Commenting on Mark Perry’s post that makes the same Simonesque point that I make here – namely, that humanity’s stock of ‘natural resources’ is not finite economically over time – one morganovich writes:
this seems like sort of a tricky exercise in semantics.
there is only a certain amount of coal in the ground, no matter how good we get at extracting it. if you took the whole earth and broke it up into piles of it’s constituent components, there would be X amount of coal. the amount we can use will always be kX where k<1.
The point is not that the number of atoms (or molecules, or whatever other physical form or substance you wish to name) available on earth to human beings is not finite or unable to be enlarged. Of course these things are finite. Instead, the point is that “resources” is not, ultimately, a physical concept; it’s an economic concept. And to be limited physically is not necessarily to be limited economically.
What is and isn’t a resource is determined by human ingenuity. Likewise, human ingenuity determines how much “utility” – satisfaction; gratification; pleasure; relief-of-felt-uneasiness (call it what you will) – can be gotten at any moment in time from any given unit of physical stuff. As long as human ingenuiity is free to create, there is no necessary practical limit to the amount of any ‘natural’ resource that is available for humans to use productively.
Consider petroleum. Is its stock strictly limited? For a physicist the answer is yes. But not so for an economist, who asks different questions than does the physicist. The economist asks: “How available is this particular substance – petroleum – for the continuing satisfaction of human desires?”
Suppose a brilliant physical scientist invents a very low-cost means of powering cars, airplanes, boats, and electricity-generating plants with seawater, and also a means to turn seawater into plastics and lubricants – indeed, a means to replace all uses of petroleum. The available economic supplies of petroleum would fall quickly to zero. Petroleum would become worthless; it would no longer be a resource. It’s physical presence in the earth – as measured by weight or volume – wouldn’t change. But its status as a resource would change.
Now consider a different scenario. The brilliant scientist invents not a means of turning seawater into a near-perfect and dirt-cheap substitute for petroleum, but, instead, a low-cost means of quadrupling the amount of energy that can be extracted from each ounce of petroleum. Economically the stock of the ‘natural resource’ we call petroleum is thus multiplied by four. Both history and some not-terribly far-fetched economic theorizing tell us that there is no reason to believe that petroleum (or any other resource) is finite in an economic sense.
UPDATE: morganovich e-mailed me to point out that the rest of his comment (referenced above) at Carpe Diem goes on to make a point similar to the one I make above. I apologize to him for reading his full comment too quickly. (I especially like his point there about the amount of energy in a glass of water.)
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Very well put. I wish more economists were as explicit as you are. Almost everyone reasons as the hypothetical physicists you mention, and when economists assume a different meaning of the word, most people think they sound crazy. I am a physicist, I am very well read, and it took me some time to understand what on earth economists are talking about.
Unless some kind of terminology can be found to easily distinguish between “oil as a physical entity” and “something that can be used to provide what oil provides at the moment, or we can find some alternative means to get by”, your proviso should probably be standard issue for these kinds of discussions.
I completely agree with this post. But I’ve always wondered where the scientist that invents a way to create energy from sea water (or any other form like cold fusion) gets his incentive to put forth the effort when carbon based fuels are so abudant. Will it take an ACTUAL shortage of physical resources, not economic, to create incentives for the scientific community to explore REPLACEABLE forms of energy? Afterall, carbon based fuels are the cheapest and most abundant form of energy we have. Haven’t many life changing innovations and discoveries in human history been so discovered out of necessity?
REPLACEABLE forms of energy may not ever be the most economically efficient replacement for our current forms of energy. However, the NEXT form of energy that we use will become practical precisely at that moment that it is less costly than what we use now. Oil became practical as soon as burning wood wasn’t. Wood was a more easily replaced form of energy than oil.
Don’t mistake your replaceable requirement for being the most economically efficient.
“But I’ve always wondered where the scientist that invents a way to create energy from sea water (or any other form like cold fusion) gets his incentive to put forth the effort when carbon based fuels are so abudant.”
Carbon-based fuels aren’t abundant. Gasoline is now about $3.50 a gallon, and I think the U.S. uses about 130 billion gallons of gasoline a year. That’s a helluva lot of incentive to replace it or otherwise reduce the need for it.
Doesn’t the mere fact that the U.S uses so much gasoline by definition make it abundant? And I don’t believe that gas prices reflect the amount of coal or oil in the Earth, but only our access to it.
“Doesn’t the mere fact that the U.S uses so much gasoline by definition make it abundant?”
