Shack filed for bankruptcy in 2015, and again in 2017. From Peak Oil to… Peak Oil In 2007 US coal consumption reached a new high of 1,128 million short tons, over 90 percent of which was burned to generate electricity. Total coal use had increased by more than 35 percent since 1990, and the US Energy Information Administration (the official energy statisticians of the US government) forecast further growth of up to 65 percent by 2030. Also in 2007 the US Government Accountability Office (GAO), a federal agency known as “the congressional watchdog,” published a report with an admirably explanatory title: “Crude Oil: Uncertainty about Future Oil Supply Makes It Important to Develop a Strategy for Addressing a Peak and Decline in Oil Production.” It took seriously the idea of “peak oil,” a phrase coined in 1956 by M. King Hubbert, a geologist working for Shell Oil. As originally conceived, peak oil referred to the maximum amount of oil that we could annually produce for all of humanity’s needs. The first oil wells pumped out the crude oil that was closest to the earth’s surface or otherwise easiest to access. As those wells dried up, we had to drill deeper ones, both on land and at sea. As the world’s economies kept growing, so did total demand for oil, which kept getting harder and harder to obtain. Peak oil captured the idea that despite our best efforts and ample incentive, we would come to a time after which we would only be able to extract less and less oil year after year from the earth. Most of the estimates summarized in the GAO report found that peak oil would occur no later than 2040. The report did not mention fracking, which in retrospect looks like a serious omission. Fracking is short for “hydraulic fracturing” and is a means of obtaining oil and natural gas from rock formations lying deep underground. It uses a high-pressure fluid to cause fractures in the rock, through which oil and gas can flow and be extracted. The United States and other countries have long been known to have huge reserves of hydrocarbons in deep rock formations, which are often called shales. Companies had been experimenting with fracking to get at them since the middle of the twentieth century, but had made little progress. In 2000 fracking accounted for just 2 percent of US oil production. That figure began to increase quickly right around the time of the GAO report. Not because of any single breakthrough, but instead because the suite of tools and techniques needed for profitable fracking had all improved enough. A gusher of shale oil and gas ensued. Thanks to fracking, US crude oil production almost doubled between 2007 and 2017, when it approached the benchmark of 10 million barrels per day. By September of 2018 America had surpassed Saudi Arabia to become the world’s largest producer of oil. American natural gas production, which had been essentially flat since the mid-1970s, jumped by nearly 43 percent between 2007 and 2017. As a result of the fracking boom the United States has experienced peak coal rather than peak oil. And the peak in coal is not in total annual supply, but instead in demand. Fracking made natural gas cheap enough that it became preferred over coal for much electricity generation. By 2017 total US coal consumption was down 36 percent from its 2007 high point. The phrase peak oil is still around, but, as is the case with coal, it usually no longer refers to supply. As a 2017 Bloomberg headline put it, “Remember Peak Oil? Demand May Top Out Before Supply Does.” Even though the extra supply from fracking has helped push down oil and gas prices, many observers now believe that energy from other sources—the sun, wind, and the nuclei of uranium atoms—is getting cheaper faster and becoming much more widely available. So much so that, as a 2018 article in Fortune about the future of oil hypothesized, “This wouldn’t be just another oil-price cycle, a familiar roller coaster in which every down is followed by an up. It would be the start of a decades-long decline of the Oil Age itself—an uncharted world in which… oil prices might be ‘lower forever.’ ” Analysts at Shell, the company from which the phrase peak oil originated, now estimate that global peak oil demand might come as soon as 2028. Taking Stock of Rolling Stock My friend Bo Cutter started his career in 1968 working for Northwest Industries, a conglomerate that owned the Chicago and North Western Railway. One of his first assignments was to help a team tasked with solving a problem that sounds odd to modern ears: figuring out where CNW’s railcars were. These cars are massive metal assemblies, each weighing thirty tons or more. In the late 1960s CNW owned thousands of them, representing a huge commitment of both material and money. Across the railroad industry, the rule of thumb then was that about 5 percent of a company’s railcars moved on any given day. This was not because the other 95 percent needed to rest. It was because their owners didn’t know where they were. CNW owned thousands of miles of track in places as far from Chicago as North Dakota and Wyoming. Its rolling stock (as locomotives and railcars are called) could also travel outside the company’s network on tracks owned by other railroads. So these assets could be almost anywhere in the country. When the railcars weren’t moving, they sat in freight yards. At the time Cutter started his