I ended the last post by observing that what we need is not fewer people but more people who are stewards. Stewards are people who can get the most output with the least input on a sustainable basis. The obstacle to having more stewards is the grinding poverty that dominates vast regions of the world. That poverty is overwhelming a result of societies that refuse to embrace individual rights like property rights, establish the rule of law, and create true market economies. This is not to say that developed nations do not have a significant role in some of the dysfunction developing nations experience, but I do not believe this to be the fundamental problem.
Let us suppose we wake up tomorrow and all the dysfunctional nations of the world, to our amazement, suddenly embrace all the institutions I have been discussing. Within a few short years, their death rates drop, and after a brief pollution increase, they become more environmentally conscious. Prosperity breaks out all over the world. Won’t we have a new problem? Won’t fuel and energy to power these growing economies become a problem? Furthermore, won’t that lead to increased pollution and carbon dioxide outputs? The answer to these questions is almost certainly yes, at least in the near term!
But let us step back for a moment. Let us imagine that the year is 1900. As we look at the world population, we realize that the world population has grown by more than 50% over the last century to more than 1.5 billion people. Forecasting growth into the future, we can see that the population will quadruple to 6 billion. The few developed nations of the world set a goal of having about 10% of the people in 2000 living at standards at least as high as the wealthiest 1% in 1900. How will we do that? Think of the incredible number of horses we will need for transportation. Think of the pollution and the stench they will produce. Think of the coal that must be mined and the distribution networks developed to get coal to people’s homes. Just imagine the number of new ice houses that must be built. Etc. Are we beginning to get the picture?
What should our response have been in 1900? Curtail the amount of resources we use? Start restricting the use of horses to prevent pollution? Start rationing coal so there will be enough for future generations? Thankfully, that is not what happened. Entrepreneurs evaluated problems and began experimenting with solutions. Bicycle makers began taking two bicycle frames, welding a carriage between them, and then adding an internal combustion engine for a motor to power them. Before long, their innovations became a very practical transportation mode with more power than several horses. With the creation of assembly line manufacturing, prices dropped rapidly, and automobiles were widely available. Other entrepreneurs began experimenting with electricity which enabled homes to be wired with electrical power. That allowed the operation of home appliances like refrigerators. The iceman became outdated. Electrical power also eventually allowed for climate control devices that had required home-delivered coal. With each of these inventions, tremendous advances were made in the utility gained versus energy used and resources expended.
As we look forward from our standpoint, we can’t see how energy demands can keep pace with the demand if developing nations begin to grow, any more than people in 1900 could see how energy demands would be met over the coming century. New energy sources were created, and existing energy-using devices were made ever more efficient. That process is still underway. As the cost of energy like gasoline is driven up by demand, alternative fuels will become more attractive. As they become more attractive, more entrepreneurial efforts will be expended toward bringing these options to the market. It is entirely possible that by spurring economic growth, we will increase the demand for fuel, causing the price to rise to a level where alternative fuels and new technologies will enter the market. Economic growth might be the quickest path to newer, less-polluting technologies, not economic retraction.
The fact is that most commodities in the world have been getting cheaper, not more expensive. Dropping prices indicate an increasing abundance in supply relative to demand. When some resources begin to escalate in price, innovators create alternatives that can be substituted more inexpensively. Too many view the economy statically (simply projecting the status quo into the future) and not dynamically (people reflect on and respond to demand and supply signals, and innovate.)
That said, do we ignore issues like pollution and carbon dioxide emissions? Certainly not. A zero-pollution option would be ideal, but that does not yet exist in any way that can be mass deployed. This creates a public policy issue. We must weigh each incremental benefit of pollution reduction against the costs to economic growth, which will provide the resources that help us find new answers to pollution.
I am not arguing for a Pollyanna “head in the sand” optimism that assumes everything will work out. But projecting the impacts of existing technologies and circumstances into the future is equally naïve. There is no neat formula for proceeding, but both extremes are perilous. Unfortunately, in our polarized times, many people tend to gravitate to these extremes. I believe striving for balance is the responsible choice but that means catching hell from two sides.
I have said before that carbon dioxide is not technically a pollutant. To plants and trees, it is known as fresh air. But can too much “fresh air” be a bad thing? That brings us to the question of climate change and what to do about it.
With regard to oil, part of the problem is that most of the world oil is controlled by National Oil Companies. Politicians have a very short term focus, so in this case the price of oil might be biased downward.
Posted by: RonMck | Aug 17, 2006 at 03:00 AM
Thanks for that observation Ron. I could see national companies skewing prices in other direction based on any number of factors. However, the knowledge of worldwide deposits, prodution capacities and reserves are well known. So I think prices in a large free market economy like the US probably factor all of this in.
No question fuel is more than it used to be a short time ago but it is still a little below all time highs on an inflation adjusted basis. If we wanted to go after more desposits and especially build more refineries, then I think fuel cost would come way done.
Still, overall, the price suggests that there are many more decades of fossil fuel available even with growing demand. I just hope we can find something soon that is more environment friendly.
(As a sidenote, I did my MBA intership at Conrail under a guy who had been a fuel buyer. Talk about a nightmare job!)
Posted by: Michael Kruse | Aug 17, 2006 at 08:48 AM