This is a good point about what we can and can't infer from prices, and thanks for the pointer to the Hotelling paper.
But isn't it exactly an example of human ingenuity that “as geological exploration and mining techniques have improved, the known supplies of exhaustible resources have gone up”?
I haven't yet read SA, but can the price data given there be interpreted as an *illustration* of technological and economic advance, rather than as the primary proof of it?
Have spent a career in the oil and gas business and would say what's missing here is we don't know what "X" is. If you had estimated it based on known information and production techniques in 1974 you would likely have wildly underestimated X. It's worth noting that while the amount of "X in place" may be finite, the amount of "recoverable X" is a function of human ingenuity etc. The amount of "economically recoverable X" is a function of human ingenuity, the price of X, the price of substitutes for X, etc.
‘ Obama economic adviser…’ - for suchlike the word ‘oxymoron’ was invented.
‘ Agricultural commodities are produced under market conditions.’
Without arguing with the point of the article - I have to say nowhere is this true. Sri Lanka is the most glaring, Netherlands also, but nowhere is agriculture free from protective regulation, subsidies, quotas, price caps, intervention, tariff and non-tariff trade barriers - the EU is a 60 year study in this, although the USA is no shrinking violet either.
Currently the EU is subsidising farmers to grow things like kiwi fruit, avocado, mangos, and maize to feed cattle instead of grass. These foods come from far away so growing them locally reduces CO2 emissions from shipping, and reducing grass-fed cattle reduces methane farts. All this is to ‘save the Planet’ from climate change.
Well - all this requires considerably more water to irrigate these crops (18 US, 15 Imp gallons to grow one avocado), so the drain on water resources has been increased without those water resources being increased - to protect the environment - so this year there are severe water shortages everywhere. Cause? Everybody’s favourite: climate change, not environmentalist lunacy.
Well. Mankind is clearly not getting better at managing his resources with lunatics managing them.
I'm not sure Mr. Kling has fully articulated the theory of exhaustible resources in his critique. There is also the increasing extraction and processing efficiency over time. E.g., the theory of exhaustible resources also suggests industry will first develop the highest quality reserves that are relatively easy and cheap to find and produce. As a basin or the worldwide sources mature and existing reserves are depleted, companies must invest in the development of new technologies and increase geological information (i.e., find resources that were harder to locate). Companies must also lower extraction and processing costs at these more complex projects. The economic result is that over long time-periods real commodity prices are relatively flat.
"Although we have continued to exploit new deposits (due to fracking, for example), at some point available resources will stop rising."
But what if demand for the resources falls faster than the availability of resources stops rising?
I'm on the record as predicting that, by the early 2040s, virtually all of miles driven by cars and light trucks will be by fully autonomous vehicles, operating in transportation-as-a-service mode. That will also mean that the overwhelming majority of them will be battery electric vehicles, not gasoline vehicles. (It's a fairly long story on why I think that's so.)
“This scientific revolution is a theory of human behavior that, when combined with theories of social evolution, is close to being a theory of everyone.”
I’m interested in learning the source of this scientific revolution and discovering this universal truth - this theory of everyone. Is the source the same elite universities that are informing us of the truth that there are no truths?
Worked at the Black Thunder Mine in the Powder River Basin around 1981. We were selling coal for about $10/ton FOB mine site. 40 years later the spot price for Powder River Basin coal is about $13. Taking inflation into account the equivalent 1981 price would be $33. An awful lot of innovation went into dropping that price by $20. Yes, people getting smarter increases non-renewable natural resources availability. Julian Simon was right.
I think this goes a little to far with its skepticism. Granted that we cannot predict the future of technology, if you are generally optimistic about "technology" then the prices of commodities probably will come down relative to human labor. Why shouldn't we expect technology to reduce the demand for, reduce the scarcity of commodities -- oil, minerals or the capacity of the atmosphere to absorb CO2 -- relative to human labor provided we allow technology production to respond to prices (or pigou taxes in the case of non-marketed commodities)?
The question that matters isn't "When will we run out of oil?" but "When will our oil-intensive lifestyles become unsustainable?". In the extreme case, if oil was consumed until there was only one barrel of oil left and it sold for a billion dollars a milliliter, then in some sense we haven't "run out of oil" but nobody's driving to work or heating their homes with it.
From a physical science viewpoint, the concept of "exhaustible resources" is less meaningful than it might sound: Mass/energy is conserved and, in more earthly terms, mass doesn't go away except for radioactive elements. Your image using copper and oil are illustrative. Copper doesn't go away. It just get diluted in waste streams with entropy increases. Energy can concentrate it back into copper metal. Oil is just a form of energy, as we use most of it, and all forms of useful energy are totally fungible. Given electrical energy (an easy to utilize form of energy) we can take CO2 from the atmosphere with water from the oceans and convert it into all the chemicals contained in oil using existing technology. That is why if we used the trillions spent on wars in the last 3 decades on nuclear power, we could tell the Middle East, Russia, Venezuela, etc. to go "pound sand". Given the energy density of nuclear, and minor regulatory improvements, "vetocracy," where everyone has a veto, has to go: it is the tragedy of the anti-commons. Absent the irrational rejection of nuclear power out of fear, when statistically, nuclear power has caused far fewer deaths than conventional modes of electrical generation, learning curves would probably have nuclear cheaper than coal by now.
