23 Jun 2008

There is No Energy Shortage

Listen to this excellent podcast where Russ Roberts and Don Boudreaux, professors at GMU* discuss and dismiss the idea that we are "running out" of energy. They spend a lot of time on the humans' ability to adapt to changing supplies of resources and conditions.

Digression: This podcast gives me a good opportunity to clarify the difference between natural resource and environmental economics and the position I take in each. (Blogs do make you clarify things!)

Water, oil, fish, timber and other natural resources are used as inputs to our lives. If they are allocated by market forces, their price will rise when demand exceeds supply. If property rights are imperfect, it's more likely that they will be overexploited (e.g., fish in the open sea, water in an unadjudicated aquifer), and the resource will be wasted. (This is where I add the interesting notion that a monopolist is most likely to preserve a resource, because a monopolist (or cartel like OPEC) is interested in high prices.)

The outputs of our activities end up in the environment, which includes water, air, land, etc. If the environment is which we live is spoiled, we suffer. The most important concepts in environmental economics are externalities, i.e., the spillover effects of an activity into another area of life. Pollution is considered an externality.

Note that water has resource (we use it) and environmental (we live with it) characteristics.

Roberts and Boudreaux tend to dismiss the current hysteria for action on global warming. First, because of skepticism; second, because they fear that the government will make a mistake. (This stand echoes recent debates in this blog.) Although I agree with their fear of government mistakes and special-interest grabs in environmental legislation, I favor ending stupid ideas (subsidies for coal) and advocate a carbon tax/rebate, which is transparent and cannot be diverted into "carbon pork" spending.

Bottom Line: We do not have resource problems, we have resource pricing problems.

* I am a visiting scholar at the Mercatus Center, which is affiliated with GMU.