Why the Neo-Malthusian Premise of “Peak Resources” are Misguided

Writing at the Daily Reckoning, Chris Mayer, managing editor for several newsletters has a rejoinder to neo-Malthusians led by GMO’s Jeremy Grantham.

Yet whether it is oil or copper or iron ore or whatever resource, people insist on relying on the same faulty reasoning that “the easy stuff is gone.” They continue to make the same tired case for chronic natural resource shortages and a decline in our standard of living.

The great economist Joseph Schumpeter’s (1883-1950) criticism of the Malthusian position still holds. On Malthus and his ilk, he wrote: “The most interesting thing to observe is the complete lack of imagination which that vision reveals. Those writers lived at the threshold of the most spectacular economic developments ever witnessed.” Yet they missed it.

So here is my prediction: I believe we are on the cusp of even greater levels of innovation and development — another industrial revolution is in progress right now. So ignore the gloom and doom on natural resources. Contra Grantham, the days of abundant resources and falling prices are far from over.

Mr. Mayer is basically right.

But today’s high prices of commodities hasn’t just been a function of market prices operating from a laissez faire environment but importantly represents interventionism on a massive scale, particularly from central banks, whose inflationism has resulted to severe economic distortions that has been reflected on market prices. In short, prices of commodities may also represent monetary dislocations. 

Also the mining-energy industry, for instance, are tightly regulated, where regulations serve to inhibit supplies. There is also a political bias for green energy that has caused economic disruptions at the costs of taxpayers.

Nonetheless, despite these interventions, I would add that trends towards improving the supply side, buttressed by technology, are on the way. In the world of commodities, notably deep sea mining and asteroid mining are great examples.

On deep sea mining from wired.com

Deep-sea mining is poised as a major growth industry over the next decade, as large developing-world populations drive consumer demand for metal-containing products, climate change makes previously inaccessible regions like the Arctic Ocean seabed attainable, and improved extraction technologies turn previously uneconomical rock into paydirt.

Cindy Van Dover is a Professor of Biological Oceanography at Duke University and a leading voice in the development of policy and management strategies for deep-sea extraction activities.  Van Dover has studied the ecology of hydrothermal vents for years, and she takes a measured, pragmatic approach to the coming industrialization of her study sites.  If mining is going to happen – a event that the more strident faction of the environmental movement will no doubt contest – “we need to work with industry to make sure we do it right,” says Van Dover.

Taking a leaf out of deep sea mining, asteroid mining seems also in the pipeline. From Mining.com

A newly launched asteroid miner is looking to the history of deep sea mining as it attempts to navigate laws governing exploitation of space.

Deep Space Industries, which rolled out its plan for space mining today at a news conference in the Santa Monica Museum of Flying in California, said the laws regarding resource mining beyond the earth are largely unformed, and the company will rely on co-operation between the main players. (Video embed of the press conference is below.)

"If you look at parallels, like deep sea mining, that went forward without a global treaty. The companies that wanted to do deep sea mining shook hands: 'We won't interfere with you if you don't interfere with us', that was the general approach going forward," said David Gump, Deep Space's chief executive officer.

Gump said the company will be relying on the 1967 space treaty, which he says will give the company the right to utilize space resources but will not grant the right to claim any sovereign territory.

Like the shale gas boom which has exposed the major flaws in the economic interpretation of “peak oil theory”, neo-Malthusians always mistakenly construe the causal link of prices as signifying a fixed pie for the supply side while downplaying the importance of human capital in providing innovation that contributes to the rebalancing of the economics of commodities.

Professor Don Boudreaux aptly quotes the great Julian Simon from his 1996 book The Ultimate Resource 2 

“[N]atural resources are not finite in any meaningful economic sense, mind-boggling though this assertion may be.  The stocks of them are not fixed but rather are expanding through human ingenuity.”

Quote of the Day: The Ultimate Resource is the Human Mind

It bears repeating – and repeatedly repeating – that there is no such thing as a truly natural resource. All resources that have market value possess that value only because of human creativity and effort. Nothing that we today regard as valuable “natural resources” – not land, not forests, not petroleum, not iron ore, not magnesium, not fish, not New York harbor, nothing – would be a resource had not human creativity devised ways to make that thing into something so very useful to the achievement of human purposes that that thing becomes scarce. 

And one happy consequence is that, having made some raw materials scarce by discovering previously unknown and economically viable uses for these materials, human creativity – in economies that are at least reasonably free – is set to work, by the very incentives that are ‘natural’ to free markets, at the task of making these resources less and less scarce over time. 

As Julian Simon so insightfully taught, the ultimate resource is the human mind.

(italics original)

This is from Professor Donald J. Boudreaux at the Cafe Hayek.

