Doom or Bloom: Are We In Danger of Running Out of Resources?

Justin Ong

Justin Ong

Justin Ong is an active contributor to the Adam Smith Center. His latest work is a series of introductory-level articles spanning various topics of politics, economics and philosophy. He is also an incoming student of philosophy with Nanyang Technological University.

Is the Earth running out of resources?

Mankind is no stranger to the paranoia that we would soon run out of resources from unchecked consumption. In 1798, at a time of roughly 800 million people, economist Thomas Malthus feared that our exponential population growth would outstrip linear increments in food production, producing famines worldwide. In a more modern case, Paul Ehrlich, author of The Population Bomb, prophesied that, due to global resource scarcities, 65 million Americans will starve to death and England may not even exist in 2000.

Sceptical of Ehrlich’s Malthusian paranoia, business professor Julian Simon posited that future technological innovations would boost the availability of scarce resources in the long run. In 1980, he wagered a $10,000 bet with Ehrlich that the prices of commodities (handpicked by Ehrlich) would decline in prices, which would reflect the rise in their abundance. Simon won the bet.

 

Defusing the bomb

Fortunately, our present concerns over the scarcity of resources such as oil and food do not hold up against the evidence. Overall, the resource prices have declined drastically – resource prices in 1990 are half that of 1950 prices and a fifth of 1900 prices.

The proposition of ‘peak oil’, the theorised point of which maximum oil has been extracted from the earth, has been shattered time and time again. It is patently false that new sources of oil are tougher to locate. World oil reserves today more than 15 times greater than they were when record keeping began in 1948.

Concerns about food security don’t hold water either. Between 1990 and 2014, despite a population growth of about 2 billion people, the UN estimates a reduction of 200 million hungry people worldwide. Such a trend is expected to continue since food production outpaces population by about 1% per year on average .

Mining companies usually only explore and delineate reserves sufficient for a few decades of profitable operation. In no way, do their estimates imply that there are absolutely no more resources left on our planet.

We have to distinguish between proven reserves and actual reserves, which includes undiscovered deposits, when we review forecasts of resource reserves. Press material from the University of Geneva adds crucial nuance to the forecasts by explaining that ‘To define reserves is a costly exercise that requires investment in exploration, drilling, analyses and numerical and economic evaluations. Mining companies explore and delineate reserves sufficient for a few decades of profitable operation. The result is that the estimated life of most mineral commodities is between 20 to 40 years, and has remained relatively constant over decades.’

It would be unwise for us to accept population control measures prescribed by doomsayers aimed at curbing our consumption. While an extra person is an extra belly to feed, an extra person offers an extra brain and pair of hands to confront global issues.

 

Wonders of technology

Our technological advancements have empowered us in searching for new resource deposits and identifying new methods to harvest more resources that were once inconceivable.

Deep sea drilling has expanded our capacity to harvest oil deposits from the depths of our oceans. Hydraulic fracking, a process of using high pressure water to create fissures in the rock to release oil and natural gas, has spawned new industries eager to attain fossil fuels from previously unyielding shale rock.    

Innovative methods such as the fractional distillation of crude oil ensure no waste in the use of our resources. Crude oil can be refined into diesel, jet fuel and cooking gas. Even its residue can be used for roads and roofing.

We have also utilised our resources more efficiently through technological innovations.

Thanks to fertilisers, genetically modified seeds, irrigation systems, etc. our scarce fertile agricultural lands have produced higher and more nutritious yields. Between 1866 and 2012, the corn production of American farmers skyrocketed from 24 bushels to 122 bushels of corn per acre. Concomitantly, the price of corn declined from $5.55 in 1866 (1982 dollars) to $3.15 in 2012.

Today, no drop of crude oil is wasted in refineries due to fractional distillation, the process of isolating different components of crude oil based on their boiling points. Besides refining crude oil into diesel and petrol for vehicles, refineries produce cooking gas and lubricating oils and even tar for roads from residue of the distillation process.

Last but not least, our technologies perpetually spawn new industries that redefine how we use our resources.

In lesser developed states such as India, countless wires made of copper dangle precariously over streets, illustrating just how crucial copper is to our city life. Given such a demand, suppliers are always incentivised to locate more sources of copper. Image credit: Frontera

Prior to the 1840s, before the introduction of the combustion engine, crude oil had little use and was considered a liability as it frequently polluted natural water supplies.

One of the commodities in the Simon–Ehrlich wager was copper, which faced shortages for it extensive use in wiring electronics. Though we have overcome copper shortages through means such as recycling (in the United States, nearly as much copper is recycled and reused as it is harvested from ores), copper reserves have been conserved from substituting copper wires with fiber optic cables made from sand.

 

 

Wonders of the market price system

Free market prices are a precious source of information for firms as they reflect the relative scarcity of resources. Without any top-down command or control, prices of resources spontaneously inflate once their supplies become scarce. Higher prices signal to consumers to purchase less of scarce resources or switch to alternatives, spawning new industries that employ different resources. From the perspective of suppliers and entrepreneurs, the prospect of higher profit returns incentivises them to boost their supply either through searching for new resource deposits or discover unprecedented means to attain more resources.

A crucial ingredient of the free market conservation of resources is the institution of private property rights. Libertarian science writer Ronald Bailey observed that fisheries governed by property rights, apart from outperforming in yields, have the capacity to preserve and even rebuild fish stocks. Property rights creates a profit incentive that fosters the sustainable resource management among owners through measures such as breeding programmes and limiting access via individual transferable quotas. In a tragedy of commons, Bailey explains that, ‘since nobody owns the resource, everybody exploits it as much as they can because they know if they leave something behind, the next guy is just going to take it.’

Nonetheless, the free market solution may be counterintuitive as the threat of our essential resources depleting triggers our instincts to summon our governments to intervene. Unfortunately, state policies usually undertaken such as nationalising mining and oil companies or offering fuel subsidies distort free market prices suppliers and consumers rely upon to guide their purchases and direct their innovation respectively. Thus, free market corrections such as consumers switching to alternatives or suppliers ramping up their search for new sources of resources are inhibited, delaying meaningful solutions to resource scarcities.

As long as our markets are free, tomorrow’s resources are today’s knowledge.

 

Resources

Simon, Julian. The Ultimate Resource. Princeton University Press, 1981

Simon, Julian. The State of Humanity. Wiley-Blackwell, 1996

Osterfield, David. Overpopulation: The Perennial Myth. Freedom of Economics Education (FEE), 1993

Ridley, Matt. The Rational Optimist. Harper, 2010

Bailey, Ronald. The End of Doom. Thomas Dunne Books, 2015.

Bailey, Ronald. Physical Scientists Are So Darned Cute When They Finally Understand Economics. Reason, 2017

Pooley and Tupy. The Simon Abundance Index: A New Way to Measure Availability of Resources. Cato Institute, 2018

 

Featured image credit from The Hill.

Justin Ong

Justin Ong

Justin Ong is an active contributor to the Adam Smith Center. His latest work is a series of introductory-level articles spanning various topics of politics, economics and philosophy. He is also an incoming student of philosophy with Nanyang Technological University.