Natural Disasters: Loss of life means reduced economic growth

At the Mises Institute, Professor Frank Hollenbeck makes a splendid case against the "broken window fallacy" or why “Natural Disasters Don’t Increase Economic Growth”

I’d like to add my humble two cents. 

Disasters usually costs human lives and or injuries. This means dislocation in the economic sphere. Yet each human life lost entails loss of economic activity. Therefore, the loss of human capital simply means reduced economic growth. And no government action will replace lives that had been lost.

Video: Ashton Kutcher Gives Good Advice

It's rare to see celebrities offer profound insights. But American actor Ashton Kutcher seems an exception, as shown by his talk at the the Teen Choice Awards.

The background from screaming groupies, who seem hardly listening, have partly muted Mr. Kutcher's talk (hat tip Professor David Henderson), so you have to turn on the volume

Markets in Everything: Solar Impulse, the Fuel Less Plane

Speaking of the gush of technological advancements from the deepening of the information age, here is another: the advent of fuel less solar driven airplane: the Solar Impulse

Here is an excerpt from Wall Street Journal (hat tip EPJ)

FOR BERTRAND PICCARD, the idea to build a solar-powered plane capable of circumnavigating the globe was hatched while running on empty. In March 1999, Piccard was on the final leg of an around-the-world journey by hot air balloon—the first-ever nonstop flight of its kind—when his Breitling Orbiter 3 swept low over the Egyptian desert and skidded to a halt on the corrugated plains. As Piccard stepped out onto the hot sand, he checked the fuel tanks mounted on his gondola and got a shock that became a defining moment. "We had left Switzerland with four tons of propane," he remembers. "We only had 40 kilos left! We almost didn't make it. I promised myself that next time I would fly around the world without using any fuel at all."

The 55-year-old Piccard, a trained psychiatrist with a confident, intense manner to match, is adept at making sure there is always a "next time"—no surprise, since he's descended from explorer royalty. His grandfather, Auguste, broke high altitude records in the '30s by designing a balloon with a pressurized cockpit, and later became the inspiration for Professor Calculus in the Tintin comics. In 1960, Piccard's father, Jacques, descended seven miles beneath the Pacific Ocean in another pressurized module to set a deep-dive record that has been matched only twice.

In 2003, Piccard approached European companies to sponsor what has become a $148 million project and began assembling a team of 80 engineers and technicians plucked largely from Swiss universities. After seven years of tinkering, they arrived at a machine with a deceptively simple design: Solar Impulse—with its sleek, clean lines, white-gloss finish and rakishly angled 208-foot wings (bent to increase the plane's stability)—resembles what you might get had Steve Jobs reimagined a child's balsa-wood glider in giant form.

Read more here

The wonders of human ingenuity.

Quote of the Day: The Benefits of Population Growth

The benefits of population growth come from the fact that the more people there are in the world, the more people you have to interact with, the more potential friends you have, the more potential mates, the more potential business partners, customers, employers, employees. But even more than any of that is the fact that we all free ride on each other’s ideas. Virtually all of our prosperity comes from the fact that each generation free rides on the ideas of the previous generation, and improves on them — not just uses those ideas in and of themselves, but uses them to inspire the next generation of ideas. We use them to build on and to make the world a more prosperous place. A lot of that is invisible. You have all this technology around you and you tend to forget the fact that had there been half as many people, there would have  been half as many ideas — probably fewer than half, in fact, because  ventures actually inspire each other, so there’s a more than linear buildup of ideas as the  population grows.

I like to say that when you’re stuck in traffic on a hot summer night, it’s very easy to remember that the guy in front of you is imposing the costs, and, unfortunately, you also easily forget that the guy who invented air conditioning has conferred on you quite a benefit. You remember that if the guy in front of you had never been born, your life would be a little easier right now — but it’s also easy to forget that if one less person had been born it might very well have been the guy who would’ve invented air conditioning, not the guy who’s in front of you. So, the real way in which people get this wrong, I think, is that the mind immediately goes to the fact that there is such a thing as too large a population. And there is such a thing as a population so large that the earth cannot support it — we all know that. But that does not address the question of whether the current population is too large or too small. And somehow people often confuse one of those questions with the other. I’m not sure why, but I’m out to unconfuse them.

