The Day After Tomorrow Part II: The Counter Intuitive Logic of Resource Economics

If you read my last post, you know that I’m a big fan of Bill Nye (the Science Guy) who appeared on CNN a few days ago to tell the viewing public about The Day After Tomorrow—the film that depicts the world ending a few days thanks to global warming—and how there is no way the events portrayed would happen so quickly.

But Bill said something that didn’t ring true, though it’s one of those things that “just seems right” to most people but doesn’t actually work that way. Bill is deeply concerned about the state of the planet and the speed in which we are using our natural resources. So, he advised us to stave off disaster by using fewer of them—Bill apparently rides his bike everywhere to save on gasoline.

While this seems like the perfect solution to combat global warming, because of the way the economy works it is far from being true. Using fewer fossil fuels drives down their price and creates less incentive for creating cheaper, renewable substitutes. Our economy is large and free enough to sustain legions of entrepreneurs to offer new options when the old ways become too expensive. During the California energy crisis a few years ago, the price of oil skyrocketed and the renewable energy industry boomed as firms invested in solar panels and wind energy. Riding your bike to save money or get exercise is one thing (because these are internal benefits that are the natural response of market activity); riding it to save the environment is another (because it is in pursuit of an external benefit that cannot be measured and, therefore, actually hinders the creation of a solution to the greenhouse problem).

Using more gasoline to get off of it doesn’t make sense to a lot of people but over the course of human history, when one resource gets too expensive, we find substitutes for it. Metals, for example, are always cited as something we will run out and then we’ll be screwed, even though more and more building materials are made from plastics. There’s no reason to think that gasoline is any different. And because we have every reason to believe that we will be richer and more knowledgeable in the future than we are today, we can depend on the fact that our new energy source will be much cleaner than gasoline. Our wealth will allow us to express the new knowledge in new inventions. So let’s not succumb to scare tactics that emphasize short term effects, like riding bikes. Let’s have the courage to look at the big picture and resist the temptation to trade in our car for a ten speed.