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Sirico Parables book

by William F. O’Keefe
Lamont-Doherty Earth Observatory
State-of-the-Planet Conference
November 15 & 16, 1999

I am honored to join in this celebration of the 50 th Anniversary of the Lamont-Doherty Earth Observatory because as Laurence Lipsett observed “Lamont fundamentally changed our understanding of the planet we live on.”

I am equally enthusiastic about discussing Living With Finite Natural Resources, perhaps as a contrarian.

The title has a ring of pessimism, reminiscent of many books and studies that assailed us in the 1970's. The Limits to Growth, probably the best known, was only one of a series of dire forecasts of resource exhaustion and the doom we would face unless we radically changed our way of life.

I want to question this premise of limits. Our first order of business should be to talk seriously about whether natural resources can properly be called “finite.” Of course, I do not question finiteness as a theoretical matter, since raw materials are indeed limited by the total mass of the earth. But I do question the relevance of finiteness at a practical level, at the level of the decisions that we as a global society must make over the coming decades. I am a contrarian but also an optimist about the future, and about humanity’s ability to address its challenges.

My contrarian streak follows the path of the late Julian L. Simon. Simon was a buoyant optimist about the state of the human condition at the end of the 20th Century. Shortly before his death, an article in Wired magazine characterized him as “The Doomslayer,” an antidote to the pessimism that remains oddly fashionable. His death was a sad day for the cause of reason and rationality in public policy.

But while Julian Simon the man is gone, his intellectual contributions and vision live on. Professor Simon left numerous books elaborating his thought. One of the topics that most fascinated him was precisely the subject of our agenda today – he vigorously opposed the idea that we should treat natural resources like a miser treats a pile of treasure: hoarding it, and dispensing the coins only rarely and with ill-humor. Simon disagreed completely with the premises underlying such a mind set, and it is in this spirit that I will speak to you today.

One of the last works he published was a revision of his 1980 book entitled The Ultimate Resource. By “Ultimate Resource,” Simon meant human beings and their intelligence, enterprise, and creativity. And he made the point that these resources are not finite. Human beings are infinitely resourceful, providing – and this is a big “if” I admit – their social, economic, and political structures promote creativity. As a result, while particular physical resources may appear constrained in the short term, human experience convincingly demonstrates that people push back the frontiers of limits. They find new supplies of the resource, or they learn how to get more out of what is available, or they learn to substitute different resources for the shrinking ones.

The history of the human race provides a sound foundation for this optimistic view of our future. Unfortunately, we do not hear much about this in the barrage of rhetoric that assails our senses. Good news does not sell. Media people, knowing little about science and statistics, do not gather data in a way that is illuminating. So, optimism rarely captures the media’s attention. This reflects the fact that the purveyors of doom have discovered how to profit from creating an endless series of false alarms. Apocalyptics have an inherent advantage in the public policy arena, even though their history of failed predictions should thoroughly discredit their paradigm. For an insightful explanation of this phenomenon, I recommend Daniel Boorstin’s 1961 book The Image: A Guide to Pseudo-Events in America. His thesis is that aspects of life are losing their connections to reality. Instead they are dominated by excess created to capture public attention and short circuit rational debate.

Let me provide a few simple examples to make my point, then move on to put the issue in a more theoretical framework.

Copper has been used since the dawn of human history, and for just about the whole time people have worried about a “copper shortage.” They sometimes argued that with limited supplies we had to restrict it to uses deemed essential. Yet, after some 3,500 years of periodic copper shortages and rationing proposals, this mineral is cheaper than ever.

How did this happen? As copper appeared scarce, people found new deposits, or they traded with others who had more. They invented new processes that extracted greater amounts out of the raw ore. They substituted other materials for copper for some uses. More recently, they found new materials that would perform the functions for which copper was valued. We have recently seen a massive replacement of copper wire by fiber optic cable, not because copper is expensive but because fiber optics can carry large amounts of information faster.