(bold mine)

This excerpt is from the interview of author, blogger and professor Steven Landsburg by the Richmond Federal Reserve (hat tip Bob Murphy)

Quote of the Day: Greatest Costs of Declining Fertility Are Missed Opportunities

Because the greatest costs of declining fertility aren't visible disasters, but missed opportunities.  The millions and billions of people who are never born won't share their ideas with the world.  They won't help spread the fixed costs of idea creation, product variety, and infrastructure.  And they won't enjoy the gift of life.  (If you're already objecting by listing the upsides of non-existence, think again).  Low fertility isn't bad because we'll lose what is.  Low fertility is bad because of we won't gain what could have been.

(italics original)

This is from Professor Bryan Caplan at the Library of Economics and Liberty (Econolog) (ht Professor Art Carden)

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.

Quote of the Day: The Fallacy of Redistribution

Those who talk glibly about redistribution often act as if people are just inert objects that can be placed here and there, like pieces on a chess board, to carry out some grand design. But if human beings have their own responses to government policies, then we cannot blithely assume that government policies will have the effect intended.

The history of the 20th century is full of examples of countries that set out to redistribute wealth and ended up redistributing poverty. The communist nations were a classic example, but by no means the only example.

In theory, confiscating the wealth of the more successful people ought to make the rest of the society more prosperous. But when the Soviet Union confiscated the wealth of successful farmers, food became scarce. As many people died of starvation under Stalin in the 1930s as died in Hitler's Holocaust in the 1940s.

How can that be? It is not complicated. You can only confiscate the wealth that exists at a given moment. You cannot confiscate future wealth -- and that future wealth is less likely to be produced when people see that it is going to be confiscated. Farmers in the Soviet Union cut back on how much time and effort they invested in growing their crops, when they realized that the government was going to take a big part of the harvest. They slaughtered and ate young farm animals that they would normally keep tending and feeding while raising them to maturity.

People in industry are not inert objects either. Moreover, unlike farmers, industrialists are not tied to the land in a particular country.

Russian aviation pioneer Igor Sikorsky could take his expertise to America and produce his planes and helicopters thousands of miles away from his native land. Financiers are even less tied down, especially today, when vast sums of money can be dispatched electronically to any part of the world.

If confiscatory policies can produce counterproductive repercussions in a dictatorship, they are even harder to carry out in a democracy. A dictatorship can suddenly swoop down and grab whatever it wants. But a democracy must first have public discussions and debates. Those who are targeted for confiscation can see the handwriting on the wall, and act accordingly.

Among the most valuable assets in any nation are the knowledge, skills and productive experience that economists call "human capital." When successful people with much human capital leave the country, either voluntarily or because of hostile governments or hostile mobs whipped up by demagogues exploiting envy, lasting damage can be done to the economy they leave behind.

 This is from author Thomas Sowell. Read the rest here

Natural-Shale Gas Revolution Spreads to Israel

The natural-shale gas boom spreads to Israel.

Reports the Financial Times (hat tip Carpe Diem’s Professor Mark Perry)

With reserves of almost 10 trillion cubic feet of natural gas, the Tamar field is a hugely valuable asset for the Israeli economy. Discovered in January 2009, it was the biggest gas find in the world that year, and by far the biggest ever made in Israeli waters. But the record held for barely two years. In December 2010, Tamar was dwarfed by the discovery of the Leviathan gasfield some 20 miles farther east – the largest deepwater gas reservoir found anywhere in the world over the past decade. The two fields, together with a string of smaller discoveries, will cover Israel’s domestic demand for gas for at least the next 25 years, and still leave hundreds of billions of cubic feet for sale abroad. The government take from the gasfields alone is forecast to reach at least $140bn over the next three decades – a staggering sum for a relatively small economy such as Israel’s.

It’s not just in Israel but as I previously pointed out the Natural-Shale gas revolution will become a world wide phenomenon.

And we are seeing some evidence of such progress. Again the FT,

Experts are convinced that Tamar and Leviathan will not be the last big Israeli discoveries. They point to the US Geological Survey, which estimates that the subsea area that runs from Egypt all the way north to Turkey, also known as the Levantine Basin, contains more than 120 trillion cubic feet of natural gas. Israeli waters account for some 40 per cent of the total. Should these estimates be confirmed through discoveries in the years ahead, Israel’s natural gas reserves would count among the 25 largest in the world, on a par with the proven reserves of Libya and ahead of those of India and The Netherlands.

Earlier Israel seems to have been devoid of energy resources.

For decades a barren energy island, forced to import every drop of fuel, Israel today stands on the cusp of an economic revolution, fuelled by the vast riches that lie below its waters.

left chart from Financial Times, right chart from Financial Post

But thanks to human ingenuity, massive advances in technology have transformed what was once resources of little economic value to become abundant highly economically valuable commodities.