17 Reasons to be a Rational Optimist

My favorite science and environmental columnist and author of the must read Rational Optimist, the eminent Matthew Ridley propounds 17 reasons why we should be cheerful:

1. We're better off now

2. Urban living is a good thing

3. Poverty is nose-diving

4. The important stuff costs less

5. The environment is better than you think

6. Shopping fuels innovation

7. Global trade enriches our lives

8. More farm production = more wilderness

9. The good old days weren't

10. Population growth is not a threat

11. Oil is not running out

12. We are the luckiest generation

13. Storms are not getting worse

14. Great ideas keep coming

15. We can solve all our problems

16. This depression is not depressing

17. Optimists are right

Read Mr. Ridley’s explanations here.

All the above redounds to a single most important theme: the human being.

Rational optimism is a bet on human capital, or in the context of the Austrian economic school, praxeology or the science of human action—purposeful behavior towards the fulfillment of an end which aims to substitute present unsatisfactory conditions.

Human actions in pursuit of constant improvements is likely to bring about positive changes, despite attendant challenges (especially from politicians, the regulators and cronies).

People are the ultimate resource, as the great author and Professor Julian Simon once wrote,

Only one important resource has shown a trend of increasing scarcity rather than increasing abundance. It is the most important and valuable resource of all—human beings

7 Billion People: Boon or Bane?

The United Nations says that world population have reached 7 billion.

In attempting to visualize the impact of 7 billion people The Economist writes,

THE UN's doughty demographers have declared that October 31st is the day on which the world's population reached 7 billion. They may be wrong (the UN got the timing of the 6 billionth birth out by a couple of years) but no matter: the announcement has triggered celebrations in maternity wards around the globe and a hunt for the 7 billionth child. Yet the growth in the world’s population is actually slowing. The peak was in the late 1960s, when it was rising by almost 2% a year. Now the rate is half that. The last time it was so low was in 1950, when the death rate was much higher. The result is that the next billion people will take 14 years to arrive, the first time that a billion milestone has taken longer to reach than the one before. The billion after that will take 18 years. Where will all these people fit? The chart below, worked out on a maximum population density of six Economist staffers per square metre, gives the space needed to accommodate the world's population at various points in history, expressed in multiples of the borough of Manhattan. Looked at another way, each of us now has the equivalent of Red Square to ourselves.

7 billion represents merely a statistical estimate which most likely is an inaccurate measure of the real number of the world’s population.

Yet, the UN’s declaration seems loaded with political inferences.

For instance, the Economist article above tries to project maximum land allocated per individual or a population density. But this would be a chimera for the simple reason that all land area are not the same (e.g. mountains are different from coastline or from hills or from plateau; there are private owned and public owned) and that each individual does not use up or require as much space as what the Economist implies.

So the framing from the 7 billion figure could essentially foster political alarmism over a potential conflict from growing population relative to the scarcity of land which is fundamentally not only false but unrealistic.

The other implication of the UN’s hype is to give neo-Malthusians (who falsely believed that overpopulation would translate to a catastrophe for mankind or the Malthusian Catastrophe) room to advocate for more political controls on everyone. Their focal point has been centered on the strains to access scarce resources and to the environmental impact from a growing population.

Following charts from World Bank-Google Public Data

Yet even if there is some semblance of truth to the claim that we are now 7 billion people, the $7 billion question is that how have we been able to successfully reach this state in defiance of the doom mongers’ expectations of a ‘catastrophe’? And importantly if such factors will continue to support even a larger population?

The Economist rightly points out that world fertility rate have been going down.

If this slowing fertility trend should continue, then population growth trends would imply for a slowdown or even a potential peaking.

Nevertheless, another very important aspect that has supported today’s 7 billion people has been a huge jump in GDP per capita that coincides with the slowing fertility growth

The substantial improvement in per capita GDP has mostly been because of globalization and a more pervasive adaption of economic freedom.

Competition in free markets has been cultivating and accelerating the rate of technological innovations that has helped in resolving the scarcity problem in many aspects such as in the science and medicine, information and communications, business process and etc..

Largely uncelebrated hero Norman Borlaug discovered high yielding wheat varieties which he combined with modern agricultural techniques which paved way for the green revolution. Mr. Borlaug was eventually awarded the Nobel Peace Prize and was known as the ‘father of green revolution’ who has been credited with saving over a billion people from starvation

And further advancements in technology whose costs have materially decreased have became available to a wider range of people which has increased people's lifespans

The very impressive author Matthew Ridley wearing his Julian Simon hat (the famous free market economist who made a controversial bet against Malthusian Paul Elrich and won) sums up at the Wall Street Journal on why population growth trends will slow

(bold emphasis mine)

Birth rates have gone down because of prosperity, not poverty. Everywhere it has occurred, it has followed a fall in child mortality and famine and an increase in income and education. The wider availability of contraception has been necessary, even vital, for this shift, but it has not been sufficient.