job, freight yards didn’t keep up-to-date records of the idle rolling stock they contained because, in the days before widespread digital computers, sensors, and networks, there was no way to cost-effectively know or communicate the location of each car. So it was impossible for CNW or any other railroad to systematically track its most important inventory, even though doing so would be hugely beneficial to the company’s bottom line. For example, Cutter’s team knew that if they could increase the percentage of cars moving each day from 5 percent to 10 percent, they would need only half as many of them. Even a single percentage point increase in freight-car use would yield major financial benefits. When Cutter started his assignment, CNW and all other railroads employed spotters, who visited yards and watched trains pass, then telegraphed their findings to the head office. Other railroads passed on similar information to collect the demurrage charges they were owed for each CNW car on their tracks and in their yards. Cutter’s team improved on these methods by making them more systematic and efficient. They put in place a better baseline audit of where railcars were, employed more spotters, painted CNW cars differently so they were easier to see, and explored how to make more use of a new tool for businesses: the digital computer. That tool and its kin are now pervasive in the railroad industry. In the early 1990s, for example, companies started putting radio-frequency identification tags on each piece of rolling stock. These tags would be read by trackside sensors, thus automating the work of spotting. At present over 5 million messages about railcar status and location are generated and sent throughout the American railway system every day, and the country’s more than 450 railroads have nearly real-time visibility over all their rolling stock. The Rare Earth Scare In September of 2010 the Japanese government took into custody the captain of a Chinese fishing boat that had collided with Japanese patrol vessels near a group of uninhabited islands in the East China Sea claimed by both countries. China responded by imposing an embargo on shipments of rare earth elements (REE) to the Land of the Rising Sun. Even though Japan relented almost immediately and released the captain, a global panic began. This is because rare earths are “vitamins of chemistry,” as USGS scientist Daniel Cordier puts it. “They help everything perform better, and they have their own unique characteristics, particularly in terms of magnetism, temperature resistance, and resistance to corrosion.” By 2010 China produced well over 90 percent of the world’s REE. Its actions in the wake of the maritime incident convinced many that it could and would take unilateral action to control the flow of these important materials, and panicked buying soon followed (along with its close cousin rampant speculation). A bundle of REE that would have sold for less than $10,000 in early 2010 soared to more than $42,000 by April of 2011. In September of that year the US House of Representatives held a hearing called “China’s Monopoly on Rare Earths: Implications for US Foreign and Security Policy.” China didn’t attain its near monopoly because it possessed anything close to 90 percent of global reserves of REE. In fact, rare earths aren’t rare at all (one, cerium, is about as common in the earth’s crust as copper). However, they’re difficult to extract from ore. Obtaining them requires a great deal of acid and generates tons of salt and crushed rock as by-products. Most other countries didn’t want to bear the environmental burden of this heavy processing and so left the market to China. In the wake of the embargo, this seemed like a bad idea. As Representative Brad Sherman put it during the congressional hearing, “Chinese control over rare earth elements gives them one more argument as to why we should kowtow to China.” But there was never much kowtowing. By the time of the hearing, prices for REE were already in free fall. Why? What happened to the apparently tight Chinese stranglehold over REE? Several factors caused it to ease, including the availability of other supply sources and incomplete maintenance of the embargo. But as public affairs professor Eugene Gholz noted in a 2014 report on the “crisis,” many users of REE simply innovated their way out of the problem. “Companies such as Hitachi Metals [and its subsidiary in North Carolina] that make rare earth magnets found ways to make equivalent magnets using smaller amounts of rare earths in the alloys.… Meanwhile, some users remembered that they did not need the high performance of specialized rare earth magnets; they were merely using them because, at least until the 2010 episode, they were relatively inexpensive and convenient.” Overall, the companies using REE found many inexpensive and convenient alternatives. By the end of 2017 the same bundle of rare earths that had been trading above $42,000 in 2011 was available for about $1,000. What’s Going On? There is no shortage of examples of dematerialization. I chose the ones in this chapter because they illustrate a set of fundamental principles at the intersection of business, economics, innovation, and our impact on our planet. They are: We do want more all the time, but not more resources. Alfred Marshall was right, but William Jevons was wrong. Our