Saturday, March 14, 2009

Hands and Heads

Here's the latest PhD comic, published yesterday:

The author, notably, did not consult an economist on the issue of sustainability, just foresters. And in doing so, we miss half of the evidence of what's going on when it comes to long term economic development. We are told people are just mouths and stomachs: they just consume and more people or development means more consumption. End of story. But people are also hands and heads: we produce and (most critically) we invent.

Which is the bigger factor? The evidence suggests that, certainly, in the short run consumption matters more. More consumption raises the price of goods (meaning they are more scarce). But the long run results (the sustainability concern) favors production. Goods (adjusted for inflation) keep getting cheaper. That short run boast in prices generates the incentive to ration, find substitutes, and ultimately develop new technology. People say it's different now, especially with energy (one of our most fundamental inputs). We've reached some peak that we can never return from. Armageddon is always just around the corner.

Humanity faced an energy shortage since our conception as a species. We sought it in plants, rivers, wind, fire, and a menagerie of animals. We built waterwheels, windmills, stoves, ships, sails, yokes, collars, carts, and harnesses in pursuit of of more efficient sources of energy. We dug mines all over the planet. Wood begot peat begot coal begot oil begot gas begot uranium. Now we seek it from the inner depths of out planet (geothermal) to the distant reaches of space (solar) and one theme permeates this unending quest of one of our most precious of resources: energy is cheaper. What new trend could have possibly emerged that makes them think it's suddenly different now?

Next time, Mr. Cham, I suggest you ask someone versed in both consumption and production. Next time, ask an economist.

1 comment:

Ryan said...

So really, what is the reason the Hotelling rule doesn't hold? If energy is cheaper in the future, why hold energy when you can sell?