Glorifying the guys that get it WRONG!

Without wanting to come across like a fawning school girl (but possibly unable to avoid it), this piece from Ivo Vegter is like totally like awesome man!  I commented on Friday that letting Ivo drop off my daily reading radar was a poor lapse in judgment, and to complete the praise I’ll just go ahead and call this week Ivo Week.  Maybe we make it an annual thing in the first week of August? I don’t know.  Still need to workshop it with JGalt.  Galty runs a tight ship around these here parts.  Anyway, if the Ivonalysis I cited on Friday was a must read, then this is a must must read.

The Vegtermeister lays out in a beefy but full-value piece (replete with far more information sources than your average opinion piece just to prove a point) just about all the key top-line issues pertaining to resource economics.  He searingly destroys the myths and fallacies about resource depletion that seem to grow incessantly in popularity despite reams and reams of evidence to the contrary.

I’ll try stop writing soon and give the stage to The Ivo, but just a few points worth highlighting in his piece:

• The first section deals with the crazy notion that pundits cannot write authoritative opinion pieces without tacking on a laundry list of academic sources.  While sources are a great way to beef up an argument, they often just serve the purpose of intellectual self congratulation.  Few readers read sources and few sources are worth reading.  As Vegter says, academic journal articles are not only expensive, but by and large unreadable by the average mortal.
• Vegter doesn’t steer clear of the fisheries argument, which is an admittedly tricky one.  The key issue is one of property rights and the inability to homestead oceanic real estate makes for tricky regulatory environments that are mostly policed badly with the odd exception (and even the exceptions like New Zealand tend to occur in ocean regions where there’s not a stack of traffic).  Most importantly Ivo makes the point that highlighting the problem with the fisheries (an exceptional case) does not mean all resources are subject to the commons problem.  In simple terms, one unique example does not a compelling argument make.  It’s the same with the statists always pointing to Scandinavia as a bastion of socialist success.  Apart from the fact that this in itself is a myth, even if it were true, why should it alone negate the preponderance of socialist/communist failures from Greece to 1970’s UK to the Soviet bloc to East Germany to Cuba to North Korea to pre-1980 China to African klepto-socialist republics to South American siesta-socialism?
• Mr. Ivo then runs through some useful metrics on the size of the earths crust vs how much we mine and how much of the main commodities we actually have left etc.  All useful and interesting.  But the key take home’s here is the emphasis on the fact that ALL ELSE NEVER REMAINS EQUAL in resource use, and that the PRICE MECHANISM provides a built-in efficient rationing function so that no state or supra-national organisation needs to spend time and money on regulating the use of these commodities.  Indeed, even with the fisheries, eventually we will naturally ration fish when a hake and chips combo on the high street costs us over R200.00.  Then, with fish prices sky-high, who knows what the scope will be for economically viable oceanic fish farming?
• Last point:  Another big take home message here is the tendency within liberal-progressive intellectual circles to create crises out of mythical problems and ignore the real crises.  We wrote about this here a few months back.  This plays out with a dismaying irony in the panic over the non-problem of overpopulation and non-panic over the actual problem of underpopulation afflicting much of the globe from China to Japan to Australia to white South Africa (yes, white South African’s have Europeanised death-spiral birth rates) to Europe to Russia to North America.  This is to say nothing of the fact that the African continent as a whole suffers far more from population scarcity than population density, as taking a drive up the continent through vast tracts of nothingness will reveal (just a little aside on this: a friend of mine had to drive an Indian business associate from Johannesburg to Bloemfontein.  The Indian was gob-smacked that there was so much nothingness between the two cities and actually asked where all the people had been taken to.)  Vegter quotes columnist Ed Regis writing for Wired Magazine back in the late 90’s on the strange phenomenon of conjuring up fake global problems, knighting their intellectual founders after they have been proven spectacularly wrong, and ignoring all facts to the contrary (a dynamic playing out rather tragically in the global warm-mongering debate right now).  The quote from Regis is too good to leave out:

“A more perfect resolution of the Ehrlich-Simon debate could not be imagined. All of the former’s grim predictions had been decisively overturned by events. Ehrlich was wrong about higher natural resource prices, about ‘famines of unbelievable proportions’ occurring by 1975, about ‘hundreds of millions of people starving to death’ in the 1970s and ’80s, about the world ‘entering a genuine age of scarcity.’

