The Myth of "Running out of Resources"

Infinite Resources

"The cavemen had the same natural resources at their disposal as we have today, and the difference between their standard of living and ours is a difference between the knowledge they could bring to bear on those resources and the knowledge used today."

-Thomas Sowell, Knowledge and Decisions 

HT Carpe Diem


.

Wagering Malthusians Continue to Lose

via Carpe Diem:

#1
Julian Simon via John Tierney Wins Another Bet

(Wikipedia on the original Julian Simon-Paul Ehrlich wager.)

#2

The Finite World of Paul Krugman's Thinking

Paul Krugman claims that the commodity markets are telling us that we're living in an Ehrlich-like finite world of resource scarcitywhere "the rapid growth of emerging economies is placing pressure on limited supplies of raw materials, pushing up their prices."

Don Boudreaux responds:

"It’s not true that vigorous economic growth necessarily makes resources more scarce. In fact, history shows that, because of human ingenuity, the opposite is not only possible but prevalent. Since the dawn of the industrial revolution in the mid-18th century, available supplies of coal, petroleum, iron ore, and most other resources have increased significantly – and, as a result, their real prices have fallen."

#3 A New Bet ?

Don Boudreaux proposes the following wager to Professor DeLong:

"Let’s make a bet very much like the famous bet that Julian Simon and Paul Ehrlich made in September 1980. Because of inflation, I propose that the wager be larger than the Simon-Ehrlich amount. How about $2,500? And I offer to you terms similar to those that Julian offered to Ehrlich. Like Ehrlich, you can choose whichever bundle of five or more raw materials you like, and choose which (professionally respected) means to be employed for adjusting nominal prices for inflation.

The bet will be for a duration of at least ten years, but no longer than 15 years. (You choose.) If I win (fat chance, I know, given the pinto beans I have for brains) you will contribute $2,500 (tax-deductible!) to the Department of Economics at George Mason University. If – er, when – you win, I’ll mail you a check for $2,500. Shall we wager?!"

But I like best how Mark Perry sums it up here:

[T]he bigger Simonesque lesson is clear: the "ultimate resource," i.e. the human mind, human capital, human ingenuity, and human innovation, are infinitely abundant, and will meet, address and overcome any scarcity in natural resources. The bottom line as I understand Julian Simon is this: we'll never run out of the ultimate resource. And that is why limited or finite supplies of natural resources have never, and will never, result in any significant binding constraints or limits on human progress, economic growth, or the continual increases in our standard of living, wealth and abundance.

Julian Simon himself:

"Untruth is the ugliest and most dangerous pollution that humans face today. It is just about the only pollution that cannot somehow be transformed into a product of value.” (Ultimate Resource 2, pg 527)
“The common assertions that resources are growing more scarce, that environmental conditions are worsening and that the poor suffer from economic freedom are the gravest danger to the poor and the environment.” (Ultimate Resource 2, xxxvii)

Or as I summed it up in a previous post on Simon:

The finiteness of any specific physical resource is made irrelevant by the presence of the ultimate resource: human ingenuity unleashed in a free society.

.

Lighting the Way

I regret not having the time these days for more thoughtful, analytic posts. Instead, I hope you enjoy these snippets of news and images illustrating ways in which Wealth is Not the Problem.



(HT Rino Rooter.)

Capitalism is Perfect

In an excellent response to Thomas Frank's attack on Capitalism, Wendy Milling states:

Since politics concerns the nature of government, and the essence of government is force, the full politico-economic application of property rights is a system in which government protects an individual's property rights from violation by others, but does not itself violate them. Capitalism is the politico-economic system of private property rights. It connotes a system whereby property rights (and hence, the other rights) are respected objectively and completely.

Capitalism is perfect...

Assaults on capitalism are rooted in a crybaby metaphysics, and they rely on obfuscations, equivocations, and an attitude of militant evasion. One trick is to make inappropriate demands of capitalism, then stomp and pout and denounce capitalism when those demands are not met.

One of the irrational demands made on capitalism is to provide infinite abundance, usually in some particular object of the demander's whim. The world has finite resources, and man has limited time and is not omniscient. There cannot be an infinite abundance of anything. This is not a flaw in any proposed politico-economic system (especially capitalism, which provides the greatest abundance of all of them), and in fact has nothing to do with systems qua system at all. It is a feature of reality.

A corollary demand is the erasure of all poverty, suffering, and, by logical extension, inequality among man. Appealing to an irrational sense of guilt, this trick ascribes to political systems an implicit, incompatible mission: Make it so that absolutely everyone is healthy, educated, happy, and has all the resources he wants (or some do-gooder wants for him). It then pronounces capitalism as flawed when such conditions do not materialize. Some degree of economic malady exists and will continue to exist under any system, including capitalism. It is not the responsibility of capitalism to eliminate, and it is not a feature of capitalism, but of a special facet of reality: Man's free will

Read the rest here.

"Wealth is not the Problem" Round Up

Check them out!

Trying to Recapture that Old Earth Day Magic Stephen Hayward, The American

"For the last 15 years, Earth Day has been the occasion for me to play the contrarian through the annual publication of the Index of Leading Environmental Indicators, which offered official government data documenting the substantial improvement in environmental conditions in the United States."

Consume More this Day Kenneth Green, The American

"The sooner people grow wealthy, the sooner the environment will benefit. Now, get shopping!"

Earth Day, 7 New Rules to Live By John Tierney, NYT

3. “Let them eat organic” is not a global option.

4. Frankenfood, like Frankenstein, is fiction.

5. “Green” energy hasn’t done much for greenery — or anything else

The Rich get richer, the Poor get richer, the New York times gets outraged. Don Watkins, Voices of Reason

Profit is a benevolent force that creates a harmony of interests among all producers, rich or poor–and any attempt to reduce industry profits can accomplish only one thing: to reduce the poor’s access to capital and prevent microloan companies from reaping the rewards they’ve earned."