wants and desires keep growing, evidently without end, and therefore so do our economies. But our use of the earth’s resources does not. We do want more beverage options, but we don’t want to keep using more aluminum in drink cans. We want to communicate and compute and listen to music, but we don’t want an arsenal of gadgets; we’re happy with a single smartphone. As our population increases, we want more food, but we don’t have any desire to consume more fertilizer or use more land for crops. Jevons was correct at the time he wrote that total British demand for coal was increasing even though steam engines were becoming much more efficient. He was right, in other words, that the price elasticity of demand for coal-supplied power was greater than one in the 1860s. But he was wrong to conclude that this would be permanent. Elasticities of demand can change over time for several reasons, the most fundamental of which is technological change. Coal provides a clear example of this. When fracking made natural gas much cheaper, total demand for coal in the United States went down even though its price decreased. With the help of innovation and new technologies, economic growth in America and other rich countries—growth in all of the wants and needs that we spend money on—has become decoupled from resource consumption. This is a recent development and a profound one. Materials cost money that companies locked in competition would rather not spend. The root of Jevons’s mistake is simple and boring: resources cost money. He realized this, of course. What he didn’t sufficiently realize was how strong the incentive is for a company in a contested market to reduce its spending on resources (or anything else) and so eke out a bit more profit. After all, a penny saved is a penny earned. Monopolists can just pass costs on to their customers, but companies with a lot of competitors can’t. So American farmers who battle with each other (and increasingly with tough rivals in other countries) are eager to cut their spending on land, water, and fertilizer. Beer and soda companies want to minimize their aluminum purchases. Producers of magnets and high-tech gear run away from REE as soon as prices start to spike. In the United States, the 1980 Staggers Act removed government subsidies for freight-hauling railroads, forcing them into competition and cost cutting and making them all the more eager to not have expensive railcars sit idle. Again and again, we see that competition spurs dematerialization. There are multiple paths to dematerialization. As profit-hungry companies seek to use fewer resources, they can go down four main paths. First, they can simply find ways to use less of a given material. This is what happened as beverage companies and the companies that supply them with cans teamed up to use less aluminum. It’s also the story with American farmers, who keep getting bigger harvests while using less land, water, and fertilizer. Magnet makers found ways to use fewer rare earth metals when it looked as if China might cut off their supply. Second, it often becomes possible to substitute one resource for another. Total US coal consumption started to decrease after 2007 because fracking made natural gas more attractive to electricity generators. If nuclear power becomes more popular in the United States (a topic we’ll take up in chapter 15), we could use both less coal and less gas and generate our electricity from a small amount of material indeed. A kilogram of uranium-235 fuel contains approximately 2–3 million times as much energy as the same mass of coal or oil. According to one estimate, the total amount of energy that humans consume each year could be supplied by just seven thousand tons of uranium fuel. Third, companies can use fewer molecules overall by making better use of the materials they already own. Improving CNW’s railcar utilization from 5 percent to 10 percent would mean that the company could cut its stock of these thirty-ton behemoths in half. Companies that own expensive physical assets tend to be fanatics about getting as much use as possible out of them, for clear and compelling financial reasons. For example, the world’s commercial airlines have improved their load factors—essentially the percentage of seats occupied on flights—from 56 percent in 1971 to more than 81 percent in 2018. Finally, some materials get replaced by nothing at all. When a telephone, camcorder, and tape recorder are separate devices, three total microphones are needed. When they all collapse into a smartphone, only one microphone is necessary. That smartphone also uses no audiotapes, videotapes, compact discs, or camera film. The iPhone and its descendants are among the world champions of dematerialization. They use vastly less metal, plastic, glass, and silicon than did the devices they have replaced and don’t need media such as paper, discs, tape, or film. If we use more renewable energy, we’ll be replacing coal, gas, oil, and uranium with photons from the sun (solar power) and the movement of air (wind power) and water (hydroelectric power) on the earth. All three of these types of power are also among dematerialization’s champions, since they use up essentially no resources once they’re up and running. I call these four paths to dematerialization slim, swap, optimize, and evaporate. They’re not mutually exclusive. Companies