Well, I’d say that the way to judge whether something is abundant or scarce is to look at its price, rather than the amount consumed. In that sense, obviously gasoline is much more abundant than gold or platinum…but much less abundant than water.
But the point I was making was that people in the U.S. spend about $450 billion on gasoline every year. So that gives a lot of incentive for scientists/engineers (and others) a tremendous incentive to think of something to replace or reduce the usage of gasoline. For example, suppose the scientists/engineers/others could come up with a way to reduce the amount spent by $100 billion per year for the same amount of miles traveled. Well, people would have no problem with giving those scientists/engineers//others $50 billion a year for the service rendered. Not chump change…and definitely an incentive to come up with something new.
Mark,
It’s important to keep in mind that in 1980, the inflation adjust cost of gasoline was greater than $3.50/gallon; at times it spiked above $4.00/gallon (nominal price was around $1.40/gallon).
In light of the fact that billions of people have entered the global economy, been lifted out of poverty, and headed to first world levels of energy consumption since 1980, perhaps you underestimate how abundant carbon based fuels actually are. If all that has occurred and the current price of gas is roughly what it was 30 years ago, that should tell you something about the availability of that fuel.
Additionally, inflation adjusted coal prices have been dropping.
Regards,
Ken
Hi Ken,
What started this whole thing was Peter McIlhon writing that he didn’t see any incentive for scientists to research energy from seawater when oil and other hydrocarbon fuels were so abundant.
I pointed out that we spend over $450 billion a year in the U.S. alone on gasoline. So there’s plenty of incentive to come up with something better.
Hi Mark,
I really don’t understand your comment. You’re saying that the gasoline industry is huge and has enormous potential for profit. And in the same breath claim this is an incentive for anyone to come up with some other energy source? Because that doesn’t make any sense.
High profits or the potential for high profits is an incentive to double down on that business, NOT to go look for another venture.
Regards,
Ken
“High profits or the potential for high profits is an incentive to double down on that business, NOT to go look for another venture.”
I agree it’s not an incentive for the oil companies to look elsewhere. But it’s definitely an incentive for everyone else to look elsewhere.
An average gasoline car runs at about 15 cents per mile for fuel. In contrast, an electric car is more like 6 cents a mile. That’s about a $900 difference for someone driving 10,000 miles per year. So there’s plenty of incentive for battery manufacturers and automobile owners to try to usurp the place of gasoline in transportation.
Regards,
This reminds me of the anecdote in which the vehicle with the greatest energy input-to-output ratio is the pushbike. Either there is a wonderful abudant source of energy ready to take over from oil or there isn’t. Either people continue living the high life with the new replacement energy source or everyone sees their standard of living go back 100 years or more. In both cases, oil is would be relative useless to be considered a resource. Of course, we all hope that new technologies are invented and worrying about Peak Oil is for nought because we’re all lazy at heart and have no desire to go personally plough the fields the way most of ancestors did.
I think the argument “peak oil” people make is something about EROEI – Energy returned on energy invested. It takes energy to make energy. if it takes more energy to produce new forms of energy than that energy itself could return, it becomes a problem. But we are always improving effiency of the energy acquisition itself. While its possible that at somepoint these efficiency gains might not happen at the pace required to make a positive EROEI, i don’t see it anytime soon. We have plenty of nuclear energy.
If we could find a way to do nuclear fusion in a controlled way with a positive EROEI, then energy will be forever superabundant.
Such as the difference in energy used to produce oil compared to energy used to produce ‘green techs’. Oil wins, hands down.
By the way, unless we lose atoms through our atmosphere, I have always understood that the earth is always gaining mass as we are constantly being bombarded with objects. The material entering our atmosphere may not be of much use, but gaining in total mass, we are.
I make this argument constantly, usually in the manner of banging my head against a wall. The terminology I use is that raw materials are physical, given, and limited, and resources are an economic abstraction, not “natural” but produced, and thus unlimited. Most people hear that, then go right on to say that it is absurd to say that resources are not limited, because there’s only so much oil in the ground.
Most people do not know what an “economic abstraction” is. If one percent of all oil that exists in the world, known or unknown, is used up per year, all oil will be gone in a century. We must be hardwired to think like this. We have 200 kg of grain stored, our family uses 2 kg per day, we will starve in 100 days because the next harvest is in 200 days. And we cannot replace grain with bark for more than 25 days.
It is an evolutionary novel concept to reason that we are not actually dependent on oil, we are dependent on something to produce our electricity or heating, which we only need at the moment, because we have not worked out how to insulate the home to use body heat yet and use self-glowing mushrooms. Because we have oil for the moment.