A Reality check on the Neo-Mathusian world. Indur Goklany @ The Master Resource

"[I]nstead of becoming scarcer, resources (such as metals and food) actually have become more affordable, and the hunger and famine that had been foretold went AWOL"

"Must Read"s on Climate Change

Two superb articles on now available on-line, each of which addresses one of the two major aspects of the climate change debate: the science and the politics.

For the science, read Richard Lindzen's WSJ editorial "The Climate Science isn't Settled." I have been following Lindzen's presentations for several years and find him one of the most reasonable and well-credentialed of those who are speaking out against the existence of catastrophic anthropogenic global warming. In this editorial, Lindzen briefly summarizes the state of the science, offering an excellent explanation of what is known and generally agreed upon, as well as where opinion diverges. His explanation is easily understood by an intelligent layman.

For the political economy of how to solve our need for energy, read "Human Ingenuity: The Real Renewable Resource" by C. August, posted on his blog Titanic Deck Chairs. August's main point is that all resources derive their utility from human ingenuity, whether it is oil, sun, wind or coal. Without the human mind to "transform inanimate matter into life-sustaining values," natural resources would simply be rocks, poisonous goo and weather. The best way to solve our problems of energy access and environmental quality is to identify and protect the condition which maximizes the "inexhaustible resource" of human ingenuity: capitalism.

Capitalism unleashes the political and economic possibilities of the best within humanity. All of the creative, positive, progressive aspects of human activity are fostered -- not oppressed -- by the socio-political framework of capitalism, which means the system that fully and consistently protects individual rights in all areas of human interaction, leaving men free to produce, to solve problems, and to make enormous sums of money in the process. Nearly every modern convenience and life-sustaining technology that we take for granted today is ultimately the product of men who were free, at least in part, to use their minds, to innovate, and to produce.

.

World Car-Free Day

An international organization dedicated to a car-free world has declared September 22 World Carfree Day. Although I would agree that it is a good idea to periodically stop and rethink our life styles choices and priorities, it is important when doing so to keep the whole context in mind. Those of us wealthy enough to afford alternatives--either in terms of time or money-- should not be so quick to condemn certain items or activities as mere convenience or luxury. This point is nicely made by the editorial excerpted below.

Cars can provide the freedom and flexibility required to achieve essential goals, such as making a job accessible, or the ability to live where housing is affordable. They are efficient in conserving the most precious and scarce "commodity" we have: our time. Some of us are wealthy enough to forgo that efficiency--but it is unfair, unkind and short-sighted to impose that choice on others.

Aristocrats can afford car-free days

by Sam Kazman, 9/29/09 the San Fransisco Examiner

It is easy to forget the incredibly liberating nature of the automobile. In the 1910s-1920s the car ended the crushing isolation of rural life. In 1955-56, it enabled black people to boycott the segregated buses of Montgomery, Alabama. In the 1970s-1980s, it gave mothers the ability to enter the job market while still getting their kids to day care and putting food on the table. Today, the car allows new immigrants to enter the American mainstream by vastly expanding their choices of where to work and where to live....

Being able to get around freely is not some superficial desire that can be dismissed as the product of an allegedly car-addicted Western culture....The car, it appears, satisfies a pretty basic human need.

A philosophy professor who emigrated here from Eastern Europe once commented on Car-Free Day by noting that, given his time behind the Iron Curtain, he’d already endured enough car-free decades.

Wealth is not the problem. Wealth, and freedom, are the solutions.

.

Legal Plunder and Going Green

Solar Economics: Would You Pull A Lever to Get $12,000 if Somewhere in Massachusetts a Person Lost $58,000?

Coyote Blog does the math and explains the economics of government rebates for installing solar panels.

Conclusion: We all loose.


.

Is it worth the price?

Ian Murray points out that, even if passed, the "global warming " bill ready for review in the House will at best lower global temperature 0.09 ^oF, and leave unchanged the explosion in CO₂ production by developing countries.

So what will the Waxman-Markey energy bill accomplish?

Answer: Wrest revenue from private citizens and businesses to offset the massive increase in federal spending.

Just What Is Waxman-Markey For? By: Iain Murray
Washington Examiner 05-07-09

.

A pollution to worry about

One of the greatest tragedies of the environmental movement is the political pollution of science. In the article below, two atmospheric scientists decry the deleterious effect that global warming alarmism has had on our ability to discover and understand the complex truths about the real workings of earth's climate.

COMMENTARY: Global-warming politics

Pure science victim of an empirical meltdown

By Anthony J. Sadar and Susan T. Cammarata | Washington Times, 04-22-09

In our combined 50 years of professional atmospheric and environmental science experience in government, academia, activism and consulting, we have observed a dichotomy between the real and the academic-bureaucratic worlds of environmental science.

Scientists and engineers who work hands-on in the trenches with real-world environmental-science challenges on a daily basis are skeptical of claims of a substantial influence on global climate from human activity.

Academicians who view the world from their computer screens, theories, limited field investigations and well-read published reports are not only true believers but avid promoters of the theory of anthropogenic global warming (AGW)...

Our serious interest in the environment, however, is not unreasonable concern. Much personal, professional and academic experience tells us there's much more to be learned about the hugely complex climate system. And simple, politically motivated declarations of supposed climate facts and proposed solutions to dubious anthropogenic contributions to global warming will only abridge a full understanding of the biosphere and humans' limited interference with its natural operation.

The Missing Ingredient

"I have come to believe that we must take bold and unequivocal action: we must make rescue of the environment the central organizing principle for civilization." ¹



A central organizing purpose. I like that idea. Set a goal or a principle which then serves as a fundamental guide to setting priorities and directing action. At this stage in my life, my personal central organizing purpose is the health and well-being of my family, each member individually and all of us together as a functioning unit.

