Tuesday, July 08, 2008

Acknowledging scarcity

Another thought I had while reading "Small is Beautiful" relates to how things are priced, or valued. The author points out that natural resources have no intrinsic value until they are used up. A fair point. Certainly it's hard to see why anything natural would be preserved if economic growth is the only thing society values and therefore nothing natural has any value until it is put to economically productive used. However, the author laments that the price of scarce natural resources is set no differently than any other good which can be produced over and over again. While I agree that it's true that both are set by the simple measure of what price the market will bear, I don't think this means that scarce natural resources are priced the same as manufactured goods that can be produced repeatedly. The difference in price is set by the buyer who recognizes that one good is limited and the other is not (or at least one is more limited than the other).

Overlooked in the recent debates over what's behind rising oil prices is one simple idea: the buying public has reached a tipping point where most buyers recognize that oil is a scarce good whose economically viable supplies may be exhausted within the lifetime of most people alive today. (I did not say run out, because we will never "run out" of oil in the earth. It simply becomes exponentially more expensive to extract oil as reserves become more depleted. Long before we "run out" of oil, it will simply be impossible to get oil from the earth for any reasonable price.) For decades after oil was first put to productive use, people assumed that the reserves within the earth were so great as to be considered unlimited. Over time, more and more people have called this assumption into question. As so often happens in human society, this idea was marginalized until it reached a "tipping point" at which a sufficient quantity of people believed the idea to make it broadly acceptable. I believe we've reached that tipping point where people are beginning to price oil as a scarce good rather than an unlimited good. And as long as a sufficient number of buyers are willing to price oil as a scarce good, that will be how it is priced, as the buyers who want to price it as an unlimited good will simply be unable to find sellers.

Until something happens to convince a significant number of people that oil can in fact be treated as an unlimited resource, oil prices will probably remain at or near current levels.


More silver lining

I've been reading the book "Small is Beautiful" lately, which is best described by its sub-title: "Economics as if people mattered." The author argues about the foolishness of making consumption our only indicator of success when we live on a finite planet with finite resources. Of course (especially in current economic conditions), it's easy to argue that the only alternative to increasing consumption (i.e. economic growth) is economic recession, and everybody knows that's a bad thing. Or is it?

I'm a big fan of science and the pursuit of knowledge. I believe the advances we've made in the developed world over the last few centuries are a great thing and we should be happy to live in an age with so much knowledge about how the world works and how we can provide for ourselves materially. I'm certainly not opposed to the material gains of the last few centuries. However, attaining great knowledge is not the same as attaining great wisdom. The knowledge we've gained as a society over the last several centuries has given us enormous wealth with far greater ease than at any previous point in human history. While I'm not opposed to wealth per se, there is certainly a danger in acquiring great wealth too easily (Paris Hilton comes to mind as an example).

I've heard many stories of life during the Depression. While it certainly doesn't sound like an ideal time to be alive, those who lived through it have many stories of survival through ingenuity, of close ties to friends and family, of people learning to get by and thrive with just "enough." In other words, people learned to live more wisely with their available resources. Maybe the time has come for another large-scale depression. Maybe what we need is another long period of learning how to use the many toys we've acquired over previous decades. Maybe we could gain some wisdom about how best to use the wealth we enjoy in the modern developed world.

Adversity usually isn't fun, but it seems to be the surest path to wisdom. And while we have lots of knowledge in our modern world, we seem pretty short on wisdom.


Wednesday, July 02, 2008

Why I love $4/gallon gas...

It's summer again which means rafting season is keeping me busy and disconnected. Not altogether a bad thing...

Though "high" gas prices seem to be keeping business down on the Arkansas River, I still can't help but be happy about gas prices. Here's my top reasons:
1) I'm safer. As a frequent bicycle-commuter and user of the highways for very long training rides (for which bike paths and other non-highway options simply aren't available or are completely impractical due to speed limitations), fewer cars on the road means less risk for me.
2) Youth are safer. It's a pretty widely known fact that the biggest risk to youth, particularly males from 16-25, is driving. Well, of course, those same young people are also one of the demographics most likely to be kept off the road by high gas prices and spend a lot less time driving recklessly and endangering themselves and others.
3) Neighborhoods and communities become stronger. One of my biggest problems with suburban development is people never interact unless forced. People leave their homes inside a steel shell and don't come out until they're many miles away. High gas prices encourage people to look locally for entertainment, shopping, etc. As a result, community and neighborhood identity is built as people get to know their neighbors again.
4) Jobs stay in and return to America. Now that the fuel cost of transporting materials across the oceans multiple times in the course of production has quadrupled, the economics of localized production is starting to look a lot more attractive. Buying "Made in the USA" is no longer just a patriotic statement, it simply makes more sense in an era of expensive fuel.
5) It's good for the environment...in many more ways than most people realize. Of course everybody knows now that carbon emissions from burning fossil fuels is a likely contributor to potentially dramatic or even catastrophic climate change. But even more immediate and indisputable is what high concentrations of other fossil fuel emissions can do to people's health when concentrated in dense areas (like LA, for example). Almost nobody doubts that thick smog contributes to asthma and other respiratory problems, particularly in the young and elderly. And of course by slowing suburban sprawl, high gas prices fight the trend of bull-dozing and paving over endless miles of agricultural and forested land. There's other ways that heavy use of fuel and large vehicles for transportation degrades environmental quality, but that's for other posts.

I can't help but notice that by failing to enact any meaningful energy policy, the Bush administration has accomplished exactly what Democrats and liberals have wanted for some time. Strong incentives are now in place to keep jobs in America. Strong disincentives are in
place when it comes to environmentally destructive activity. Who knows, maybe Bush is a closet tree-hugging liberal??