Hopefully Israel’s newly discovered energy resources will serve as blessings than a (resource) curse. But this will depend on how the domestic and geopolitical trends in Israel and the Middle East will evolve.

15-Year Old Wonderkid Dramatically Improves Pancreatic Cancer Tests

Talk about the magnificence of human capital.

From Make: (hat tip Professor Mark Perry) [bold mine]

Maryland young maker Jack Andraka isn’t old enough to drive yet, but he’s just pioneered a new, improved test for diagnosing pancreatic cancer that is 90% accurate, 400 times more sensitive, and 26,000 times less expensive than existing methods. Andraka had gotten interested in pancreatic cancer, and knew that early detection is a challenge. He gleaned information on the topic from his “good friend Google,” and began his research. Yes, he even got in trouble in his science class for reading articles on carbon nanotubes instead of doing his classwork. When Andraka had solidified ideas for his novel paper sensor, he wrote out his procedure, timeline, and budget, and emailed 200 professors at research institutes. He got 199 rejections and one acceptance from Johns Hopkins: “If you send out enough emails, someone’s going to say yes.” Andraka was recently awarded the grand prize at the Intel International Science and Engineering Fair for his groundbreaking discoveries.

Additional thoughts:

Access to technology has vastly been improving people’s capability to acquire knowledge, learn and pursue innovation: All it takes are the WILLPOWER or the PASSION to attain a goal, and importantly, the courage or having a constructive perspective of failure.

Youthful Andraka seems like another Steve Jobs in the making: focusing on matters of personal (or career) interests or “what you love” than of the traditionalism and conventionalism.

Talk about extreme determination and persistence: 199 REJECTIONS!!!

Mr. Andraka’s experience demonstrates how conventionalism abhors the unorthodox—where what works has not been reckoned as the priority, but of the conventional mindset, methodology and standards.

Nevertheless it took only ONE acceptance to prove that his theory has been viable and aptly got recognized for it.

What an accomplishment for a 15 year old! Jack’s parents must be so proud of him.

May Jack Andraka’s tribe increase.

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

Video: Peter Diamandis: Abundance is our future

Peter Diamandis, Founder and Chairman of the X PRIZE Foundation, an educational non-profit prize institute whose mission is to create radical breakthroughs for the benefit of humanity, in a talk at the TED explains why he thinks the world is headed for abundance.



Essentially Mr.Diamandis is banking on the explosive growth of human capital facilitated by technology (information age) through the following media

Technologies riding Moore’s Laws:
1. Infinite Computing
2. Sensor and Networks
3. Robotics
4. 3D Printing
5. Synthethic Biology
6. Digital Medicine
7. Nanomaterials
8. Artificial intelligence

Here are some noteworthy quotes

When I think about creating abundance, it is not about creating a life of luxury…it is about creating a life of possibilities. It is about taking that which was scarce and making it abundant. You see scarcity is contextual and technology is a resource liberating force. 6:34

It is not about being scarce it’s about accessibility. 8:17

By the way the biggest protection against population explosion is making the world educated and healthy 12:26

3 billion new minds would never been heard before are connecting to global conversation. What do these people want? What would they consume? What do they desire? Rather than having an economic shutdown we are about to have is the biggest economic injection ever. These people represent tens of trillions of dollars injected in the global economy 12:47

In spite of the restrictive role of governments, I share his optimism that people will find ways and means to circumvent them mostly through technological innovations.

(hat tip Professor Mark Perry)

Revolutionary 3D Printing Technology: Jawbone Replacement

The speed of technological advances is just amazing and 3D printing technology seems to be showing the way.

From Discoverynews.com (hat tip Mark Perry; bold emphasis mine)

When surgeons replaced the infected lower jawbone of an 83-year-old woman, they needed a fast replacement tailored to fit the patient's existing bone structure, nerves and muscles. That medical dilemma inspired a world-first achievement -- creating a customized jawbone from scratch with 3D printing technology.

The "printing" process used a laser to heat and melt metal powder in the shape of the jawbone. That process, carried out by Belgian manufacturer LayerWise, allowed the 3D printer to sculpt and build up the patient's medical implant layer by layer. A bioceramic coating ensured that the patient's body would not reject the implant.

"The new treatment method is a world premiere because it concerns the first patient-specific implant in replacement of the entire lower jaw," said Jules Poukens, a surgeon at the University Hasselt in Belgium

Poukens led the team of surgeons that implanted the new jawbone during a four-hour operation at a hospital in Sittard-Geleen in the Netherlands last June, according to the Dutch newspaper De Pers. The elderly patient made a rapid recovery.