In 1990, for his having promoted ‘greater public understanding of environmental problems,’ Ehrlich received a MacArthur Foundation ‘genius’ award. …

[Simon] always found it somewhat peculiar that neither the Science piece nor his public wager with Ehrlich nor anything else that he did, said, or wrote seemed to make much of a dent on the world at large. For some reason he could never comprehend, people were inclined to believe the very worst about anything and everything; they were immune to contrary evidence just as if they’d been medically vaccinated against the force of fact. Furthermore, there seemed to be a bizarre reverse-Cassandra effect operating in the universe: whereas the mythical Cassandra spoke the awful truth and was not believed, these days “experts” spoke awful falsehoods, and they were believed. Repeatedly being wrong actually seemed to be an advantage, conferring some sort of puzzling magic glow upon the speaker.”

Or as we said back in March,

“No doubt those smug intellectuals are still sticking to their global warm-mongering line, although I bet some have quietly shifted their attention on the next non-problem du jour.

And there’s the point: We’re collectively desperate to find the next crisis that gives our lives some meaning and galvanises us into agreeable community, but we keep latching on to pseudo-crises while the real ones are left unfretted over.

Debt has been the ever-growing crisis of our time but most of the lemmings had the blinkers on.  Now the fraud is all unraveling in the wash and the ‘unthinkables’ which became ‘pessimistic scenarios’ are now starting to become ‘core views’.”

• One final point before this piece gets nearly as long as Ivo’s:  Vegter makes the point that cannot be emphasised enough – people love to do these daft calculations on how much the world would CONSUME if we all lived like Americans.  No-one ever does the calculation of how much the world would PRODUCE if we all worked like Americans, which generates a whole new set of entirely un-cataclysmic forecasts.

Right, here’s the article.  Enjoy.

A glass half-full

The myth that we’re running out of resources seems deeply ingrained in some people. That doesn’t make it any more true.

“Cite your sources!” a scientist yelled, stamping his feet and declaring that he would stop reading The Daily Maverick because he took issue with something, somewhere in a column of mine.

What exactly it was that so offended this guy was unclear. I offered to provide suitable citations for whatever point of fact irked him, if he would only tell me what it was. I suggested that the reader comment facility might be a good place to raise such objections. This did not satisfy him, and he refused to specify what he thought was wrong with my argument. He felt comfortable shouting insults – disingenuous! bad science! bullshit! – regardless.

One should ignore idiots like that, I know. However, there is a risk that a few among his 46 Twitter followers might fall for the implied authority of a self-proclaimed scientist, and dismiss not just my own work, but also that of my colleagues and editors at The Daily Maverick. Therefore, I will offer a response.

For a start, this fellow clearly labours under the misconception that everyone who makes an argument in a public forum has the time and resources of a tenured academic at a state-funded university. It grieves me to point out that a columnist can neither afford the time, nor the expensive journal subscriptions that academics get at taxpayers’ expense, to produce something as rigorous as a refereed journal article. Besides, academic papers do not make for good reading in the mainstream media. If they did, fewer people might share this guy’s misconceptions.

I am prepared to support any factual claim I make with which a reader wishes to take issue, but doing so in advance for every line in a column would be a ludicrous undertaking. A typical economics argument is high-level. Many premises are highly general. If I had to provide detailed support for every point on which I base a conclusion, I’d spend months writing a column, instead of days, and it would run to dozens, if not hundreds, of pages. If I did that, I’d have to get a day-job as a shelf-packer, ditch-digger or burger-flipper.

This column is intended in part to illustrate these points.

What are we running out of?

After a week of bickering by this aggressive, high-minded nut, I finally began to suspect that his biggest concern was my view that in general, we’re not running out of resources. This being a sufficiently limited subject to cover in, say, twice the length of a regular column, this is what I propose to support below, complete with citations.

To counter my general argument, and in spite of the detailed points I made about resources that do become scarce, he cited one example: fish.

It is true that many fish stocks are under severe pressure. This is also an exceptional case. Fisheries are among the rare resources that are not adequately protected by property rights, but are subject to communal, bureaucratic planning. As a result, fishing has become a classic empirical example of the hypothetical “tragedy of the commons”. Because they cannot ensure future property rights, fish stocks are not managed responsibly by owners who wish to maximise both their present and future productivity.

There are partial solutions, although it remains a hard problem to solve. Individually transferable quotas for particular species have shown some success in protecting certain stocks. New Zealand offers an extensive case study^[1]. Another success story is the recovery of Pacific halibut stocks^[2]. Still, even in the limited environments in which they have been introduced, such systems suffer from problems, including the difficulty in establishing original ownership rights to quotas, inadequate enforcement, bureaucratically establishing a “maximum sustainable yield” and “total allowable catch”, unintentional bycatch, and quota busting.

However, citing one apparent counter-example does not prove the general case.

In fact, it does not even contradict the economic argument I made: If a particular species becomes too scarce, or it becomes too costly to harvest it, its market price will rise, which will prompt a combination of investment into more efficient production, lower consumption, and a search for alternatives. Economics is not a zero-sum game. Scarcity is not a crisis, but a problem to which the price mechanism is the solution.