can and do pursue all four at the same time, and all four are going on all the time in ways both obvious and subtle. Innovation is hard to foresee. Neither the fracking revolution nor the world-changing impact of the iPhone’s introduction were well understood in advance. Both continued to be underestimated even after they occurred. The iPhone was introduced in June of 2007, with no shortage of fanfare from Apple and Steve Jobs. Yet several months later the cover of Forbes was still asking if anyone could catch Nokia. Innovation is not steady and predictable like the orbit of the Moon or the accumulation of interest on a certificate of deposit. It’s instead inherently jumpy, uneven, and random. It’s also combinatorial, as Erik Brynjolfsson and I discussed in our book The Second Machine Age. Most new technologies and other innovations, we argued, are combinations or recombinations of preexisting elements. The iPhone was “just” a cellular telephone plus a bunch of sensors plus a touch screen plus an operating system and population of programs, or apps. All these elements had been around for a while before 2007. It took the vision of Steve Jobs to see what they could become when combined. Fracking was the combination of multiple abilities: to “see” where hydrocarbons were to be found in rock formations deep underground; to pump down pressurized liquid to fracture the rock; to pump up the oil and gas once they were released by the fracturing; and so on. Again, none of these was new. Their effective combination was what changed the world’s energy situation. Erik and I described the set of innovations and technologies available at any time as building blocks that ingenious people could combine and recombine into useful new configurations. These new configurations then serve as more blocks that later innovators can use. Combinatorial innovation is exciting because it’s unpredictable. It’s not easy to foresee when or where powerful new combinations are going to appear, or who’s going to come up with them. But as the number of both building blocks and innovators increases, we should have confidence that more breakthroughs such as fracking and smartphones are ahead. Innovation is highly decentralized and largely uncoordinated, occurring as the result of interactions among complex and interlocking social, technological, and economic systems. So it’s going to keep surprising us. As the Second Machine Age progresses, dematerialization accelerates. Erik and I coined the phrase Second Machine Age to draw a contrast with the Industrial Era, which as we’ve seen transformed the planet by allowing us to overcome the limitations of muscle power. Our current time of great progress with all things related to computing is allowing us to overcome the limitations of our mental power and is transformative in a different way: it’s allowing us to reverse the Industrial Era’s bad habit of taking more and more from the earth every year. Computer-aided design tools help engineers at packaging companies design generations of aluminum cans that keep getting lighter. Fracking took off in part because oil and gas exploration companies learned how to build accurate computer models of the rock formations that lay deep underground—models that predicted where hydrocarbons were to be found. Smartphones took the place of many separate pieces of gear. Because they serve as GPS devices, they’ve also led us to print out many fewer maps and so contributed to our current trend of using less paper. It’s easy to look at generations of computer paper, from 1960s punch cards to the eleven-by-seventeen-inch fanfold paper of the 1980s, and conclude that the Second Machine Age has caused us to chop down ever more trees. The year of peak paper consumption in the United States, however, was 1990. As our devices have become more capable and interconnected, always on and always with us, we’ve sharply turned away from paper. Humanity as a whole probably hit peak paper in 2013. As these examples indicate, computers and their kin help us with all four paths to dematerialization. Hardware, software, and networks let us slim, swap, optimize, and evaporate. I contend that they’re the best tools we’ve ever invented for letting us tread more lightly on our planet. All of these principles are about the combination of technological progress and capitalism, which are the first of the two pairs of forces causing dematerialization. Technology: The Human Interface with the Material World One of my favorite definitions of technology comes from the philosopher Emmanuel Mesthene, who called it “the organization of knowledge for the achievement of practical purposes.” Sometimes that knowledge is crystallized into products such as hammers and iPhones, and sometimes it exists as techniques such as those for fracking or precision agriculture. Like knowledge itself, technologies accumulate. We haven’t forgotten about the lever, the plow, or the steam engine in the Second Machine Age, and we haven’t had to give them up to use cloud computing or drones. Like innovation itself, technologies are combinatorial; most of them are combinations or recombinations of existing things. This implies that the number of potentially powerful new technologies increases over time because the number of available building blocks does. These facts help me understand why we didn’t start to dematerialize