“Of course these things are finite. Instead, the point is that “resources” is not, ultimately, a physical concept; it’s an economic concept. And to be limited physically is not necessarily to be limited economically.”
Yes and oil is a great example. Our nation was very strong until the seventies when native peak oil production was reached. Our economy HAS been severely restrained by our ongoing dependence on oil and our inability to supply it for ourselves because we HAVE effectively ran out. Our economy IS both physically and economically limited by a shortage of oil. Your argument fails horrifically.
Right, because US GDP per capita is lower now than in the 70s… oh maybe not
So you think our economy is doing pretty good do you??? OK … whatever you say.
The US is most certainly rincher now than in the 70s
Yeah and what if we hadn’t borrowed 14 trillion dollars? How’d would we look then… the debt is coming due.
And again economic comparison through time are not very comparable. Back in the 70′s we were the top of all nations… now we are slowing down relative to the rest.
We would theoretically be doing much better if we had planned better and had lead the way on alternate energy and transportation. Instead we decided to let those making huge profits of keeping things the same to rule and we are far far behind where we could be. Your passive acceptance of things as they are is a dreary dreary picture into a population subdued by propaganda of the most subtle but persistent type.
You’re like a serf looking around and arguing how much better you have it then the serfs from 30 years ago…. ad you are accepting your lot… very sad….. you need to break those bonds that hold you down… think man…THINK…. you life depends on it.
Emil,
If Nixon had been a Democrat, Yasafi would be sporting a Tricky Dick icon instead of St Franklin of Roosevelt.
Since the 1970s, the standard of living for Americans has increased across the board.
Are you lamenting the fact that the global standard of living as increased even more, shortening the gap?
If so, you are a rather petty little man.
muirgeo,
“Yeah and what if we hadn’t borrowed 14 trillion dollars? ”
“We” didn’t borrow $14,000,000,000,000 dollars. The government did, reducing economic activity (a dollar spent by the gov is a dollar taken from the private sector and put in the hands of political cronies, rather than being spent where it is most needed). Imagine how much richer the US would be compared to the US had US politicians not dithered away so much money so carelessly.
There is no doubt that we would be richer, had politicians, you know, actually taken their constitutional oaths seriously. That you think US residents are only rich due to political theft belies your basic misunderstanding of anything economic.
Regards,
Ken
Compared to the seventies it is.
I’ve got to hand it to muirego, you are a broken record and a hopeless partisan hack. The economy right now as I type may not be what we’d call “good”. Its been better, its been worse, of course as Russ and John P point out in Fight of the Century, not all sectors are ever all good or all bad, but that’s besides the point. Was the economy good in the 1970′s?
“Our nation was very strong until the seventies…”
That’s odd. I don’t remember everything being so much better in the seventies.
I suspect it’s about relative strength vs. other countries.
(Inequality is apparently good in muirgeo’s world as long as he and the people he likes are the ones better off)
Brother, I must confess to you that you are a most pitiable cuckold, I urge you arm yourself and reclaim your manhood. Unlike you, none of us would tolerate sharing our wives with heavily armed uniformed thugs or pontificating political priests.
Can you not feel the horns on your head which we all see. Your nest has been violated and your children’s diverse fathers laugh at you in their legislative chambers and island junket hideaways while you toil and slave to enable their debaucherous trespasses.
*LIKE!*
Agreed. Coal during Roman times was worn around women’s necks as an adornment. It went from fashion statement to energy source, from a curiosity to necessity. Who knows what other baubles and beads may be of much more utility in the future? If you know the next-great-thing, now is the time to corner the market.
Make use of waste that comes from progressives mouths. They spew so much of it, surely harnessing the waste and turning it into something productive is in order.
There are facilities that harness the energy in animal waste. I wonder if they can be refitted to harness metaphorical waste.
I have a request to Don & Russ. Please ban muirgeo. He is an unnecessary pollution on the threads. We should always welcome well argued dissent, like the one we saw on the thread about “Clinton Years”. Even from people who can make coherent ( often wrong ) arguments like Daniel Kuehn, but muirgeo doesn’t qualify. He just heckles Don, Russ & the commenters.
I know Don and Russ have the most open attitude to commenting in the blogosphere. This might be a first for them, but I think it needs to be done for keeping the quality of comments high on this blog.
Just my opinion.
I apologize for losing it earlier on the blog.
Wow… how embarrassing. Have you no pride?