What about a civilization? Can it have a central organizing purpose?

Our country originally had a central organizing purpose: securing unalienable rights, among which are the rights of life, liberty and the pursuit of happiness. The Declaration of Independence states unequivocally the securing of these rights is why governments are formed. Subsequently, the Constitution was written with the express goal of creating the institutions which would protect these rights from violation by fellow citizens, foreign interlopers, and most importantly, by government itself.

How far we have travelled from this original purpose of government is sadly evident in the political platforms of both major parties for this election. Individual rights and freedom are rarely mentioned. Instead, we hear speech after speech telling us how government power will be used to achieve some specific policy: development of alternative fuels, affordable health care, retirement security, limits on CO2 production.

What has been lost is that none of these programs “for the greater good” can be implemented by government without violating the rights of individuals. Yet, protection of the rights of individuals is the sole legitimate function of any government! Somewhere along the way, we got off track. Instead of working to protect the individual, allowing each of us the freedom to set our own goals and priorities, and pursue them as we best see fit, government has become a behemoth of power and programs assuring that we are each others keepers (Obama), living not for our own sake, but for the sake of a “cause greater than self” (McCain)

Steve Chapman’s excellent editorial, recently published in the Chicago Tribune, addresses this issue by asking “When did the idea of freedom become a political orphan?” He points out that placing the needs of the community above the rights of the individual is not the fundamental principle of the United States, but of socialism. Putting country first, does not promote individual rights, but nationalism. And nationalism and socialism have not brought peace or prosperity to the world, but the opposite. Socialism and nationalism have brought concentration camps and the KGB, war and environmental destruction, impoverishment and famine. Neither current presidential candidate makes this connection. Both call for the subordination of the individual to the collective, one for the sake of the country, the other for the sake of the “poor.”

The missing ingredient today is individual rights and the liberty which flows from them. If applied consistently to each individual, then person and property are respected, and interactions are peaceful and voluntary. The “central organizing purpose” of civilization arises out of the sum total of all the actions and interactions which occur as individuals go about their lives, pursuing their own personal goals.

Only when a “central organizing purpose” respects the life and rights of each and every person can peace and prosperity be achieved. Anything less attempts to attain a “greater good” while sacrificing some individuals for others. Human sacrifice never has and never will preserve peace or create wealth. The missing ingredient for solutions to today’s challenges, whether it is hunger, political or economic inequality, national security, or environmental quality, is respect for human life and individual rights--as an absolute. No “solution" which violates individual rights can take us to a place worth going.


.

1. Al Gore, The Earth in Balance, Rodale, 2006, pg 269 (originally published 1992. )

The Scandinavian Myth-Busters

"I know of no time which is lost more thoroughly than that devoted to arguing on matters of fact with a disputant who has no facts, but only very strong convictions."

--James E. Thorold Rogers, Six Centuries of Work and Wages, pub. 1901; quoted in Julian Simon's The Ultimate Resource 2, pub. 1996


For twenty minutes of your most precious and scarce resource (time) and with the express goal of testing your convictions against the facts, check out the lecture Hans Rosling presented at the 2006 TED talks. He is one of three prominent Scandinavians currently presenting essential data and analysis on the true state of the world. Their completed works and on-going research effectively show the immense gains the world has made and provide a foundation of principles, thoroughly backed by empirical evidence, for how to promote continued improvement.

Here is a chart from Rosling's Gapminder site illustrating the correlation between wealth and health:

The chart is great, but really, take the time to listen to his talk. He's entertaining, funny and inspiring! Rosling has developed software that gives his presentation of statistics the excitement of the 100 yard dash.

The other two Scandinavians worth reading are Bjorn Lomberg and Johan Norberg. I don't agree with them on all their points, but what they bring to the discussion is superb and much needed.

Here is a sample from Lomberg in The Skeptical Environmentalist:

I will…challenge our usual conception of the collapse of ecosystems, because this conception is simply not in keeping with reality.

We are not running out of energy or natural resources. There will be more and more food per head of the world’s population. Fewer and fewer people are starving. In 1900 we lived for an average of 30 years; today we live for 67. According to the UN we have reduced poverty more in the last 50 years than we did in the preceding 500…

[E]ver fewer people in the world are starving. In 1970, 35 percent of all people in developing countries were starving. In 1996 the figure was 18 percent…

The constant repetition of …often heard environmental exaggerations has serious consequences. It makes us scared and it makes us more likely to spend our resources and attention solving phantom problems while ignoring real and pressing…issues…

The point here is to give us the best evidence to allow us to make the most informed decision as to where we need to place our efforts. What I will show throughout the book is that our problems are often getting smaller not bigger, and that frequently the offered solutions are grossly inefficient.¹

Lomberg then follows with 500 pages of data on trends in key areas of human well-being: health, hunger, education, pollution, crowding, environmental quality. Knowing the true state of the world and the direction of trends is a crucial. Setting priorities and choosing which problems to tackle requires a debate over values. That entails an entirely different conversation, but first, we must get the facts right.

And here's a recent one from Norberg:

MORE POVERTY - THE SAME POVERTY REDUCTION:

It took some time, but now the World Bank’s revised poverty figures 1981-2005 have been published, taking better purchasing power statistics into consideration - and introducing a new and higher poverty line, $1.25 a day instead of $1.

The bad news is that the world is poorer than we thought, but the good news is that the world has been no less successful in reducing poverty than we thought. In other words, we had more people in poverty in 1981 than previously estimated but that number has been reduced by as much as previously estimated. Another way of putting this is that the decades before the 1980s were worse than we thought, but the decades since were just as good as we thought - and that’s important to keep in mind since at least Swedish radio presented this as if the number of poor increased dramatically right now.