A similar example is wood. Many classic species with highly desirable qualities, such as teak, walnut, oak and mahogany, have become rare and expensive because of high demand and dwindling supply. As a result, many consumers of wood have switched to less costly, more abundant species, or have developed entirely new substitute materials, such as plastics.

This is how the price mechanism ensures that resource depletion does not become an economic disaster.

The scarcity bet

In the absence of detailed knowledge of undiscovered or unexploited resources, price is a good proxy for anticipated scarcity. Even the high priest of resource scarcity and author of The Population Bomb (1968), Paul Ehrlich, conceded as much when he accepted Julian Simon’s bet to select five resources that he believed would, over the subsequent decade, increase in scarcity, and hence in their real, inflation-adjusted price.

At the time, he and his cohorts, Berkeley physicists John Harte and John Holdren, sneered that they should “accept Simon’s astonishing offer before other greedy people jump in” as the “lure of easy money can be irresistible”^[3].

Despite the astonishing advantage of being able to nominate any resources they liked, Ehrlich and friends lost the bet on all five counts and spent the next few years devising excuses as to why.

Wrote Simon: “More people, and increased income, cause resources to become more scarce in the short run. Heightened scarcity causes prices to rise. The higher prices present opportunity, and prompt inventors and entrepreneurs to search for solutions. Many fail in the search, at cost to themselves. But in a free society, solutions are eventually found. And in the long run the new developments leave us better off than if the problems had not arisen. That is, prices eventually become lower than before the increased scarcity occurred.”^[4]

Of course, as we have seen with fish and wood, prices do not always decline. The resources boom that followed the famous Simon-Ehrlich wager is likewise testament to that. Is it true, however, that many resources are under such pressure as ocean-bound fish-stocks or tropical hardwoods?

As it turns out, it is not. Though in principle finite, few resources are really particularly scarce.

Ecomentalists with a shallow understanding of economics might grasp at the term “finite” and make wild conclusions about the need to conserve resources, recycle them, or place them under the coercive management of politicians and taxpayer-funded green groups. However, finite does not mean scarce. The earth may be finite, but it is extremely large.

The mass of the total human population^[5] is 440 million tons^[6]. The mass^[7] of annual oil production^[8] is 11.6 million tons. Total annual global coal production amounts to 6.2 billion tons^[9]. The earth’s crust weighs about 136.5 billion billion tons^[10].

Now I’m not proposing that we mine all of the earth’s crust, but a sense of scale is useful. Our mineral resource extraction efforts amount to perhaps one billionth of the earth’s crust. We’re not about to dig a hole to Australia, which would indeed be unfortunate.

Measuring mineral mining

To get an idea of how much we have left of the most common resources before we run out, let’s go down the list, ranking them according to how much they contribute to global GDP. The presentation in my source^[11] is convenient, but since the data is from 1997 I took the precaution of cross-checking against a current report^[12] in case a surprising reversal happened in the intervening years. In all cases, “reserves” means the known amount that is economically extractable.

First up, cement, at 0.376% of global GDP. We have extracted 1.5 billion tons to date. We have no idea how much is left, but it’s enough.

Next, aluminium, about one third as important to our economy in terms of value as cement. We’ve produced 21.2 million tons. There’s 23 billion tons of bauxite in the ground that we know of. At 1997 consumption rates, we’ve got enough for several centuries. If that ever runs out, there are vast non-bauxite sources of the stuff, albeit at higher cost.

We’ve dug up a billion tons of iron ore, but there are 240 billion tons left in the ground, enough for at least two centuries.

Copper once seemed to be under more pressure. In 1997, it appeared that we had enough for half a century, having produced 11.3 million tons, with reserves of 320 million tons. Copper reserves indicated in the most recent data amount to 540 million tons, however, with much more estimated to be merely undiscovered. If reserves are growing despite growing consumption, a panic over running out would seem to be premature.

Gold is pretty rare, and reserves have been slowly declining. This makes it a good currency, and many economists would argue that the global economy melted down because we stopped using it, rather than because we over-used it.

Nitrogen is the next most important raw material. All we know about reserves is that we have “sufficient” left.

Zinc production has amounted to 7.8 million tons, with reserves of 190 million tons, sufficient for over half a century. Zinc was the subject of a scarcity scare in the late 1990s^[13], but current reserves remain at 200 million tons, with an estimated 1.9 billion tons still in the ground.

I could continue, but this is boring me to tears. These six minerals account for 80% of global resource production, so they constitute a sufficient sample to establish that, in general, we’re not running out of resources.

What’s more, in drawing conclusions from these numbers, the assumption…

Read the rest of this article over at The Daily Maverick…