It’s somewhat humorous, if only tragically so, that environmentalist doomsayers have such a microscopic and amnesiac view of history. They soon forget the message of Paul Ehrlich (just a small, readily available example) and others who made livings and best sellers out of telling us we are all doomed. Ehrlich’s famous book The Population Bomb predicted a seeming Mad Max future for humanity by the 1970’s and 80’s. The Population Bomb was first published in 1968. It begins with these words:
The battle to feed all of humanity is over. In the 1970’s and 1980’s hundreds of millions of people will starve to death in spite of any crash programs embarked upon now.
Nothing that Ehrlich said has come true. However, he has remained unblemished in his reputation. Population growth was not the only item of Ehrlich’s attacks. Natural Resource depletion received a substantial portion of his warnings. Julian Simon, a respected and amazing (in my opinion) economist, asked Ehrlich and other like-minded chicken-littles to put their money where their mouths were. In 1980 Simon asked the Ehrlichians to pick any resources they wished, any time period they wished, in order to speculate on diminishing resources. Ehrlich and others picked five resources whose prices they where sure would be higher (in real terms) at the end of ten years of their continued extraction from the Earth. At the end every single resource’s price fell rather than rose.
What are we to learn from this? Well, many things, most of which have to do with the function of prices in a (free) economy. Prices convey information. Through a simple organization of numbers a free-market economy is formed into a well-functioning system in which a fixed amount of goods and services are distributed to an economy constituted of millions of people desiring to do different things with the world. In short, prices change, fluctuating with the known state of the real world. Furthermore, they fluctuate with people’s desires towards the world. Also, as importantly, people’s desires towards the world fluctuate with prices.
What does this mean? Say tomorrow a large deposit of nickel ore is found in Siberia. The new nickel on the market will drop the price. I, as a possible consumer of nickel, need to know nothing about how much nickel was found, or even that it was found, in order to see that the price of nickel has dropped. Furthermore, I will adjust my behavior to the new pricing reality. The converse situation is likewise true in understanding scarcity. If no new nickel is found in the next ten years then the price will reflect this information. Likewise, I, as a possible consumer of nickel, will possibly find substitutes for nickel – which may have reached high enough price that another resource is more cost-effective or that it is cost-effective to research ways to diminish my use and need for nickel.
Now, take oil. No one knows how much oil is in the Earth. This information is very costly to obtain. It is costly in the economic sense of the term – many things would have to be traded-off in order to discover the total amount of oil on Earth. Furthermore, one wonders if it is even possible to discover this information – now, or in the near future. However, economies are built for the ignorant. They are the for the functioning of limited, ignorant creatures with many desires that compete with each other in a finite world. To know exactly how much of a resource there is, how much people want it and will want it, and how people’s behavior will change under new realities is to render economies obsolete and to invite this magnificent all-knowing person/deity to control all of our actions in order to make us all happier. If such a thing were possible, I would be the first to invite this omniscient being to rule over us all.
Oil companies endure extreme costs for exploratory drilling – it is a very expensive endeavor. It only becomes worthwhile when the price of oil is sufficiently high to make exploratory drilling a cost-effective practice. Thus, companies will drill the oil they have for now. The oil companies know that this may only be 13 (or so) years of oil but they do not worry. They will find more. To predict that the loss of these reserves will mean a total loss in oil has been likened by economist Thomas Sowell to predicting that a household will go hungry because it will run out of food in a week Ôø? all the while ignoring the fact that the solution is to go and buy more food when desire becomes great enough and the cost becomes low enough.
And, if and when the day comes that we can’t find more, the world will be forced to adjust to that new reality. This reality will be conveyed by prices (if allowed to function freely) and people will act under effective incentives to change their ways – be they consumer or supplier. We no longer burn whale fat for lamp-oil, one day we may trade nuclear for coal power or some other unknown method. All of this activity will be controlled by the functioning of prices.