sooner. It could simply be that we didn’t have the right technologies, or enough building blocks, to allow large-scale dematerialization. We had technologies that made it feasible and profitable for us to grow by taking more and more from the earth—more and more metals, fuels, water, fertilizers, and so on—but not ones that made it possible to profitably grow while taking less and less. In the Second Machine Age, that has changed. My other preferred definition of technology comes from the great science fiction author Ursula K. Le Guin, who wrote, “Technology is the active human interface with the material world. Its technology is how a society copes with physical reality: how people get and keep and cook food, how they clothe themselves, what their power sources are (animal? human? water? wind? electricity? other?), what they build with and what they build, their medicine—and so on and on. Perhaps very ethereal people aren’t interested in these mundane, bodily matters, but I’m fascinated by them.” So am I, because these “mundane matters” have twice reshaped the world—first during the Industrial Era, when technological progress allowed us to prosper by taking more from the planet, and now in the Second Machine Age, when we’ve finally figured out how to prosper while taking less. Capitalism: Means of Production Capitalism and religion are the two subjects that leave the fewest people on the sidelines. People have very firmly held opinions on both topics, and few change their minds no matter what evidence and arguments are presented to them. Yet despite this clear history of intransigence, many thinkers and writers have tried to bring others around to their point of view on both topics. Most have failed. I’m going to join this long sad parade by arguing in favor of capitalism. Before I do that, though, I want to define what I’m talking about. Even more than is the case with technology, clear definitions are important with capitalism because it’s such a triggering word. As the psychologist Jonathan Haidt has pointed out, some hear it as a synonym for liberation, others for exploitation. But let me put the dictionary before the thesaurus and offer a definition of what capitalism is before suggesting what it’s like. For our purposes, capitalism is a way to come up with goods and services and get them to people. Every society that doesn’t want its people to starve or die of exposure has to accomplish this task; capitalism is simply one approach to doing it. The important features of this approach are: Profit-seeking companies. Under capitalism, most goods and services are produced by for-profit companies rather than nonprofits, the government, or individuals. Companies can be owned by only a few people (such as the partners in a law firm) or a great many (publicly traded companies have shareholders all over the world) and are assumed to last over time; they don’t have a predefined end date. Free market entry and competition. Companies can go after one another’s markets and customers; there are few if any protected monopolies. It might not be legal to completely copy a rival’s patented product, but it’s perfectly legal to try to come up with something better. In economist-speak, markets are contested. Similarly, people can take their skills from one market to another; they’re not tied to a single geography or job. Strong property rights and contract enforcement. Patents are a form of intellectual property. They can be bought and sold just as other kinds of property—from land to houses to cars—can. Laws and courts ensure that none of these kinds of property can be stolen or destroyed, even by large, powerful entities such as billionaires, giant corporations, or the government. Similarly, if a small company and a big one sign a contract to work together, neither party gets to unilaterally walk away from the agreement without fear of getting sued. Absence of central planning, control, and price setting. The government does not decide what goods and services are needed by people, or which companies should be allowed to produce them. No central body decides if there is “enough” volume and variety in smartphones, caffeinated beverages, steel girders, and so on. The prices of these and most other goods and services are allowed to vary based on the balance of supply and demand, rather than being set in advance or adjusted by any central authority. Private ownership of most things. Smartphones, cups of coffee, steel girders, and most other products are owned by the people or companies that bought them. The companies that produced these things are also owned by people. Many shares of Apple, Starbucks, US Steel, and other public companies are held by mutual funds, pension funds, and hedge funds, but all these funds are themselves ultimately owned by people. Most houses, cars, land, gold, Bitcoin, and other assets are also owned by people rather than the government. Voluntary exchange. The phrase most closely associated with capitalism is voluntary exchange. People can’t be forced to buy specific products, take a certain job, or move across the country. Companies don’t have to sell themselves if they don’t want to. They also don’t have to make some products and not others, or stay within specific markets. The Waffle House chain doesn’t have any of its breakfast restaurants in my state of Massachusetts, but that’s not because lawmakers