There are only two resources really necessary for human flourishing: energy and human innovation/creativity. All other "resources" can be created from those two resources. I can give you a fish dinner with energy, air, and water and sewerage using existing technology.
However, many of what are commonly called "resources", such as copper, have some dynamic problems with supply/demand feedback systems, where change in demand uses prices to drive the increase in supply. The short term supply response to demand changes has large time delays, which mathematically create instability in the price mechanism that translates demand information feedback to supply systems. Very inelastic short term demand changes swing prices drastically with small changes, up or down, in demand because you can't open a new mine or mine an old landfill for copper overnight. Long term elasticity is another issue, but the dynamics are measured in decades delays. It took decades for OPEC oil monopoly pricing to crash the real oil price in constant dollars.
The conventional time analysis presented in this essay would predict an infinitely increasing price in monetary terms in inflated dollars as the value of the dollar decreases. The real effort and energy that go into reducing entropy for converting minerals into useful forms only changes with technological improvement of a few % per year. When the real inflation rate (interest rate - inflation) is strongly negative, as it is today, the nominal prices will increase with trivial demand or supply increases or decreases.
What if we factor in time discounting? Wouldn’t that allow for a situation where, even if it is fully expected that demand for an exhaustible resource will decline over time, present-day prices still decline gradually over time as well?
The rise in baseball ticket prices is due to the unbalanced improvement in fan experiences > the proliferation of luxury suites/boxes/lounges. The novelty of price discrimination is far more applicable to sporting events than the produce aisle. The comparison especially falls apart if you're looking at "the most expensive ticket". I supposed you could compare them to organic, farm-raised, premium ++ bananas (wherever those are sold).
To the overall idea of SA - is the notion that human ingenuity has overcome past scarcity controversial, or requires proof? Go to the same produce aisle where you get those cheap bananas and see how many 'exotic' and out-of-season goods of yesteryears are abundantly available today.
What changes here if one introduces finite lifespans for the speculators, and models them as having non-linear discount functions? Like maybe they don't care very much about what happens after they die, or they expect humanity to be extinct in 300 years. I guess the latter is equivalent to the price going to zero at some future time, but the former can't be modeled that way.
This is a good point about what we can and can't infer from prices, and thanks for the pointer to the Hotelling paper.
But isn't it exactly an example of human ingenuity that “as geological exploration and mining techniques have improved, the known supplies of exhaustible resources have gone up”?
I haven't yet read SA, but can the price data given there be interpreted as an *illustration* of technological and economic advance, rather than as the primary proof of it?
Have spent a career in the oil and gas business and would say what's missing here is we don't know what "X" is. If you had estimated it based on known information and production techniques in 1974 you would likely have wildly underestimated X. It's worth noting that while the amount of "X in place" may be finite, the amount of "recoverable X" is a function of human ingenuity etc. The amount of "economically recoverable X" is a function of human ingenuity, the price of X, the price of substitutes for X, etc.
‘ Obama economic adviser…’ - for suchlike the word ‘oxymoron’ was invented.
‘ Agricultural commodities are produced under market conditions.’
Without arguing with the point of the article - I have to say nowhere is this true. Sri Lanka is the most glaring, Netherlands also, but nowhere is agriculture free from protective regulation, subsidies, quotas, price caps, intervention, tariff and non-tariff trade barriers - the EU is a 60 year study in this, although the USA is no shrinking violet either.
Currently the EU is subsidising farmers to grow things like kiwi fruit, avocado, mangos, and maize to feed cattle instead of grass. These foods come from far away so growing them locally reduces CO2 emissions from shipping, and reducing grass-fed cattle reduces methane farts. All this is to ‘save the Planet’ from climate change.
Well - all this requires considerably more water to irrigate these crops (18 US, 15 Imp gallons to grow one avocado), so the drain on water resources has been increased without those water resources being increased - to protect the environment - so this year there are severe water shortages everywhere. Cause? Everybody’s favourite: climate change, not environmentalist lunacy.
Well. Mankind is clearly not getting better at managing his resources with lunatics managing them.
I'm not sure Mr. Kling has fully articulated the theory of exhaustible resources in his critique. There is also the increasing extraction and processing efficiency over time. E.g., the theory of exhaustible resources also suggests industry will first develop the highest quality reserves that are relatively easy and cheap to find and produce. As a basin or the worldwide sources mature and existing reserves are depleted, companies must invest in the development of new technologies and increase geological information (i.e., find resources that were harder to locate). Companies must also lower extraction and processing costs at these more complex projects. The economic result is that over long time-periods real commodity prices are relatively flat.
"Although we have continued to exploit new deposits (due to fracking, for example), at some point available resources will stop rising."
But what if demand for the resources falls faster than the availability of resources stops rising?