The proportion in absolute poverty in developing countries 1981-2005 was reduced by half, from 52% to 26%. And despite an increase in world population by 2 billion, the number in absolute poverty was reduced by 500 million, from 1.9 to 1.4 billion. This means that 57,000 people have left extreme poverty every day since 1981. And the last decade has been the best one.

One word of warning though: This study does not cover the last two years when food prices increased dramatically, and poverty probably increased. We’ll have to wait for those figures. Just like before, we see dramatic regional differences. In globalised East Asia, poverty was reduced from 79 to 17 percent, in marginalised Sub-Saharan Africa it stayed around 50 percent the whole period (even though it has come down from 57.5% in 2006).

Here is the study, and here is a summary. ²

What is the state of the world? It isn't perfect. There is still too much suffering because of poverty, war and tyranny. But it is improving, especially when you consider the long-term trends. Humanity is still in its adolescence, stumbling with fits and stops toward maturity. Mistakes are bound to occur. It's all a part of the learning process. Yet, the task is hard enough without shackling ourselves with misinformation. I hope the above scholars find a wide and receptive audience in their efforts to dispel error and correct misconceptions.

As another key myth-buster, Julian Simon, so poignantly wrote:

"Untruth is the ugliest and most dangerous pollution that humans face today. It is just about the only pollution that cannot somehow be transformed into a product of value.”³

“The common assertions that resources are growing more scarce, that environmental conditions are worsening and that the poor suffer from economic freedom are the gravest danger to the poor and the environment.” ⁴

Let the facts roll in!

1. Lomborg, Bjorn, The Skeptical Environmentalist, pg 4-5
2. from Norberg's blog entry Aug. 28, 2008: 14:07
3. Ultimate Resource 2, pg 527
4. Ultimate Resource 2, xxxvii

Finite Resources vs. Infinite Resourcefulness

People and prosperity threaten the planet and our very existence!! We’re running out of oil! Of fresh water! Clean air!

“Glaciers are melting, plants and animals are being forced from their habitat, and the number of severe storms and droughts is increasing.” An Inconvenient Truth current website (1)

“Big squeeze on the world’s freshwater resources looms as populations mushroom and incomes rise. “Facing the Freshwater Crisis.” Scientific American August 2008

“World oil demand is surging as supplies approach their limits.” National Geographic, current website (2)

Our consumption is excessive. If we continue to consume our natural resources, there will be nothing left for the future.

Use less. Do it for the children!

Limit. Limit. Limit. Do it for the poor!

A significant number of environmental concerns center on this fear of using up some important resource: oil, rainforest, fresh water, open space, biodiversity. The concern is genuine. The fears are real. People then work to pass laws which intentionally slow production and hinder (even prevent) consumption. The express purpose is to make us poorer in the short run with the hope of preventing poverty in the long run.

It’s common sense. Save today in order to have some available tomorrow. It’s how our bank accounts work, so it seems logical to apply the same reasoning to resource use. But there is a catch. All of economic history, up to and including today, demonstrates that the more we exploit our natural resources, the more available they become. (3-7) How can this possibly be? If we use our “limited, non-renewable resources” we have to end up with less, right?

Actually, no. And here is why.

We don’t simply “use up” existing resources; we constantly create them. We continually invent new processes, discover new sources, improve the efficiency of both use and extraction, while at the same time we discover cheaper, better alternatives.

The fact that a particular physical substance is finite is irrelevant. What is relevant is the process of finding ways to meet human needs and desires. The solutions, and thus what we consider resources, are constantly changing. Oil was a nuisance, not a resource, until humans discovered a use for it.

In order to survive and flourish, human beings must succeed at fulfilling certain needs and desires. This can be accomplished in a multitude of ways using a multitude of materials. The requirements of life set the goals. How these goals are met does not depend on the existence or the availability of any particular material. Limits are placed not by the finiteness of a physical substance, but by the extent of our knowledge, of our wealth, and of our freedom. Knowledge. Wealth. Freedom. These are the factors which are essential to solving the problems we face.

“The Stone Age didn’t end because we ran out of stones.” (8)

Think for a minute about how we have solved the problem of meeting basic needs throughout history:

Transportation: from walking to landing on the moon
Communication: from face-to-face conversations to the World Wide Web.
Food: from hunting and gathering to intravenous feeding and hydroponics.
Shelter: from finding a cave to building skyscrapers
Health care: from shamans to MRIs and neurosurgery.

How does progress happen? A synopsis of the process is provided by the main theme of Julian Simon’s book, The Ultimate Resource 2:

More people, and increased income, cause resources to become more scarce in the short run. Heightened scarcity causes prices to rise. The higher prices present opportunity and prompt inventors and entrepreneurs to search for solutions. Many fail in the search, at cost to themselves. But in a free society, solutions are eventually found. And in the long run, the new developments leave us better off than if the problems had not arisen, that is, prices eventually become lower than before the scarcity occurred. (9)

This idea is not just theory. Economists and statisticians have long been analyzing the massive amounts of data collected on resource availability. The conclusion: our ability to solve the problems of human existence is ever-expanding. Resources have become less scarce and the world is a better place to live for more and more people. (3-7) Overall, we create more than we destroy as evidenced by the steady progress in human well being and there is no evidence for concluding that this trend can't and won't continue. Doomsday predictions have been with us since ancient times and they have consistently been proven wrong.

The science of economics has a crucial perspective to offer in the debates on resource scarcity and environmental policy. As economics professor Steven Horowitz explains, “The problem of scarcity –and how to handle it- are at the center of the discipline.” (10) The claim that resources are not finite goes against our common sense, but, that’s when science has the most to offer: when the facts, and their cause and effect connections, are counter-intuitive. What seems obvious may in fact be wrong. Science is what allows us to discriminate.