there are keeping it out. The legislature in Boston doesn’t have that power. I want to highlight a couple of things about this definition. First, capitalism is not without oversight. The government has clear roles to play in establishing laws and settling disputes (to say nothing of setting tax rates, controlling the money supply, and doing other things of critical economic importance). As we’ll see in the next two chapters, every sane advocate of capitalism also recognizes that while voluntary exchange and free market entry are great, they don’t create utopia. Some important “market failures” need to be corrected by government action. The second thing I want to point out is that all of today’s rich countries are capitalist, by this definition. This is not to say that all capitalist countries are alike. Denmark, South Korea, and the United States are very different places. They have dissimilar trade policies, tax systems, social safety nets, industrial structures, and so on. But they all have all of the things listed above; they are all inherently capitalist. Denmark’s economy is not planned and controlled out of Copenhagen, people in Korea own their own houses and furniture,III and contracts in America are generally respected and enforced. Today’s poorer countries, in sharp contrast, reliably do not have all of the things listed above. Their governments tend to run such things as airlines and telephone networks that are run by private companies in rich countries. It’s generally much harder to start a company in less affluent countries, so free market entry and competition are constrained. According to the World Bank, in 2017 it took less than six days to start a business in America, Denmark, Singapore, Australia, and Canada, and seventy days or more in Somalia, Brazil, and Cambodia. The world champion of entrepreneurial sclerosis was Venezuela (a country we’ll talk more about in the next chapter), at two hundred and thirty days. In poorer countries, it’s also often not clear who owns what. Things that are taken for granted in the rich world, such as unambiguous land registries and clear title to houses and other property, are problematic in many developing countries. The biggest difference between rich and poor countries might be whether laws are clearly and consistently enforced. Poorer countries don’t lack laws; they often have extensive legal codes. What’s in short supply is justice for all. Officials are corrupt; the elite get special treatment and rarely lose in court; police, regulators, and inspectors can expect bribes; and contested markets, property rights, and voluntary exchange suffer in countless other ways. It’s not that these abuses don’t occur in rich countries, but they occur much, much less often. I’ll make some more points about capitalism in the next chapter. To wrap up this one, I want to emphasize how well technological progress and capitalism work together. Overcoming the Limits A great way to see what happens when capitalism and tech progress combine is to look back at 1972’s The Limits to Growth, which we first came across in chapter 4. It’s a fascinating document for two reasons. First, it’s one of the most Malthusian books written since Malthus. It’s far gloomier than anything Jevons came up with. The team behind The Limits to Growth tried to model the future of the exponentially growing world economy and concluded, “We can thus say with some confidence that, under the assumption of no major change in the present system, population and industrial growth will certainly stop within the [twenty-first] century, at the latest. The system… collapses because of a resource crisis.” Second, The Limits to Growth provided an invaluable service by recording what the known global reserves of important resources were in 1972. “Known global reserves” are the deposits of a resource that can be profitably extracted given the prevailing knowledge and state of technology. The authors of The Limits to Growth included the known reserves of many resources to show how inadequate they were in the face of exponential growth of both output and resource consumption. The authors had little reason to suppose in the early 1970s that either kind of growth would stop on its own. As we saw in chapter 4, resource consumption went up in lockstep with overall economic output all throughout the twentieth century up to Earth Day. Few people expected that to change. The team behind The Limits to Growth certainly didn’t. The most generous estimate of future resource availability included in The Limits to Growth assumed that exponential consumption would continue, and that proven reserves were actually five times greater than commonly assumed. Under these conditions, the team’s computer models showed that the planet would run out of gold within twenty-nine years of 1972; silver within forty-two years; copper and petroleum within fifty; and aluminum within fifty-five. These weren’t accurate predictions. We still have gold and silver, and we still have large reserves of them. In fact, the reserves of both are actually much bigger than in 1972, despite almost half a century of additional consumption. Known global reserves of gold are almost 400 percent larger today than in 1972, and silver reserves are more than 200 percent larger. And it’s probably not too early to say that we’re not going to run out of copper, aluminum, and