To a biologist, the demographic transition is both surprising and intriguing. No other species drops its birth rate when its food supply increases. Frankly, no expert has yet fully explained the phenomenon. It remains something of a demographic enigma.

The best guess is that modern society causes human beings to switch their reproductive strategy from quantity to quality. Thus, once child mortality drops and paid work becomes available to the children of subsistence farmers, parents become more interested in getting one or two children into education or jobs than in begetting lots of heirs and spares for the farm.

Whatever the explanation, history shows that top-down policies aimed directly at population control have generally proved less successful than bottom-up ones aimed at human welfare, which get population control as a bonus. The faster poor countries can grow their economies, the slower they will grow their populations.

While present developments has generated much progress, there are still many afflicted by poverty. That’s because there continues to be meaningful resistance in embracing a bottom up approach in dealing with socio-economic development.

It's really not about the number of people but the process or the means by which people use to sustain their living. This means, in general, the world is much better off with MORE PRODUCTIVE people.

Environmental Apocaplytics: Put Money Where Your Mouth Is

Professor Don Boudreaux at the Wall Street Journal does a Julian Simon (free market economist Julian Simon made a famous wager against Malthusian Paul Elrich over the false notion of resource scarcity and handily won)

Writes Don Boudreaux, (bold emphasis added)

I reject this pessimism. I do so because economics and history teach that human beings in market economies have proven remarkably creative and resourceful in overcoming challenges. And there's no reason to think that this creativity and resourcefulness will fail us in the face of climate change.

Since 1950 there have been 57 confirmed F5 tornadoes, with winds between 261–318 miles per hour, in the U.S. Of those, five struck in 1953; six in 1974. So far this year there have been four F5 tornadoes in the U.S., including the devastating storm that killed more than 130 people in Joplin on May 22. F5 tornadoes are massive, terrifying and deadly. But they generally touch down in unpopulated areas, thus going unnoticed. The tragedy of Joplin and other tornadoes this year is that they touched down in populated areas, causing great loss of life. Yet if these storms had struck even 20 years ago there would have been far more deaths.

So confident am I that the number of deaths from violent storms will continue to decline that I challenge Mr. McKibben—or Al Gore, Paul Krugman, or any other climate-change doomsayer—to put his wealth where his words are. I'll bet $10,000 that the average annual number of Americans killed by tornadoes, floods and hurricanes will fall over the next 20 years. Specifically, I'll bet that the average annual number of Americans killed by these violent weather events from 2011 through 2030 will be lower than it was from 1991 through 2010.

If environmentalists really are convinced that climate change inevitably makes life on Earth more lethal, this bet for them is a no-brainer. They can position themselves to earn a cool 10 grand while demonstrating to a still-skeptical American public the seriousness of their convictions.

But if no one accepts my bet, what would that fact say about how seriously Americans should treat climate-change doomsaying?

Do I have any takers?

The Next Green Revolution?

Is the next green revolution upon us?

The non profit organization Philippine based International Rice Research Institute (IRRI) together with a China based institution has come up with a new variety of rice that is said to be “more robust, high yielding, and disease-resistant, yet thrive with less water, fertilizer, and pesticide”

Picture From IRRI

From Yale Global,

The world appears to be on the threshold of another green revolution in rice production as a result of an intensive, 12-year partnership between the Chinese Academy of Agricultural Sciences in Beijing and the International Rice Research Institute in the Philippines.

Called "Green Super Rice," it is the result of a project begun in 1998, involving the painstaking crossbreeding of more than 250 different potential varieties and rice hybrids, according to Dr Jauhar Ali, a senior scientist and regional project coordinator for the Development of Green Super Rice at IRRI in Los Banos, south of Manila.

The development of the process, Dr Ali said, is considered so significant that Microsoft founder Bill Gates met personally with Zhi-Kang Li who holds a dual position both with IRRI as Senior Molecular Geneticist and as Chief Scientist with the Institute of Crop Sciences at the Chinese Academy of Agricultural Sciences in Beijing and, through the Bill and Melinda Gates Foundation, presented the program with a US$18 million, three-year grant to expand the benefits to Asia and Africa.

The two institutions are seeking additional donors to be able to push the rice to undeveloped corners of Africa and other continents to help stave off the growing need for food across the planet.

The process was developed by Zhi-Kang Li, It involves the efforts of hundreds of researchers in dozens of countries across the world, seeking to isolate the desirable traits from indigenous strains and then backcross breed them to produce hardier varieties. (emphasis added)

By the above account, I am reminded of the brilliant economist Julian L. Simon who once said

The essence of wealth is the capacity to control the forces of nature, and the extent of wealth depends upon the level of technology and the ability to create new knowledge.

If markets are only allowed to do their job, we’d see less worries over scarcities of natural resources.