finite resources

Economics Political Theory
1

This is tangential to another thread I started on ‘the environment’. Yeah, I know, use of those two words puts people’s brains into non-thinking, auto-reaction, magical thinking mode. So manually switch back to rational thinking mode again if you must.

I want to know if Austrian economics makes any distinction between finite, and non-finite resources. Please treat finite and non-finite as ‘for all practical purposes’ terms. That is, I am well aware that the sun’s energy is finite, but for these purposes, consider it non-finite.

For example, we can make new cars, bikes, toasters. We cannot make new oil. That seems pretty significant to me in terms of how such things should be treated from the standpoint of an economic analysis.

Also, does anyone else here - I feel certain most do not - think that in the case of finite sources of energy - which, remember, are the basis for virtually every component of our current society and therefore differ qualitatively from other types of resources (which alone suggests the need for different treatment) - we have any responsibiilty whatsoever to exercise stewardship for the sake of future generations?

As an aside, I would note something I think most people totally miss: human ingenuity - for all its wonders - has been around since humans have. That is, in our current form, for at least 250,000 years. The industrial revolution was not the product of human ingenuity - it was the product of the discovery of how to extract and utilize extremely energy dense fossil fuel resources, primarily coal, then oil, coupled with human ingenuity, which should therefore be seen as a peer to easy access to fossil fuels in bringing that particular revolution about. So this notion that ‘human ingenuity’ can solve any problem is a laughable misreading of history, and an obvious example of anthropocentrism. We should credit cheap oil as much as human ingenuity, and we should therefore be aware that IF easy access to cheap oil goes away, we may well be in a situation similar to that of, say, 100,000 years ago - human ingenuity intact, but lacking the energy dense resources to leverage that ingenuity into technology.

So, whether you agree with this or not, it is a highly plausible argument that cannot be dismissed out of hand - overlaying graphs of global economic growth (or global population for that matter - but that’s another topic) vs time, with human ingenuity a constant across the last 250,000 years will instantly show you that it was the introduction of relatively cheap fossil fuels which led to the explosion in economic growth and attendant potential for enhanced quality of life. So - this being the case, it seems to me to be idiotic to treat oil and other energy dense resources the same way as, say, toasters. Or even, say, steel or gold or other ‘commodities’.

Which is why I want to know, does Austrian economics make such a distinction? If it doesn’t, this would be, if the above analysis is correct (and as noted, this is child’s play to prove - if one can overcome one’s anthropocentric objections to putting oil on the same pedestal as human ingenuity - which I think most cannot), a flaw, IMO. If it does, can someone point me to the relevant documentation?

I’m not really interested here in ‘know nothing’ or ‘knee jerk’ responses - if you have not the time nor inclination to actually understand what I’ve said here, please don’t bother to respond. I’m not saying you must assume I am right, but you must be capable of understanding, and willing to make the effort to understand, my arguments and their implications, else I am simply not interested in hearing what you think. No offense.

2

I’m not sure what your point is. Austrian economics is axiomatic and universal. The same principles apply whether examining the economy of a bio-dome, where breathable air is a finite resource, as the economy of Iowa, where breathable air is, for all practical purposes, an infinite resource. I’m not an economist, but I’m sure others can expand on this.

Also, resources per se do not generate wealth. Ideas are what generate wealth, as your own description of the Industrial Revolution belies. Compare Hong Kong (few natural resources) with Nigeria (lots of natural resources). For centuries, the Arabs had no idea what to do with that black, sticky stuff oozing out of the ground. The sine qua non for oil wealth was human ingenuity.

It sounds like you’re trying to make a vaguely environmentalist argument, and in that event I think it is possible for a society to be so shortsighted and greedy that it completely consumes its capital stock: Easter Island and the Mayan kingdoms, for example.

3

The reason prices exist is because goods are finite. Basic supply and demand/marginal utility. You don’t have to pay for the sunlight because it is infinite. The same goes for the air you breathe. You have to pay for cars, houses, food, oil, etc. because all of them are finite. Likewise, even renewable energy is finite in that the capital that is used to gather that energy is finite. Although the wind is infinite, wind turbines aren’t. Although the sunlight is infinite, solar thermal and solar power plants are not.

So now to your question about preserving energy sources. The market preserves energy sources. If the market expects that there will be less oil in the future, oil wells will drill below capacity to save supply so they can sell it later for a higher price. Likewise, speculators buy oil because they’ll sell it later for a higher price as well. This raises the current price and the increased provides incentives to find other sources of oil and completely different sources of energy. We’re now seeing previously unprofitable wells being drilled, shale oil being extracted, and increased investment in profitable renewables like nuclear, solar thermal, and wind power plants. We’re also seeing a greater attraction towards biofuel, coal, and natural gas powered plants as well as market adjustments in the travel industry with natural gas, biofuels, electric powered cars, etc. replacing gas guzzling predecessors.

