Sector Breadth and Diversification


Sustainable Economy, Sustainable Planet

One of the key observations underlying Next Economy investing is that we all desire an indefinitely growing economy with good standards of living, but we live on a world with finite space and resources. Dollars, Euros and Yen, are proxies for all that has to be farmed, mined, netted, or otherwise extracted from Earth. But unlike currencies, when a natural resource is done, it’s done. No amount of cash printing will bring back lost glacial water, extinct species, coral reefs, eroding beaches, arable land, or a cooler climate.

Earth now has more than seven billion people, all of whom are striving for greater affluence. Subsequently, those of us alive today are the first humans to be testing the physical limits of Earth’s carrying capacity (a term from ecology referring to the maximum number of organisms a given environment can support). Simultaneously, our economic output is limited by the total amount of commodity resources we can extract or reuse. We now, after 200,000 years of human existence and 12,000 years of culture, are forced to conclude that Earth is essentially just one giant bio-enclosure, and we have to learn to live within its increasingly limited physical and material constraints.

Whether ecology or economy, the more energy put into a system, the greater its potential productive output. Economic systems respond to the same laws and behave like natural ones. Ecological systems can and do thrive and collapse for basic fundamental reasons that are more or less understood, and we can say the same for markets. This is what we mean when we say that the global economy and Earth’s environment must be made to come into equilibrium. Earth, unlike a federal ledger, won’t tolerate a deficit balance.