You and everyone here is a libertarian… I have no power over you to make you read or comment on my post. From a free market perspective my post are the most in demand as they get the most replies with NO coercion.
I beg and plead with people not to reply to my post at all. Please ignore them… and please don’t clutter the board with ad homs… but if you really want to debate me in detail please feel free to do so here or at my own blog if you want to follow a debate fully through as is not allowable in this format.
muirgeo, in case you haven’t noticed, this blog is the property of someone, they therefore own the blog and can do whatever they want with it
I on the other hand think it’s better if you are not banned, I think people like you spewing out incoherent posts do nothing more than displaying how wrong you and people like you are
We all get how much you love flashing hand signs to salute the common street gang writ large with its headquarters in DC.
That you get all misty eyed when you receive the latest edict telling you what kind of green toilet you’re allowed to perch on while you blog and what days you’re scheduled to flush it.
That you’re a sucker for any Fat Tony selling you a new weapon in the war on global warning. That you’re on Wesley Mooch’s short list as a goto VIP donor for his latest constituent cattle drive to a sustainable Animal Farm of the future.
While you pray to John Muir tonight and dream of a one world national park, I will work towards a better future where homeless men and fatherless children no longer languish in concrete inner-city filth, but are instead permitted their human dignity and the opportunity to make a living from the land just like 300 generations of Homo Sapiens did before them.
Nope…. Not libertarian
“Ignorant free speech often works against the speaker. That is one of several reasons why it must be given rein instead of suppressed.”
– Anna Quindlen
Unless everyone who hears it is just as ignorant and agrees. When these ignorant people have political power, we call it Washington DC.
Sandre,
Thanks for the suggestion. We will, however, stick with our current open policy. While I agree with you that Muirgeo’s comments are unusually intellectually shabby, I recommend that you (and others) simply do as I do: ignore him.
Save for occasionally checking to ensure against excessive vulgarity or libelous accusations – a checking to which I randomly subject all comments – I no longer read what Muirgeo writes. Same goes, by the way, for the commenter with the oddly appropriate nom de plume “Mao_Dung.”
Okay, Don. I accept your terms and will not debate George Balella (a.k.a. Muirgeo, Muirduck, Yasir Muirduck, etc) on your blog. I will limit my debate with George to his blog. On the blog that you and Russ have, I will comment mostly in reference to your original post and the comments by the various readers of Cafe Hayek, except for George Balella and Mao Dung.
After reading all the responses, I have come to the conclusion like you and most others here that letting muirgeo speak is in the better interest of libertarian ideas. I was reminded that even Daniel Kuehn has said many times that muirgeo’s comments make him cringe from time to time.
I think I did a disservice to the blog by going overboard with my comments, and I still feel guilty about that. Once again I apologize.
I will take heed to your advise and just ignore him from now on.
Oh heck – no need for you to feel guilty. You said nothing inappropriate. We all must vent from time to time!
He is an asset to us. In one person he provides us with an ever present reminder that we must always coexist with the malicious, idiotic, and easily duped.
On second thought, he is not an asset, just an ass.
Several years back he was banned for a bit. But, if I remember correctly, Russ and Don decided it was against what they want for their blog.
Haywood,
He wasn’t banned. He got his panties in a bunch and stormed out of the Cafe in huff. He did a pretty good impersonation of his other favorite Righteous Ruler (Dick Nixon) by proclaiming that he was leaving, and never coming back, and we wouldn’t have poor old Yasafi to kick around any more. Of course, Yasafi was lying (just like Tricky Dick).
Sandre,
I think you misunderstand the glorious thing of having muirgeo’s idiocy written in digital ink, forever. There is a long record of him being an idiot and fighting to the end making provably wrong claims like Hoover didn’t increase government spending.
There needs to be a clear record of the moral and intellectual decrepitude necessary to make the statement that monarchy and libertarianism are one and the same, or that kings in the middle ages setting up a serf system is an example of libertarianism.
It’s especially wonderful when he links to his own blog. A thing of exquisite beauty of a completely unhinged mind. It’s so popular and innovative and original that in the years it has been up, it has maybe a dozen comments, for ALL posts. That’s less than the number of comments on this site for this single post.
His rants are preserved here for all to see as examples for how not to think and how evil spreads through political thought. He also remains a shining example of the type of evil intrinsic needed to sustain and expand destructive government. It exposes readers of Cafe Hayek to the evil inherent in men and women and how easy men and women can rationalize that evil.
Regards,
Ken
I agree 100% that the earth’s resources are essentially unlimited (due to technological advances, etc).