petroleum as quickly as estimated in The Limits to Growth. Known reserves of all are much larger than they were when the book was published. Known aluminum reserves are almost twenty-five times what they were in the early 1970s. How could these predictions about resource availability, which were taken seriously when they were released, have been so wrong? Because the Limits to Growth team pretty clearly underestimated both dematerialization and the endless search for new reserves. Capitalism and tech progress combine to drive both of these trends—the use of fewer resources and the hunt for more of them—and neither of these two drivers is about to become less powerful. So we’ll continue to innovate our way to greater dematerialization while we keep finding more reserves. The counterintuitive conclusion from this line of reasoning is that resource scarcity isn’t something we need to worry about. The earth is finite, so the total quantity of resources such as gold and petroleum is limited. But the earth is also very, very big—big enough to contain all we need of these and other resources, for as long as we’ll need them. The image of a thinly supplied Spaceship Earth hurtling through the cosmos with us aboard is compelling, but deeply misleading. Our planet has amply supplied us for our journey. Especially since we’re quickly slimming, swapping, optimizing, and evaporating our way to dematerialization. The Second Enlightenment Abraham Lincoln, the only US president to hold a patent,IV had a deep insight about capitalism. He wrote that the patent system “added the fuel of interest to the fire of genius in the discovery and production of new and useful things.” “The fire of genius” is a wonderful label for technological progress. “The fuel of interest” is equally good as a summary of capitalism. They interact in a self-reinforcing and ever-expanding cycle, and they’re now creating a dematerializing world. Innovators come up with new and useful technologies. They then partner with entrepreneurs or become entrepreneurs themselves as James Watt did. A new company is the result. Investors such as steam-engine backer Matthew Boulton often join in to provide the capital needed for growth in its early days. The start-up enters a market and takes on incumbents like the Newcomen steam engine. Customers like the new technology better and are free to choose it. Rivals can’t just copy the new technology because it’s protected by patents. So they either have to license it or come up with innovations themselves. The start-up grows and prospers and eventually becomes the new incumbent. Its success inspires the next round of innovators, entrepreneurs, and investors, who once again take aim at the incumbent by offering something better to their customers. Because of free market entry, the next innovators and start-ups can come from anywhere. And because innovation is such a distributed, dynamic, and unpredictable activity, it often comes from an unexpected place. It’s not necessary to plan this process. In fact, it’s a terrible idea to try to do so. Any central planner will miss many of the actual innovators or actively try to squelch them to protect the status quo of which the planners themselves are a part. This cycle of capitalist, technology-rich “creative destruction” was beautifully described in the middle of the twentieth century by the Austrian economist Joseph Schumpeter. But since the late nineteenth century and the work of Alfred Marshall and William Jevons, we’ve believed that this cycle would cause us to use up more and more of our planet’s resources. This was true throughout the Industrial Era, and especially in the years around Earth Day and the birth of the modern environmental movement. Environmentalists’ urgent cautions about resource use and planetary depletion were born out of an awareness of how powerfully technological progress and capitalism interacted. But then, for the reasons described in this chapter, that interaction changed. Tech progress and capitalism continued to reinforce each other, and to cause economies to get bigger and people to become more prosperous. But instead of also causing greater use of natural resources, they instead sparked dematerialization, something truly new under the sun. The fuel of interest in eliminating costs was added to the fire of the computer revolution, and the world began to dematerialize. The economic historian Joel Mokyr argues that the Industrial Era was made possible by the values of the Enlightenment. This intellectual movement began in the second half of the eighteenth century with many societies in the West embracing what Steven Pinker characterizes as four values: reason, science, humanism, and progress. According to Mokyr, the Enlightenment created a “culture of growth” that let both capitalism and technological progress flourish. I see an interesting inversion taking place now. If the Enlightenment led to the Industrial Era, then the Second Machine Age has led to a Second Enlightenment—a more literal one. We are now lightening our total consumption and treading more lightly on our planet. In America, the United Kingdom, and other rich countries, we are past “peak stuff” and are now using fewer total resources year after year. We’re accomplishing this because of the combination of technological progress and capitalism, which now let us get more from less.