Economist Julian Simon refutes the environmentalist focus on "finite resources" with an extensive presentation of empirical evidence as well as a theoretical explanation for the long-term decrease in resource scarcity. He also offers several possibilities as to how we could continue to increase our supply of minerals, energy and food, while simultaneously improving the quality of our air and water. (3) Economist Dr. George Reisman offers both an economic and philosophic analysis of functionally unlimited resource availability in “Natural Resources and the Environment,” the third chapter of his treatise on economics. (11) Indur Goklany provides updates to the evidence that economic growth and environmental improvement go hand-in-hand.

Resource development, economic progress and environmental improvement do not take place in a political vacuum. The connections between freedom, wealth and human-well being are documented and analyzed in at least two projects, the Economic Freedom of the World and the Index of Economic Freedom. Economic liberty, in particular the right to property, is an essential ingredient for releasing the potential of technology and innovation to solve the challenges we face. Here too, economists have much to add to our understanding on the mechanisms of resource (and wealth) creation. It is their stock and trade.

The finiteness of any specific physical resource is made irrelevant by the presence of the ultimate resource: human ingenuity unleashed in a free society.



(For details and an in-depth analysis, check out Simon and Reisman. For a short and to the point introductory explanation of the key ideas, check out the article by Horowitz. Since The Freeman allows reproduction of its articles, you can read the article posted in my blog below. )

1. http://www.climatecrisis.net/thescience/
2. http://ngm.nationalgeographic.com/2008/06/world-oil/roberts-text
3. Simon, Julian The Ultimate Resource 2 Princeton University Press, Princeton NJ, 1996
4. Moore, Stephen and Simon, Julian It’s Getting Better All the Time Cato Institute, Washington, D.C. 2000
5. Lomberg, Bjorn The Skeptical Environmentalist: Measuring the Real State of the World Cambridge University Press, 2001
6. Goklany, Indur The Improving State of the World: Why we are living longer, healthier, more comfortable lives on a cleaner planet. Cato Institute, Washington, D.C., 2007
7. Reisman, George Capitalism: A Treatise on Economics, Jameson Books, Ottawa, IL, 1996
8. I am working to locate the source of this quote and will add it when I find it.
9. Simon, 1996, pg 59
10. Horowitz, Steven "Economists and Scarcity" The Freeman, June 2008
11. Reisman, 1996, pg 63-6611. Reisman, 1996, pg 63-66

Economists and Scarcity

By Steven Horwitz

Steven Horwitz is a professor of economics at St. Lawrence University.

In a world where concerns about the environment and resources dominate political discussion and, for people like Al Gore, are a “generational mission [that gives] moral purpose” to our lives, thinking clearly about these issues is crucial. Economics can contribute to this discussion by providing its perspective on words such as “scarcity” and “resources,” which are often contested or misunderstood.

But how economists use those words is vulnerable to misunderstanding. For example, some environmentalists think that certain economists deny that scarcity even exists when they argue that we are not really running out of resources or that technology can solve any problem in this regard. The sorts of arguments criticized by the environmentalists are most closely connected with the work of the late Julian Simon, especially in his book The Ultimate Resource 2. However, the criticism reveals a misunderstanding of Simon’s and other market-friendly economists’ views.

It is certainly true that nonrenewable resources are limited in physical terms. From the perspective of the geologist, there is only “so much” oil to be extracted.

However, from the economist’s perspective, what matters is not physical quantity, but how efficiently a resource meets a human need. We care about oil because we want energy. If through new technology we can create the same or more energy with less oil, then in an important sense we have more oil than we had before. The existing quantity of oil can now serve more human needs. Moreover, falling costs of extraction can also lead us to find previously undiscovered oil or to tap into known supplies that had been too costly to reach.

So advances in technology do indeed matter, not because they abolish scarcity but because they enable us to stretch the resources we have so that they are functionally less scarce than they were before.

When we speak of improvements in technology, we really mean new and more efficient ways to achieve the ends to which the old resources were a means. New technology might enable us to use an existing resource, such as oil, more efficiently, but it can also provide a new solution to the same problem. For decades, the human voice and data were transmitted by copper wires. Eventually, copper’s price rose to where entrepreneurs had a strong incentive to find another way to provide the service. Eventually they developed sand-based fiber-optic cable, which can carry thousands of times the data for a fraction of the cost of copper. The development of the soft-sided beverage containers—juice boxes—is a similar story, and it is worth noting that their lighter weight reduces gasoline use per unit.

When economists say, “We will never run out of resources,” what they often mean is that faced with increasing scarcity of one resource, we will always find new solutions to the problem that that resource originally solved. In an important sense, the actual economic resource was not copper but “the ability to convey voice and data.” And that resource has become “less scarce” by the substitution of sand. This illustrates Simon’s point that the “ultimate resource” is the human ingenuity that finds new and better ways of using physical resources.

Although technology can fix things, it does not exist in a vacuum. Technological solutions emerge because the right economic institutions are in place. The market provides signals which inform people that a resource is growing more scarce and provide incentives to address the problem. Even some critics of environmentalist arguments forget this point. The role of institutions is clear where technology has not stopped resource depletion, such as overfishing, because the absence of private property and meaningful prices has created a “tragedy of the commons.” The tragedy is that no one has an incentive to husband the resource. This is not a failure of technology but a lack of proper institutions. If the commons are privatized, incentives will exist to develop resource-conserving technologies.