But the line of reasoning in this post posits that economic resources are not finite, and hence are infinite/unlimited.
Isn’t that statement at odds with the economic principle of scarcity? For example, if resources were unlimited, then the allocation becomes naively simple.
But we know this to be false (eg resources are scarce and are best allocated using the market price), so I’m missing something here. Thanks for any help!
Something can be scarce and infinite at the same time – we have very little sunshine in the night in the winter, that doesn’t meant that we have run out of sunshine
“Infinite” is misleading. All that we observe is necessarily finite. Economic forces cause limits to be pushed, without foreseeable limit.
Actually, having studied engineering (and economics), I would most certainly say that infinity does exist, although in practical terms I must agree with you
Explain how you observe infinity.
Infinity only exists as a concept with real observable quantities abstracted out. That’s why it naturally occurs in mathematics. That is also why infinite results in mathematical models always break down in observed applications.
In the observable world, all is finite. If it weren’t, you’d have no way of knowing anyway.
“this post posits that economic resources are not finite, and hence are infinite/unlimited.
Isn’t that statement at odds with the economic principle of scarcity? ”
Unlimited and infinite are not exactly the same thing. Unlimited can mean that the limit is determined by variable factors, and that the maximum extent of those factors is not given. Economic resources are not infinite in that only so many of them exist *right now*. But since more can be produced, there’s no given limit to how many can be made available over time. They will always be scarce in the moment, and so their unlimited nature over time poses no problem to economic reasoning based on scarcity.
As to EROEI mentioned earlier in conjunction with nuclear, it’s theoretically possible that nuclear can be used to increase the economically viable supply of oil (“proven reserves”). If nuclear or solar can be used as an input to oil production instead of oil, then oil becomes effectively a transport container, carrying the energy produced by nuclear (as electricity is used now). I’m not saying that would be a viable method, but it is theoretically possible and illustrates the concept of how EROEI interacts with distribution.
The EROEI equation that matters is not energy into production vs energy available out of the ground, but energy used at the point of production vs energy made available at the point of use. Even if it costs more energy to produce oil than is made available from it, it can still be economically viable if the energy at the point of production is more abundant than energy at the point of use (and if the input energy does not come from the oil itself). In that case, value is gained by simply moving it, even if it is moved at a net loss of BTUs. Solar and nuclear are usually very unevenly distributed in availability. Oil could turn out to be a more efficient transport mechanism than electricity.
So what we’re really saying here is that, for a given economic resource over some finite period of time, supply will outstrip demand due to human ingenuity.
This makes the calculations finite (since we can measure things like supply, demand, and the period of time is finite), yet since supply is greater than demand it is unlimited.
Fossil fuels are being created right now as dead organic matter anaerobically decomposes all over the world. Predictive graphs are useless because this is fat-tailed 4th quadrant territory where we have no idea what resources will emerge within the 133 Quindecillion atoms of the world or our future utilization abilities.
Hayek posited that scientists and economists prefer quantifiable false certainties to actually available limited knowledge among chaos.
A brilliant turkey could make a chart predicting he will get an increasing amounts of feed in the future based on forecasted harvests and his historical experience. But we know with virtual certainty his charts will abruptly be negated when his black swan lands on the day of his slaughtering.
Only the uber-brilliant Hayekian Turkey would craft custom methods of praxeology and presciently write a book titled the Road to Thanksgiving. This book would serve as a beacon to rational Turkeys worldwide of the actual reality they inhabit and what they might plan to do about it.
“scientists and economists prefer quantifiable false certainties to actually available limited knowledge among chaos.”
The holy grail of classical economics, of any stripe, is to create mathematically analyzable entities. Do do that, human action has to be abstracted out. But no matter how hard you try, you cannot abstract praexeology out of economics and still get the right answers. The closer to get to their holy grail, the further they get from their goal. It’s an endlessly dismal quest.
you are taking a piece of my argument out of context.
the rest of the comment was “ut are we really interested in coal, or in energy? which is the real “resource”. how we handle that definitional issue determines the answer we get to whether of not resources are limited. (at least in any practical sense, using a phrase like infinite is foolish)
the discovery of nuclear fission and the ability to harness it significantly increased the amount of usable energy in the world. a previously useless substance (uranium) suddenly became very useful indeed.
there is enough energy is a glass of water to power a city, we have just not figured out how to release it yet. (perhaps we will, perhaps we won’t)
there is more energy in earth’s system that we could plausibly need. (though it is still finite even if we convert every atom in the solar system into energy even if it is an unimaginably large number)”
thus, rather than being the straight-man for your point, you are actually saying just what i did.
either you did not bother reading my whole comment, or you are just deliberately misquoting in order to try and express my ideas as your own, right down to talking about energy from a glass of water.
in either case, i do not appreciate it.
