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.


Fixed Carbon said...

David: How does the "current hysteria for action on global warming" relate to the CTT activities promoting disinformation that you discussed in a recent post?

David Zetland said...

Don, I think that each side sees the other as ideologically motivated, i.e., CTTs see enviros as hysterical control freaks, and enviros see CTTs as hysterical capitalists. Both sides are right, sometimes, but both sides paint with too broad a brush.

Fixed Carbon said...

"Oh, East is East, and West is West, and never the twain shall meet."

tidal said...

I thought that podcast was execrable, not excellent. Pithy self-congratulatory examples about the mosquitos sucking blood from marbles and swimming pools, rooms full of pistachio nut shells... Trite anecdotes divorced from any scale, that then "permits" them to ignore/disparage any forecasts from geologists, etc., w.r.t. physical resource constraints or substitution limits... The only message that keeps coming up is that the we are collectively SO bad at forecasting and SO bad at solutions that the only thing to do is NOTHING, and since it has always "worked" in the past it will work, like magic, again... Oh, and also, did we mention that Julian Simon is godlike???

Why is the price of oil going up? Why, Roberts asserts, because we have become so wealthy we are using more and more of it, thereby driving the price up!

That statement alone is so inane and divorced from reality (seen the global consumption stats from the last several years as the price has roughly tripled???...) that it is simply astonishing that they are given any credence on this topic whatsoever.

I am gobsmacked that someone who is focussed on "water" economics, and "environmental" vs. "resource" economics would characterize that drivel as "excellent"... And, yes, I am an economics grad (who had the good fortune to study some physics along the way, something I am almost certain Roberts and Boudreax did not...)...

David Zetland said...

Tidal and FC: The podcast was excellent because they discussed the economics -- not physics -- of resources. You may not agree with their conclusions, but they were on topic.

tidal said...

If you are having a discussion about resource and environmental economics that explicitly abstracts away from physics, then you are not only off-topic, you are off-reality.

David Zetland said...

Tidal -- can you give an example where physics is ignored in this blog? Thanks.

tidal said...

No, I cannot. I think you do a good job of it, and I enjoy your work. I was referring to Roberts and Boudreaux.

Their conversation is thick with cute little phrases like "so-called exhaustible resources" and "technically it is not true that the amount of oil is fixed". Boudreaux contends that supply of oil "behaves" as if it has an infinite supply. He concedes that there must some upper limit, but it is likely so immense that we can treat it as though it is infinite. He suggests that our estimates about total petroleum resource are so "we just don't know!" that our accuracy is somewhere within an error band that would be the equivalent of the volume of a tennis ball versus the volume of 20 Olympic-sized swimming pools. That's a factor of about 375 million times by my math, and it is apparently just a number that Boudreaux pulls out of thin air, to make a "point" about prices and economics.... To suggest that petroleum geologists are so clueless that perhaps there might be 100,000's of undiscovered Ghawar-size oil deposits just waiting for us to stumble upon them is preposterous.... And let's say that pessimistic estimates call for another trillion barrels of conventional oil left. According to Boudreax, there is no reason to accept this estimate - it might be off by a factor of 375 million! (Why? No reason, really, just follows since "we don't really know"...) Which would imply a volume of oil left that would equate to 59x the size of planet earth, but why quibble? It's a tautology from economics! "Peak oil" is dismissed as a "non-academic", "non-economic" concept.... The whole thing is utter crap, these two big brains gracing the universe with their ominiscience, saving us from the idiot geologists... Spare me. I kept thinking about the Flying Spaghetti Monster throughout the discussion.

David Zetland said...

That's a pretty funny comment. Thanks for taking the time.


Anonymous said...

I'm with Tidal. The dumbness - it burns.

The clue is the Hoover Institution, so your ears perk up, and you listen more carefully. I got a few minutes into the podcast and had to stop. My default is if you are going to talk about natural resources, then you should have some natural resource classes in your coursework. I don't hear evidence of natural resource coursework (host excepted).


Anonymous said...

Oh jeez. Julian Simon cornucopians.



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