Therefore, predictions about coming oil crises are always based on misinformation because economies themselves are based on misinformation – or, more adequately, incomplete information. However, these predictions are misleading and harmful because they pretend to be based on “all the facts” – facts that no human being has or can have. As stated previously, no one knows how much oil is in the Earth. This does not change the fact, however, that chicken-littles will always have an audience because what they have to say is interesting – more than everything stated here and elsewhere that is pretty dry and not streamlined for popular consumption. Websites such as this and this are quite ignorant of what I have stated here – but are quite interesting to many people. Likewise, Vance Packard had a 1960 best seller entitled The Waste Makers in which he blatantly stated:
In oil, the United States is clearly approaching depletion. At today’s rate of consumption – not tomorrow’s – the United States has proved reserves of oil sufficient to meet the nation’s needs for thirteen years.
The obvious truth that there are a limited amount of resources on the planet and a seeming infinite amount of desires is relevant. However, I am reminded of John Stuart Mill’s almost paralyzing fear that the world would run out of musical compositions – finite notes makes for finite musical pairings. Thinking of the number of musical innovations that had yet to come – jazz, country, rock and roll, not to mention Schonberg’s harmonic innovations – it is difficult to understand his fright. However, we are usually totally unaware of the future paths our societies may take. The microchip wasn’t a faint hope in the 1930’s – a mere 30 years before it was invented. This is likewise true of countless innovations. Thus, the simple fact that “there are limited resources and unlimited desires” is not personally troublesome. What is a “resource” cannot even be quantified in this limited view. When similar predictions were made in the 19th century societies couldn’t begin to count the atom, hydrogen, or the numerous fuels that can be refined from petroleum under the heading of “resource.” We don’t even know what resources we have. So, in the end, the simple truism of Ôø?limited resources, unlimited desiresÔø? may just be a reiteration of the second law of thermodynamics, the amount of disorder in a system: entropy.
However, what is truly discouraging about such environmental doomsayers – and many doomsayers in general – is that such dire predictions are almost always implicit, or explicit, endorsements of stricter and more over-riding government control. Whenever the situation is seen to be ominous or hopeless our youthful predilections to “run to daddy” are often replaced by a paternalistic trust in government. What we don’t know, they know. What we can’t do, they can do. (This trust is interestingly shown in one of the websites mentioned above which consistently adds the meant-to-be-reassuring proviso, “Generally, these estimates come from the government.”) Although this essay is not an argument for a radical free-market, it is a short description of what the free-market can do. If prices are understood as conveyors of information – information that no single person or group of people can hold – then perhaps we will be more resistant to meddling with them or calling for strong government control to correct “crises” that are often the product of misinformation, a misunderstanding of simple economics, and a desire to be interesting.
What has proven truly scary about this trust in governmental control is the fact that major shortages are almost always caused by government meddling in the system of prices. Ludwig Von Mises, an incredible intellectual and founder of the Austrian school of economists, knew, from the outset, why communism would fail miserably. As early as the second decade of the twentieth century he predicted that communism would fail due to its inadequate system of prices. The result would be mass shortages and surpluses of even the most mundane goods. Without prices being allowed to change with new underlying realities and people to make adjustments based on those changes, industry, as well as basic goods and services, would be perpetually overextending resources, making surpluses, or underutilizing them, making shortages. In the end the economy would exist in a vicious cycle embodying the most basic features of a poor economy – an inability to adequately describe both the reality of existent resources and the actuality of what people wanted to do with those resources. It is interesting here to curtly note that Von Mises’ prediction came true – perhaps more than even he expected – whereas the panoply of popular doomsayers are generally batting .000.
Describing the world accurately – how much there is available or a desired resource – and accurately describing people’s competing desires towards those resources, is the preeminent concern of an economy. No one is helped by plugging our ears, closing our eyes and pretending that there is more of a resource, such as housing, than there is or that people don’t want the resource. By controlling prices we are essentially pretending one of these aspects – possibly hoping that changing the price, which should reflect the essential aspects of reality, will actually change reality. Likewise, natural resource crises are best solved by similar means – letting prices reflect reality and letting individual’s actions and desires adjust to that new reality. With all this in mind I will drive my gas-burning car with my conscience at ease. Hell, I may even go buy a Hummer.