““ut are we really interested in coal, or in energy? which is the real “resource”.”
Neither. We are really interested in the capacity for realizing utility, what the energy can do for us. The example of making oil use four times more efficient illustrates that. It does not increase the amount of energy contained in oil, it makes it so that the same amount of energy produces four times as much utility (miles driven, volume of air heated, etc.).
kyle-
you are just being overly deconstructionist and picayune. if we are interested in energy, it’s because it gives us utility.
adding usefulness to increase resources was my whole point.
don is essentially plagiarizing what i said while only quoting the set up to my point to try to use me as a straight man. i argued precisely for ingenuity increasing useful resources in speaking about uranium or water.
further, moving to utility as a metric does nothing to support this argument about physical limits not being economic ones. the utility of $5000 oil is pretty close to zero.
morganovich, your’re either missing or refusing to see a fundamental distinction that renders your arguments moot. $5000 dollar oil could be very economically viable if the amount of gasoline to fill our tanks for a day’s driving costs only $50 – if a thimbulful is all that’s needed. No, we won’t very likely see that much increase in the efficiency of oil use, but if we don’t, then $5000 oil is just as much of a pipe dream.
no kyle, i understand exactly what you mean.
my point is that to try to use “utility” instead of “resource” does nothing. the value of a resource is, as you say, a function of both it’s price and what can be produced through its use.
that’s precisely what i mean by “adding usefulness to increase resources”. if you can use a barrel of oil better, it’s more useful. if it’s more useful, you have more resources in an economic sense.
i think it is you who are missing the thrust of the point.
i have already made the distinction you are trying to make. oddly, you seem to be agreeing with me but trying to split hairs for some reason i cannot as yet fathom.
it seems to me like you are adding a meaningless distinction there.
what is it you are trying to demonstrate? you have not said anything that i did not start off with. go back and read my uranium example. it’s EXACTLY the point you are accusing me of missing.
perhaps i was imprecise in tossing out $5000 oil. i was imagining it’s utility in the present world, but i really thing you ought to go back and read what i wrote the first time again. i think you’ll find that you are trying to drill points into me that i was making in the first place.
If a thimbleful full of oil is needed? That sounds like maintaining a pushbike. That’s the point of energy being cheap – the more of it can be used for productive. If the energy used to extract hard-to-get oil exceed the energy the oil has then there’s no point in extracting it.
“But not so for an economist, who asks different questions than does the physicist. The economist asks: “How available is this particular substance – petroleum – for the continuing satisfaction of human desires?””
this is also wrong, as you go on to show in the rest of your piece.
it is still finite for an economist. there is a limit to the amount of use one can get from oil. as price rises, the number of profitable uses diminishes.
this provides a hard limit on “practical” usefulness. in fact, practical usefulness is reached BEFORE physical limits are reached.
long before oil is exhausted, price will curtail its use and usefulness.
thus, the economist reaches his limit even before the physicist.
clearly, the economic use of any substance can vary depending upon new applications and the availability of substitutes, but to claim that such use is therefore not “strictly limited” is flat out wrong. for any given state of the world, there is a finite economic value. the fact that that value can change does not mean such a value does not exist any more than the ability to increase usefulness makes usefulness infinite.
the price of a home can change too. it may be higher tomorrow than it is today (reflecting a market perception of economic value), but the fact that it changes does nothing to invalidate the idea that it has a price today any more than a higher price tomorrow means that it’s economic utility is limitless.
The price mechanism does not create such a hard limit. It usually turns a hard limit in the physical sense into a never reached limit in the economic sense. The physical limit is the asymptote that the economic quantity never reaches. The schedules persist at all ONLY because the trades are practically useful to people.