In essence, the market balances the needs of billions of individuals by adjusting their demand and by creating new supply. If petrol ever reaches $200/barrel, you’ll see significantly less demand for it as people switch to natural gas, coal, solar thermal, wind, etc. and new wells being drilled that might not have been profitable at $175/barrel. Having the government step in and artificially create scarcity in order to preserve our energy sources will just hurt the economy more than necessary. Right now, we need to allow a relatively smooth transition to happen. If the government steps in with carbon taxes, cap and trade programs, windfall profits taxes, or anything else, we’d be seeing a lot more “hurt” than we need. If any artificial scarcity is needed, oil drillers and speculators will take care of that problem. Anything beyond that, however, will just unnecessarily hurt the economy.

4

Not even that, because ingenuity was available for a lot of time. The sine qua non for an industrial society/revolution was and is freedom.

5

Well yes, in that you need to be free to implement the solution to the problem of how to exploit a particular resource. But it’s also rather imprecise. Resources have been exploited to the great benefit of society at times when you could still be burned at the stake.

6

Wasting resources shouldn’t be anyone’s goal and it usually isn’t as long as people pay for them themselves. However, a demand to ration certain resources to make them available to future generations has serious negative implications:

Even though coal, steel and oil were already important “lubricants” for 19th century economies, a crucial resource at the time was also copper. Copper was necessary for stuff like telephone cables or small high-precision instruments. Today we use other materials to build most of these things, but in those days they required copper. We deem ourselves lucky today that all these undersea cables and machines have been built with copper as they facilitated global information exchance and industrial progress and ultimately helped finding ways to get rid of copper as the main ingredient of many contraptions.

Now imagine what might have happened if our ancestors had decided to “save copper for future generations” instead of building phone cables with it. It would have had a two-fold negative effect:

a) We would probably be living in a less developed and therefore, less wealthy environment
b) We would probably be having less copper left as the lags in technological development may have required far more copper to be used in all kinds of products than is the case today

Lose-lose. Today, as an example, we use gas as a backup power source, just in case there is no wind to run the windmills. So, while certainly making excessive use of our potentially finite resources, it’s better to use them as a vehicle to more long-lasting energy sources than to simply get stuck.

Human ingenuity had been severely blocked and hampered by the long duration of information exchange and hostility towards science (Galilei, anyone?) which permeated the Middle Ages as well as its bordering centuries. In the 20th century, it was often misdirected to serve for war-related purposes only and produced useful civilian applications just as a side effect.

Don’t underestimate the versatility of human skills. While we certainly couldn’t have all the oil-based goods without oil, a lot of human tinkering is required to make use of it. Before all that, oil was considered a nuisance. Who knows which nuisance may be used as an energy source tomorrow?

It’d be helpful to know which measures you propose to tackle the problem, since “reasonable consumption” propositions range from raising awareness to economical ways of doing business to going back into the caves.

And maybe as to why many Austrians seem to go berserk when they hear of “sustainable development” and “finite resources”: That kind of expressions has been sufficiently used by many enviro-socialists to evoke an ugly feeling as soon as one hears them. Environmentalism has, unfortunately, been turned from a thoroughly libertarian ideal of not aggressing by polluting to a collectivist battering ram in the name of “Gaia”. And so, people tend to act reflexively.

7

I don’t know about that. A lot of early factories were powered by waterwheels and the like. I don’t think you can say that, if there were no oil or coal, we would not have had the industrial revolution when it happened anyway. It might have gone slower, and looked some different, but I think you oversimplify and don’t give people enough credit.

Don’t be silly. The Greeks had mechanical computing devices. The Romans had flush toilets. Sumer was way more recent than 100,000 years ago, and they were probably burning dung. There’s a LOT of hyperbole here.

Because correlation means causation, right? Oil and coal had been around for a long time; it’s not like they popped into existence and started the industrial revolution. It was our ingenuity that allowed us to access new resources. Those were the best and cheapest at the time. They are hardly the only ones available.

8

False assumption.

There is no reason to believe that humans can not recreate the natural processes that created oil.

http://en.wikipedia.org/wiki/Synthetic_oil

Again false.

The industrial revolution came about because humans harnessed steam to turn heat into mechanical energy. Fossils fuels were one of the fuels used to create that steam, but lumber was used as well.

And today radiation has been added to the list of heat sources.

9

It makes the distinction between goods (i.e. scarce resources) and general conditions (e.g. air for the most part.) Whether it is finite or not is irrelevant. If the good becomes increasingly scarce, the price will reflect it by increasing and if possible there will be a shift to substitute goods, unless something is done to abet the increasing scarcity. In that sense, finity is incorporated into the analysis.

-Jon