I'm on the record as predicting that, by the early 2040s, virtually all of miles driven by cars and light trucks will be by fully autonomous vehicles, operating in transportation-as-a-service mode. That will also mean that the overwhelming majority of them will be battery electric vehicles, not gasoline vehicles. (It's a fairly long story on why I think that's so.)
https://markbahner.typepad.com/random_thoughts/2013/01/the-future-of-transportation.html
That's why I'm also on the record for predicting that gasoline using in the United States will fall by more than 80 percent from 2007 to 2050:
https://markbahner.typepad.com/random_thoughts/2019/06/lets-see-who-knows-what-theyre-talking-about.html
MM writes:
“This scientific revolution is a theory of human behavior that, when combined with theories of social evolution, is close to being a theory of everyone.”
I’m interested in learning the source of this scientific revolution and discovering this universal truth - this theory of everyone. Is the source the same elite universities that are informing us of the truth that there are no truths?
Worked at the Black Thunder Mine in the Powder River Basin around 1981. We were selling coal for about $10/ton FOB mine site. 40 years later the spot price for Powder River Basin coal is about $13. Taking inflation into account the equivalent 1981 price would be $33. An awful lot of innovation went into dropping that price by $20. Yes, people getting smarter increases non-renewable natural resources availability. Julian Simon was right.
I think this goes a little to far with its skepticism. Granted that we cannot predict the future of technology, if you are generally optimistic about "technology" then the prices of commodities probably will come down relative to human labor. Why shouldn't we expect technology to reduce the demand for, reduce the scarcity of commodities -- oil, minerals or the capacity of the atmosphere to absorb CO2 -- relative to human labor provided we allow technology production to respond to prices (or pigou taxes in the case of non-marketed commodities)?
The question that matters isn't "When will we run out of oil?" but "When will our oil-intensive lifestyles become unsustainable?". In the extreme case, if oil was consumed until there was only one barrel of oil left and it sold for a billion dollars a milliliter, then in some sense we haven't "run out of oil" but nobody's driving to work or heating their homes with it.
From a physical science viewpoint, the concept of "exhaustible resources" is less meaningful than it might sound: Mass/energy is conserved and, in more earthly terms, mass doesn't go away except for radioactive elements. Your image using copper and oil are illustrative. Copper doesn't go away. It just get diluted in waste streams with entropy increases. Energy can concentrate it back into copper metal. Oil is just a form of energy, as we use most of it, and all forms of useful energy are totally fungible. Given electrical energy (an easy to utilize form of energy) we can take CO2 from the atmosphere with water from the oceans and convert it into all the chemicals contained in oil using existing technology. That is why if we used the trillions spent on wars in the last 3 decades on nuclear power, we could tell the Middle East, Russia, Venezuela, etc. to go "pound sand". Given the energy density of nuclear, and minor regulatory improvements, "vetocracy," where everyone has a veto, has to go: it is the tragedy of the anti-commons. Absent the irrational rejection of nuclear power out of fear, when statistically, nuclear power has caused far fewer deaths than conventional modes of electrical generation, learning curves would probably have nuclear cheaper than coal by now.
There are only two resources really necessary for human flourishing: energy and human innovation/creativity. All other "resources" can be created from those two resources. I can give you a fish dinner with energy, air, and water and sewerage using existing technology.
However, many of what are commonly called "resources", such as copper, have some dynamic problems with supply/demand feedback systems, where change in demand uses prices to drive the increase in supply. The short term supply response to demand changes has large time delays, which mathematically create instability in the price mechanism that translates demand information feedback to supply systems. Very inelastic short term demand changes swing prices drastically with small changes, up or down, in demand because you can't open a new mine or mine an old landfill for copper overnight. Long term elasticity is another issue, but the dynamics are measured in decades delays. It took decades for OPEC oil monopoly pricing to crash the real oil price in constant dollars.
The conventional time analysis presented in this essay would predict an infinitely increasing price in monetary terms in inflated dollars as the value of the dollar decreases. The real effort and energy that go into reducing entropy for converting minerals into useful forms only changes with technological improvement of a few % per year. When the real inflation rate (interest rate - inflation) is strongly negative, as it is today, the nominal prices will increase with trivial demand or supply increases or decreases.
What if we factor in time discounting? Wouldn’t that allow for a situation where, even if it is fully expected that demand for an exhaustible resource will decline over time, present-day prices still decline gradually over time as well?
The rise in baseball ticket prices is due to the unbalanced improvement in fan experiences > the proliferation of luxury suites/boxes/lounges. The novelty of price discrimination is far more applicable to sporting events than the produce aisle. The comparison especially falls apart if you're looking at "the most expensive ticket". I supposed you could compare them to organic, farm-raised, premium ++ bananas (wherever those are sold).
To the overall idea of SA - is the notion that human ingenuity has overcome past scarcity controversial, or requires proof? Go to the same produce aisle where you get those cheap bananas and see how many 'exotic' and out-of-season goods of yesteryears are abundantly available today.
What changes here if one introduces finite lifespans for the speculators, and models them as having non-linear discount functions? Like maybe they don't care very much about what happens after they die, or they expect humanity to be extinct in 300 years. I guess the latter is equivalent to the price going to zero at some future time, but the former can't be modeled that way.