The Central Concern of Economics

What’s so absurd about the criticism of economists for not caring about resource scarcity is that the problem of scarcity—and how to handle it—are at the center of the discipline. The whole case for free markets is about allocating resources most efficiently to push back scarcity and communicating when a resource has become so scarce that we need to cut our use and find substitutes. That’s what market prices determined through the exchange of private property do. This is also why many economists have concerns about the institutional changes advocated by many environmentalists. Limits on property ownership undermine the very processes that would solve many of the problems they identify.

Can it be proven that technology will always provide an alternative when a resource becomes too scarce? Not in any rationalistic sense. We can offer lots of arguments from theory and history, but we cannot guarantee it 100 percent. However, the evidence and theory overwhelmingly indicate that we do not run out of resources when market institutions are in place and people are more or less free. Certainly markets do not solve problems perfectly, but imperfections do not make alternative institutions better. They may well be worse.

Scarcity is like gravity: it is omnipresent, and much of our lives is a struggle to find ways to overcome it. The existence of elevators and airplanes is not evidence that gravity is a myth. They are attempts to defy its very reality. Elevators improve our lives by giving us a way to push back at gravity and reduce the ways it frustrates our efforts.

Market institutions enable us to push back at scarcity as much as possible, much as elevators push back at gravity, and in so doing, make it considerably easier for individuals to achieve their myriad goals.

Some critics of the economic arguments for markets also suggest that economists dismiss scarcity whenever they claim that markets are positive-sum “games.” It is true that economists understand that exchange creates wealth for all parties, while the critics seem to believe that any gains are offset by losses, even that the wealth of the few causes the poverty of the rest. At first glance, one can see why this criticism might be valid: how does exchange create wealth out of nowhere? Does that not seem to suggest we are not acknowledging scarcity?

Not at all. In the short run, exchange—whether a trade between two people or an act of production that trades inputs for outputs—makes people better off. This results not by creating more physical stuff but by rearranging what exists to make it more valuable to human beings. While we each think we’re better off when we make an exchange, mutual benefit does not require a denial of scarcity; rather, exchange is one more way we push back against it.

This mutual benefit reinforces the point that value is a product of human minds, not of the objective physical world. In fact, we cannot even understand the concept “resource” without recognizing this point. For most of human history oil was a nuisance. People didn’t want land with oil on it because it polluted the soil. However, once human minds realized that it could be converted to energy, it became a resource, and as we begin to create substitutes for it, as with copper wire, it will become less of a resource. From an economic perspective, what makes something a resource and what determines its scarcity is the interplay between its physical quantity and the human mind’s perception that it can satisfy human wants.

In the longer run, the benefits of exchange, when combined with the institutions of the market, create the wealth that people can save in order to finance the investments that will lead to better and cheaper products for exchange. Real, tangible economic growth happens—not just for the wealthy, but for all. Again, we stretch the resources we do have even farther.Theory aside, it would also be hard to deny that several centuries of more or less free markets have produced a tremendous rise in the living standards of the poorest people in the West. The same is beginning to happen elsewhere. To argue that the wealth of the wealthy is the cause of the poverty of the poor (the “some win at the expense of others” argument) flies in the face of historical facts.

Poverty and early death have been the norm throughout history. The power of private property, free exchange, and markets to change that norm has been the single most progressive force in human history. Scarcity is all too real and causes all too much human suffering, which is why we need genuine market institutions to continue to reduce its effects, especially on those who suffer most.

Horowitz, Steven "Economists and Scarcity" The Freeman, June 2008

News Flash!! Climate is Changing!

Climate is changing, but then it always has. That is not controversial. It certainly isn’t news.

Nonetheless, we are daily treated to articles like a recent Op-Ed by Thomas Friedman in the New York Times which adds nothing to our understanding of the climate situation. His wonderful descriptions of Greenland and individual impressions of how the weather has changed tell us nothing about the cause of those changes. Friedman's use of these images to paint a tragic picture of changing climate is simply an emotional appeal which takes as a given that human CO2 emissions are the cause.

But is it? What is the evidence? Friedman offers none. Does the science actually support the conclusion that human CO2 emissions are causing harmful climate change? Or have we just been inundated by decades of repetition so that now we accept it as true in spite of the fact its scientific status is still controversial?

Stop. Think. On what scientific facts and climate theory are you basing your opinions? Are you familiar with the major scientific challenges to the current “consensus” on anthropogenic (human-caused) climate change? Is there validity to the data and arguments presented by those who disagree (also here and here) with both the conclusions of the Intergovernmental Panel on Climate Change as well with the very process that generates that body’s science and its Summary for Policy Makers? What are the criticisms being offered to the standard view of catastrophic global warming? Is there any merit to those criticisms? What do you actually know, as opposed to what have you heard?

One simple question to consider: Is the average global temperature increasing?

It depends. What time frame are you considering?

The earth’s temperature has been changing ever since it formed. From a 600 million year perspective, we are currently in a relatively cool phase. (*)

Figure 1 Average Global Temperature 600 million years to present

If you look at the temperature record for the past 400,000 years, we are currently at an interglacial temperature peak.

Figure 2 Temperature difference over the past 400,000 years


A close up examination of temperature estimates for the last 3000 years shows us emerging from the Little Ice Age.

Figure 3 Surface Temperature of the past 3000 years

Zooming in to the last 150 years shows two periods of warming: 1900-1940 and 1960-2000.

Figure 4 Average temperature difference for the past 140 years

The first warming period occurred before any significant change in atmospheric CO2 and had to occur for some other reason. So why so much confidence that the second warming period is caused by human CO2 emissions?

Proponents of CO2-induced global temperature change frequently refer to a pair of charts which demonstrate a remarkable correlation between historical CO2 levels and global temperature. Figure 5 Temperature and CO2 for the past 400,000 years

These charts tell us nothing about which is cause and which is effect. It could be either. However, let’s zoom out from this view of the last 400,000 years and look at our best estimates of CO2 and temperature over the past 600 million years.
Figure 6 Temperature and CO2 over the past 600 million years

The correlation no longer is so clear.