"Shortly after waking up from the anesthetics, the patient spoke a few words, and the day after, the patient was able to speak and swallow normally again," Poukens said.

3D printing has already helped many DIY innovators create everything from robots to household items on demand based upon digital designs. But the combination of precise designs and rapid manufacturing could have even greater potential for creating customized body parts for medical patients -- especially when transplanted bone structures and organs suffer from short supply.

The revolutionary 3D printing technology reinforces the secular trend towards decentralization. But this won’t come smoothly as many politically entrenched groups or interests will figure out ways (from environmentalism to health regulations and others) to forestall 3D technology’s fabulous advances.

Also the political battlefield will shift from nations (with no more China or Japan to blame on) to technology. In short expect anti-free market politics to shift from mercantilism to neo-Luddism.

The illustrious Julian Simon once remarked about the growth of human capital

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

Quote of the Day: Importance of Human Capital

How important is this human capital? According to recent estimates, the stock of human capital is over $750 trillion. According to a research report from JP Morgan called “U.S. Recession and Repression Are Only in Our Minds,” this is much greater than the roughly $70 trillion of physical and financial assets owned by American households.

As important as human capital is to economic success, it is not evenly distributed around the world. There is ample human capital already in the United States, but there are also enormous stocks of human capital—and potential capital—found overseas.

That’s from Nick Schulz who argues for the opening of skilled immigration in the US. [hat tip Professor Arnold Kling]

The way to enhance human capital is through economic freedom.

Economic freedom is not just about trade freedom, but also of freedom of movements (or social mobility)—where people can choose places on where to live and work or do business.

A liberal migration environment provides greater chances for people to discover on their abilities and to work on these for them to realize their fullest potentials as productive citizens.

And increasing human capital translates to a deepening society’s division of labor which should mean better chances to attain economic prosperity, as well as, social stability.

Also a liberal migration environment that would allow people to vote with their feet, would compel governments to become competitive and increasingly foster receptiveness to civil liberties which likewise reduces repressive political actions.

My Prayer to the Lord on Krugman’s Wish for More Destruction

[IMPORTANT UPDATE: The Krugman google+ quote below is an admitted forgery. Although Mr. Krugman could have said this in different ways. Forgery isn't justifiable.]

The Nobel Laureate Paul Krugman posted at the google+

People on twitter might be joking, but in all seriousness, we would see a bigger boost in spending and hence economic growth if the earthquake had done more damage

Dear Lord,

In reading the above, I became distraught when I realized that people of high stature would actually wish or even impliedly invoke harm, damage or loss on other people for the sake of statistics.

In case You should grant Mr. Krugman and his followers their wishes, I do pray that You would not include them in that specter of greater destruction.

That’s because if you did, they will be spending for repairs, hospitalization expenses, reconstruction and etc…, money which they would have spent for other useful and more desirable things than on contingents.

Although they could be helping out the economy as they claim this would, it would be better that they be left unscathed, so that they can keep on telling half truths which the world so badly needs.

I pray too that Mr. Krugman and his followers would not suffer from the losses of lives and injuries associated with the accompanying devastation.

Because if You allowed this to happen, I would suppose that Mr. Krugman and company will also suffer from the misery, trauma and tragedy of the losses of family members, relatives close friends, colleagues and or associates.

Also they might even endure the agony of medical recuperation and therapy if they have been wounded. And if this is so, they will have to consume their savings unless they are adequately covered by insurance. Again they would be diverting money to spending on emergency than on attaining more convenience during 'normal' times.

And under the period of rehabilitation they may not be able to spread their negative knowledge to their disciples and to the gullible.

And they may not be also paid by their respective employers if their treatment will be prolonged or if they become permanently handicapped.

As I understand, the economy is about interacting human beings, where losses of lives and physical impairment translates to the reduction of human capital. And losses of human life, I understand essentially reduces, and not adds to, real economic growth.

If You so decide to take away all our lives and leave only Mr. Krugman and his followers alive, there won't be much to spend on because there will hardly be anyone left to produce to serve the needs of these hallowed survivalists. And countless green pieces of paper won't do anything too.

Most importantly I pray that Mr. Krugman and his followers will be forgiven for their misanthropic desires and dogmatic superciliousness.

And that such forgiveness be extended to me for my aghast response over what seems for me as a demented opinion.

Thanks for listening,

Benson