Such cable is made from silicon–sand. No one, so far, has claimed that we are running out of sand. In theory, I suppose we could, as the amount of sand in the world cannot be infinite. I have confidence that someday a richer, smarter, and vastly more knowledgeable generation will find something that has a greater capacity at a lower cost than silicon.

Let me turn to another currently fashionable shortage. We face, we are told, a water shortage. But upon analysis, the term “shortage” turns out once again to be rather slippery. To begin with, most water is not destroyed by use. It is recyclable. And we have oceans of it. So what does the term “shortage” mean in this context? There are special problems with groundwater and acquifer recharge but for the most part these are property rights and not scarcity issues.

In western states, it means that 90 percent of the water goes to agricultural uses, many of them of low economic value, and that the growing urban, suburban, and industrial uses want a bigger share. If the market was allowed to work, this would pose no problem. The new claimants would buy it from the farmers, who would then stop using federal subsidies to grow water-intensive crops such as cotton in the Arizona desert. Best estimates are that a 10 percent price increase in the West would result in a 20 percent decrease in agricultural use. This would double the amount available for urban uses, and end the talk of a “shortage.” At least temporarily.

The problem is that the institutional arrangements governing water in the West, by which I mean this system of federal subsidies and state water rights, do not allow market driven reallocation. So there is a “shortage” created by the fact that humans are not allowed to use their adaptability and resourcefulness.

Mr. Reisner has focused on the great American dam-building binge as an environmental disaster. The free market, libertarian magazine Reason ran an article in 1998 suggesting that the binge was also economic folly. When people who start from quite different points on the political spectrum reach accord, there is reason to hope that rational people can reach common ground on policy.

As a final example, I want to turn to petroleum. Colonel Drake drilled the first oil well in Pennsylvania in 1859, and around 1863 the first assertion was heard that we were in danger of running out. It has been repeated ever since. All the while, reserves steadily increased. We keep discovering new sources of oil, and new ways to extract more oil from existing fields. These efforts have taken a great leap in the past decade, as the computer revolution has wrought a revolution in exploration and drilling. For example, between the early 80s and mid-90s, proven reserves increased by about 50 percent while the cost of finding new oil fell from $20.00 per barrel to less than half that.

There also is a major, although very controversial, challenge to the assumption that fossil fuels are finite in any meaningful sense. Thomas Gold, an astrophysicist, doubts they are the product of decaying dinosaurs. He believes hydrocarbons have existed deep in the earth since creation. To say that Gold’s theory is controversial is an understatement, but his credentials are vouched for by the eminent scientist Freeman Dyson.

However, putting Gold’s theories aside, oil is indeed different from copper or water in important ways. It is not infinitely recyclable. Burning it for energy uses it up. Thus supplies of oil are finite at least from an economic perspective. At some point the human race may well wring the last drop of economical oil out of the last piece of shale. Indeed, that time may come in a century or two.

This raises a profound question, which is: SO WHAT?

We do not care about oil for its own sake, any more than we care about copper. When we learned that silicon is a better carrier of communications than copper, we dropped copper without regret. Similarly, we do not care about oil, except that we love the energy it provides. But there are other sources of energy. If and when oil grows more scarce, its price will begin a steady rise. This will create strong incentives to develop new energy sources, and we will. Indeed, we are already doing so. Society will someday re-examine our strange phobia about nuclear fission. We may develop fusion. And, fuel cells are likely to become efficient and cheap. Energy efficiency will continue to improve. We will find ways to harness solar energy that do not require us to pave the world with panels.

Indeed, I will make a prediction in which I have absolute confidence. On the day the last drop of oil is extracted, no one will notice, because we will have long since switched our society to new technologies. (Actually, that day will never come, because long before then the cost of other technologies will have grown so much cheaper than the cost of extracting that last bit of oil that no one will do it.)