But that is not the point. What you are missing is that ingenuity, while never a guaranteed success, is a widespread historical fact. And it is the asymptotic approach to the physical limit, with the associated price increases, that stimulates ingenuity to push that limit further away.
ving-
i think you are leaving something out of that analysis:
as quantity decreases, price tends to rise. as it does, the economic value of a product drops for any given level of ingenuity.
sure, we can push it out further, but the limits still come all the same. more often, we wind up substituting than finding a better way to use a resource. we didn’t find a better way to burn wood, we switched to coal and oil.
also realize that this can run the other way, also driven by ingenuity.
whale oil was once an extremely valuable and economically useful commodity. today, thanks to standard oil etc it’s worth nothing like the cost to go get it.
resources (plural) expand but any given resource (singular) can drop or go to zero. this is an important distinction.
also note that not all types of resources behave as you describe. tell the passenger pigeon or the dodo that we’d become more ingenious in using them to avoid complete resource depletion.
fisheries behave the same way.
i have never argued that ingenuity is not a widespread fact. you are jousting against a straw man there that characterizes what i have said.
however, to argue that it is limitless and therefore so is every resource is just as wrong as not to account for it. i also think you are missing the critical difference i mentioned about singular vs plural resources.
mostly, it is substitution, not greater efficiency, that drives increased value from a resource. we didn’t get better at using whale oil, we switched to oil from the ground. ultimately, we’re not going to build cars that drive on a thimbleful of gas, (which is physically impossible without splitting/fusing atoms, and if we can do that, we’d use water or hydrogen and oil would worthless as an energy source) , we’re going to find a different way to power the vehicles.
you are correct that it will be the high price of oil that drives such inventiveness (who would bother is gas were 20c a gallon?) , but the picture around the value of oil as a resource is much more complex that the one you paint. more often than not, the serious ingenuity makes a resource (like whale oil) lose value by replacing it with a new one. (when’s the last time you bought wool bike shorts?)
ingenuity can even destroy an individual resource entirely as it did the passenger pigeon and as drag nets threaten to do to a number of fish species or we nearly did to the bison.
“i think you are leaving something out of that analysis: as quantity decreases, price tends to rise. as it does, the economic value of a product drops for any given level of ingenuity.”
No. The analysis is the same. Whether you shift up demand, or contract supply, the important point is that you are pushing against the upper limit of the supply curve.
“sure, we can push it out further, but the limits still come all the same.”
No. The price mechanism creates resistance against reaching hard limits. Supply-demand curves are too often drawn as straight lines, but remember that they are curves.
“more often, we wind up substituting than finding a better way to use a resource. we didn’t find a better way to burn wood, we switched to coal and oil.”
No. That’s not more often. That’s the same thing. That’s one of the things Simon is talking about. Ingenuity solves these problems in many ways, and substitutes are a ubiquitous way accomplishing it. Think of all the steps involves in a process. Changes in that process almost always involve substitutes, whether we call it efficiency or not. It isn’t whale oil that people really ever wanted. What they wanted was a way to light up the night. Think of common advances in efficiencies, and tell me they didn’t involve any kind of substitution.
“also note that not all types of resources behave as you describe. tell the passenger pigeon or the dodo”
The passenger pigeon was a resource? To whom? Do you also think the smallpox virus or cockroaches are a resource? Unlike the bison, which are increasing because of market forces, the dodo may be an interesting exception. An exception called “tragedy of the commons”–a frequent topic at the Cafe.
@Morgan
Have you seen how they produce wood for burning, nowadays? They make it into pellets that last longer in overall tonnage and burns hotter. Coal and oil replaced wood in it’s form long ago, because of pricing. How many wood fired turbines were there producing energy? Steam fired locomotives? Started converting as early as 1850′s from wood to coal. Now, we have biomass plants coming into the marketplace. I don’t expect much from these…. Like a fad.
also:
i think many of you are confusing the concept of “resources as a whole” with any single resource.
any single resource is limited. you can eat enough passenger pigeons that you run out.
it is the fact that other things (both currently known or developed later through our ingenuity) can be substituted for then that makes resources unlimited even though each individual resource may well be.
thus, there was a very finite amount of economic utility from passenger pigeons, yet not yet from birds as whole, just as using up all the viable oil does not deplete the resource of “energy”, it just changes what we use to create it.
By that suggestion there’s no point in worrying about peoples’ lives either: some people die but plenty of babies are born to replace them.
gil-
what? that’s not what i said at all.
i have no idea how you got there. i made no judgment at all about whether we ought to worry about individual resources, only that we tended to replace them with new ones.
for all i know passenger pigeons were delicious and eating them cured glaucoma and now we are forever impoverished by their loss and healthcare and haute cuisine will never be the same.
just because there will always be more people does not devalue the life of one person in any way and i defy you to show me where i said it did. the fact that it is possible to replace something does not make it valueless.
you could replace your car with one exactly like it. does that mean it has no value?
you are putting words in my mouth that i never said.
that seems to be a popular pastime on this board. please go back and read what i wrote and show me anything in it that looks like the claim you make.
you guys really need to read the material you are going to comment on before you opine. (though given that don doesn’t seem to bother either before he selectively quotes and plagiarizes perhaps i should not be surprised that he has attracted like minded commenters to his blog)
Plagiarizing is a serious accusation. I have never seen any material not being properly attributed to the original author, unless my first sentence in this post was once coined by someone, at some time, somewhere and is owed his/her due.