Fact: there is no general theory of climate which adequately explains changes past or present. There is much that is understood, but crucial areas are poorly understood. Complexity in and of itself is not a reason for skepticism, but climate science is both complex and young. There are large gaps in our knowledge, not just of data but of the fundamental principles which are operating: the roles of ocean currents, cloud cover, precipitation, water-vapor feedback, cosmic rays. Even by estimates of the IPCC, much of our scientific level of understanding is “low.”

Why this topic in a blog on wealth? Because the promoters of catastrophic anthropogenic global warming are telling us that we need to drastically reduce our consumption of energy in order to save the planet. The economic effects of mandating the switch away from fossil fuels to more expensive energy alternatives will be devastating to the millions of people living “at the margin.” Be sure you adequately understand the science before you vote to condemn them to poverty, or worse.

And be on the look out for articles like Friedman’s which are mere emotional appeals promoting a political solution without addressing the controversial aspects of the underlying science.

(*) Figures 1-6 taken from “A Global Warming Primer” by the National Center for Policy Analysis. The primary sources for the data are cited at the end of the Primer.

50 by 50 needs a 5150

or: The G8 Pact for Economic Suicide


For those of you not following the latest international political posturing, 50 by 50 stands for reducing greenhouse gas emissions 50% by 2050. And for those of you unfamiliar with California's Welfare and Institutions Code, Section 5150 is the statute which provides for involuntary psychiatric confinement when a police officer or physician determines a person to be a danger to himself or others. By any rational economic, political or scientific standard I can think of, the signatories of 50 by 50 would qualify.

In the name of efficiency (meaning the best use of both your and my time,) rather than attempt to recreate an already excellent summary of this situation, I refer you to the following article, “Our leaders are in carbon-cloud cuckoo land” by Christopher Booker, published this past Thursday (7-10-08) in the UK Telegraph.

Somewhere in the stacks of articles on my desk, there is one which provides an excellent update on the current comparative costs of energy produced by oil, gas, coal, solar, wind and biofuels. When I find it, I will pass it on!

Man's Limitless Need for Wealth

This is my friend Roger Slothower.

Roger, one of the most full-of-life people I know, died very unexpectedly of a heart attack on May 19, 2008. For me, Roger’s sudden death makes it all the more real and personal why we can never have enough wealth.

Current “cultural wisdom” contains an outcry for cutting back: less production, less consumption, less wealth. We repeatedly hear how our standard of living is destroying the earth and the future. Our wealth is the evidence used to convict us of the crime of wasting precious, scarce resources, of polluting the atmosphere with climate-changing CO2, of causing the poverty present in rest of the world. We are too greedy! We have more than we need!

By what standard?

The above conclusions are all based on the assumption that the earth and its resources are the limiting factor, that the greatest scarcity we face is the finiteness of pristine natural resources present on our Spaceship Earth. And thus, the cry to conserve resources and ration our use of energy. Recycle, Reuse, Refuse and Reduce.

Yet, the shortages we face in usable natural resources are minimal when measured against the scarcest resource of all: human life. With the exception of the miniscule amount of matter changed into energy in a nuclear explosion, we never use up anything! We only change how it is arranged, its present form and function. Trees are turned into houses and paper. Sand is turned into fiber optics and computer chips. Water and soil are turned into food. And so forth. The matter changes form, but none of it disappears. What disappears is people.

People are the truly finite resource. We are what come and go on this earth. Each of us has a very limited time here, and when it is over, it is over. Forever. By the standard of human life, we do not have enough wealth, enough material goods used in service of our lives. We do not produce or consume enough. When human life is seen as the highest value, the need to conserve physical matter pales by comparison.

Is it possible to have too much of one’s life? Too much health? Too much well-being? In order to continue expanding our human potential, improving the quality of our lives, we must exploit the material resources on earth. We must take the nature-given and alter it to better serve our lives. Even the preservation of wilderness is a value stemming from the beauty and respite it offers us in lives that flourish because of the prior exsistence of wealth beyond the requirements of mere survival.

By the standard of human life, it is human time, human labor that must be conserved. The way this is achieved is to increase the productivity of labor. That means increasing our investment in capital goods: the machines, the tools, the knowledge and technology, the systems of organization which allow us to accomplish more in less time. That means preserving and expanding human freedom so as to unleash the creative potential needed to solve the problems of producing ever more wealth.

When my grandparents were children, people died and were crippled for lack of antibiotics. In my mother and father’s time, children lost their parents from the lack of open-heart surgery and cardiac catheritization. In my time, we lost Roger from the lack of an economical way to diagnose unsuspected vulnerability to heart attacks, and my brother-in-law Glenn from the lack of effective treatment for cancer. My mother to Parkinson's. My friend to depression. So many others....

The solution is more wealth. Wealth applied to the advancement of human life.

For some people, that means increased access to clean water, adequate nutrition and shelter. For others, it means pushing the envelope of medical technology and a million other things we could dream up. All of this requires human labor, ingenuity, creativity. We have all the resources in the world. What we need is more time.

Roger may not have agreed with this perspective. In fact, chances are, he wouldn’t have, though I don’t think he’d mind this tribute. I just wish I could talk with him and find out.

.

Priceless Green Angst

“Paper or plastic?”

This simple question, asked with a friendly, innocent smile by the grocery store courtesy clerk (a.k.a. check-out bagger) is enough to cause shopping paralysis in a conscientious “green” consumer.

Paper biodegrades, but logging leads to the cutting of old-growth forests. Plastic ends up in landfills, but it manufacture uses less CO2-producing energy. There’s always reusable canvas bags, but how do you calculate the value of your time remembering to bring them as well as cost of purchasing them? Is this really an important enough issue to spend hours on the internet researching all the alternatives?

Multiply this quandary across a myriad of consumer choices (cardboard cartons or glass milk bottles, disposable diapers or water-intensive cleaning of cloth ones, mercury-containing compact fluorescent bulbs versus energy-sucking incandescents, biofuels and food shortages versus expensive hybrids versus less convenient mass transit) and what you end up with is green overload and angst.

How can anyone ever have the time to bike to work if they have to spend all that time researching and evaluating the costs and benefits of these everyday purchases? How is anyone supposed to figure out what is the best and most efficient use of Earth’s scarce resources?

We are all caught in the throws of economic chaos. A misplaced desire to “save the earth” has ended up destroying our best means of rational, economic (and ecologic) calculation: the free market price system.

The free market acts like a vast computer coordinating the trillions of decisions made by all participating individuals as to what resources are desired and in what quantities. Prices are the signals which integrate and harmonize the plans and decisions of each individual with the plans and decisions of everyone else*.

Free market prices reflect the sum total of demands relative to supply for every resource (along with every existing alternative use of every resource.) The profit motive assures us that the most efficient users of those reources are the most highly rewarded, and that inefficient users are penalized. For the system to function optimally, profit seekers must be free to compete and consumers must be free to choose.

Every government intervention into the free market system acts as a price distorter. Actions such as taxes, tariffs, regulations and license requirements add artificial costs, making something seem more scarce than it really is. Subsidies, price controls, tax and regulatory breaks make a resource seem more abundant than it really is. These attempts to “fix” the free market actually work to disrupt the very mechanism needed for rational economic calculation. Even with all the research you can muster trying to sort through costs, benefits, pros and cons, the current system of distorted prices will never give you more than guess work. Garbage in, garbage out. If the data you are working with to make calculations does not reflect true scarcity or abundance, there is no rational way to decide. The end result: chaos, angst.

Unhamper the market by eliminating artificial manipulations via government intervention (which really means coercion requested by some special interest group) and decisions become straight forward: profits and free competition direct resources to their most efficient uses and users. Prices reflect true supply (or if you prefer scarcity) relative to actual demand. In this way, free market prices give us the information we need to make intelligent decisions regarding the best use of resources. When you go shopping, you can then make your personal private choices by balancing your own priorities with your own scarce resources. And, every other free individual gets to do the same.

The free market helps us preserve not only our resources, but our freedom as well.

*Thank you to George Reisman for this formulation, and others, in multiple works including Capitalism (see link under Politics and Economics in sidebar.)

(Published in TIA Daily June 19, 2008)

Politics, Science and Climate Change

Next week, congress begins debating the Lieberman-Warner Climate Security Act. The goal of this legislation is to drastically reduce U.S. emissions of CO2 into the atmosphere because of its purported effect on global climate.

I have been intensively studying global warming for over a year – reading up on the science, politics and economics of this issue. Acutely aware of my biases, I have made a concerted effort to review multiple points of view, matching point and counterpoint on many aspects of the debate. There are excellent websites by leading climatologists which explain and analyze a variety of topics. In regards to the science, there seems to be well-intentioned, honest proponents with a wide spectrum of views.

What has become clear to me, however, is that too much of the science is hopelessly tangled with politics. The strongest proponents of anthropogenic, catastrophic, CO2-induced climate change (now there’s a mouthful!) are also the strongest proponents for government-imposed plans which reduce and ration energy use. The Lieberman –Warner bill is one of those plans.

The questions surrounding climate change involve both science and politics. Although these disciplines both require the use of facts and logic, the set of facts and the flow of arguments appropriate to each are not identical. These two aspects of the problem must be separated out in order to adequately analyze the quality of evidence presented and the logic of their conclusions.

I can see four main questions to be addressed, each with its own set of debatable data and arguments:

1) Is the global temperature rising?
2) Is there a measurable anthropogenic effect on global climate over and above natural variance?
3) Will we be worse off in a warmer world?
4) What is the best way for humans to respond to a change in climate?

An affirmative answer to questions 1 and 2 does not automatically lead to an affirmative answer in question 3. And, regardless of how you answer the first two questions, the fourth is completely unrelated!

The first two questions are appropriately addressed through scientific study, with all the attendant guides as to what constitutes adequate evidence for drawing conclusions about cause and effect. Questions 3 and 4, however, take us away from matters of the physical sciences into the realm of values and politics: What constitutes a better world? And, who gets to decide?

Regardless of whether you think the economy should be directed by the government or left to free individuals, it is intellectually dishonest to use climate science to push a political agenda. If what is desired is to use government force to prevent humans from using natural resources for their own purposes, that case needs to be made straight up. The facts of climate change, whatever they truly are, do not mandate a specific political action.

From my understanding of what conditions lead to improved human well-being, even if anthropogenic climate change is occurring, the best response is not forced reduction of energy expenditure. For a multitude of reasons, I see the measures proposed by the Lieberman-Warner bill as disastrous.

Life requires energy. Prosperity requires lots of energy. Our ability to respond to the challenges of nature, including those which humans cause themselves, are greatly enhanced by increasing our access to usable resources. As devastating as Katrina was to New Orleans, the loss of life and property there pales in comparison to the effects of the tsunamis and earthquakes in Asia. A significant contribution to the difference was the degree of material wealth available to the victims at the time of the disasters.

Changes in climate can be dealt with by means of adaptation and/or active mitigation. Our ability to respond to changes is enhanced by greater use of energy in order to further develop and exploit natural resources. To reduce energy and block resource development is to enshrine poverty. And that is a separate issue from whether or not the world is getting warmer.

Whether or not you agree with my conclusions, I think the discussions will be much more fruitful if we can keep the politics out of the science, and vise versa.