Awww nuts! – unknown author, somewhere, at some time… I guess.
Materials are finite. Economic resources are a poor concept (variable/ extendable) because it relates to the utility derived from the SERVICES provided by the materials but these may be substituted.
Utility in itself is also finite, regardless of the materials from which we derive utility. However, the concept of utility applies primarily to individuals and thus should vary between them. For some energy is an important material for utility but not for others.
The concept of scarcity is also elastic and relative for different individuals. On this see my post here: http://marques-mendes.blogspot.com/2011/03/saving-on-shoes-or-on-energy.html
Quit to the contrary, Economic resources are the only concept that matters. We only want resources to use their utility. If a technological breakthrough doubles the utility we get from a barrel of oil, that has the same effect on humanity as a discovery which doubles the amount of oil we can produce. Why is it better to conceive of these two changes as foundationally different when they have identical effects on humanity?
Resources is just another name for materials (I prefer the word assets because it relates to things both physical as well as immaterial, e.g. mathematics). To classify the assets from which we are currently deriving utility as economic resources may be useful for some purposes, but it is necessarily a vague concept from a scientific point of view.
“If a technological breakthrough doubles the utility we get from a barrel of oil, that has the same effect on humanity as a discovery which doubles the amount of oil we can produce. Why is it better to conceive of these two changes as foundationally different when they have identical effects on humanity?”
There is in fact a fundamental difference, in that the latter is physically possible.
It would be good if physics and chemistry would be as compliant as you would like, but it appears that physicists and chemists are telling you that it is not. You would rather believe an economic generalization about how physical law has worked historically than the actual physical law.
Good luck with that.
Say what!?!?
It is not physically possible to double the utility we get from a barrel of oil? How manuy miles per gallon does a modern car make compared to a 40 year old one?
But then if car fuel efficiency doubles yet car ownership doubles as well people driving farther can (and usually do) negate the jump in efficiency. It’s called the Rebound Effect.
not jevons paradox?
“If a technological breakthrough doubles the utility we get from a barrel of oil, that has the same effect on humanity as a discovery which doubles the amount of oil we can produce.”
“There is in fact a fundamental difference, in that the latter is physically possible.”
You don’t think the world could double the production of oil by producing oil from algae or bacteria?
gil-
i don’t think your argument makes sense in terms of utility.
if more people drive more miles with the same oil, how does that not result in greater utility?
you are just arguing that they will still use up all the oil. (rebound effect) however, if they are getting twice as much travel from it and travel creates utility, how can you argue that the same amount of oil did not create more utility?
in real terms, the price of gasoline dropped about 70% from 1918-2000 even as car ownership exploded and miles drive climbed enormously.
price per gallon dropped and miles per gallon increased. so where is this “rebound effect” you describe in terms of utility from oil. to be offsetting additional miles/gallon, price would have had to rise to offset them, but it went the other way.
it is just the last decade of so where that trend has reversed, and you could argue that that has as much to do with changing the way CPI is calculated and the low inflation numbers it kicks out than anything else.
i just do not see any evidence of your rebound effect here.
Gil is this blog’s Benji and Larry, Morganovich. Just FYI.
methinks-
good to know.
thanks.
Communication between the east and west coast used to be by Pony Express (scarce resources — pony and rider).
Then by telegraph line (scarce resources — copper wire, wooden poles).
Then by train (scarce resources — railroad ties, metal track, locomotives)
Then by phonograph, radio, telephone, motion picture, car, TV, e-mail, Skype, etc. Each time, using different scarce resources.
Innovation is the resource, not the scarce resources themselves. Need proof? The societies truly lacking in natural resources are those that stifle innovation like the USSR, Cuba and North Korea.
“Our nation was very strong until the seventies when native peak oil production was reached.”
I’m looking at Figure 3-1 of Angus Maddison’s “The World Economy: A Millenial Perspective.”
It has an X-axis of the years 1950 to 2000, and the Y-axis is U.S. per capita GDP, on a logarithmic basis. It looks to me like the slope is virtually identical from 1950 to 1975 versus 1975 to 2000. Therefore, the U.S. per-capita GDP growth rates in those two periods look almost exactly the same.