To sum up, my bottom line is completely opposite to the inference suggested by the title of this panel. The title suggests that many resources are declining and non-renewable, and that society’s task is to manage scarcity. I cannot think of any that meet these criteria, if we focus on the real purpose that any given resource serves rather than on the resource itself. Given the power of price signals, the potential for substitution, and the accelerating wonders of human intellectual capacity, it’s hard to imagine ever hearing of one. As one person aptly put it “the stone age didn’t end because we ran out of stones and the oil age won’t end because we run out of oil.”

There are, however, some real hobgoblins to contend with. The biggest one may be the “finite resources” argument itself. The end point of this line of thought involves rationing, the assumption that since resources are finite we must ration their use so as to preserve them for a future generation. But who decides the rationing period, acceptable uses and acceptable alternatives, and who bears the costs of those decisions? The logical end point of this line of reasoning is an extreme interpretation of the “sustainable development” concept —we should use resources at the rate at which nature is replenishing them.

This is a portrait of a deeply pessimistic society, a society that, were it an individual, would be diagnosed as clinically depressed. Such a vision is based on rejection of human history, compounded by a deeply ingrained distrust of both technology and economic rationality. It is devoid of faith in the current and future generations of humanity. Were this vision ever to be implemented, it would bring about the very catastrophe of poverty and blight that it seeks to avert. But the vision is not without political power, and that is a source of deep concern to me. We need a new generation of “Doomslayers”—because unfortunately there is no limit to the supply of doom and gloom to slay.

Another thing I fear is the deadening hand of bureaucracy, especially in the area of environmental policy. Over the past 30 years, we have made great progress in land use and air and water quality. But that is water under the bridge (or over the dam, in deference to Mr. Reisner), and the question is what to do now to continue environmental progress.

The problems are, as in the case of water and land use policy, institutional. The command-and-control approach is leading to intellectual stagnation. A study by the Environmental Law Institute last year noted that “innovative environmental technologies are not being developed [in pollution control industries] at the same rate as in similar industries, and those which have been developed are not being used, resulting in lower environmental quality for the public and higher costs to industry. . . . . This difference is manifested in the decline of private venture capital for environmental technologies to virtually zero over the past decade, in an era of copious venture funding for technology in other fields.” Further, concluded the study: “The research shows that barriers specific to innovation in environmental technologies stem from the way our environmental regulations are designed and enforced, which in turn affects business decision-making. Fundamental reform of our regulatory emission and discharge rate-based standards is needed in order to remove the many barriers they create for innovation.”

This is an ominous development. If we refuse to unleash our Ultimate Resource of human creativity and resourcefulness, then we cripple ourselves. We also provide the prophets of doom with a self fulfilling prophecy. They say, “See, things are not working. It’s a crisis! Let’s redouble our efforts.” So we get more of the ineffective policies that brought about the crisis in the first place. The market is self correcting while bureaucracy is self protecting.

So, I fear the combination of the bogus finite resources argument with the heavy hand of concentrated political power. The possibilities of getting into a downward spiral for economic vitality and innovation are sobering. The fear of “scarcity” can lead to politically imposed controls which sap the creative energies of the society, choking off the resiliency upon which our future depends. Then the crisis created by the controls becomes an excuse for incremental meddling, for even more controls. Major interest groups–both public and private–spring up with a vested interest in the system that has developed, making change more and more difficult, and the spiral gets steadily steeper. In the field of public choice, this has been named the “Bootlegger and Baptist” theory of regulation.

Foolish optimism is just as reckless as foolish pessimism. I am not implying that all problems will be easily solved if we get out of the way of the market. While I have immense respect for the beneficent power of the market, there also is an important and legitimate role for government. Many environmental problems, many of the issues that can be lumped together under the rubric of “finite resources,” involve what Garrett Hardin called “The Commons.” They involve the overuse and destruction of fisheries, forests, grasslands, or similar resources. They can also involve the use of common resources, such as air or water, as a sewer. As everyone knows, if people pursuing profit have the opportunity to shift the costs of managing waste to the public in the form of pollution, competitive forces will make it difficult to avoid doing so.

In this context, we do indeed need a concept of sustainability, and an institutional structure that supports it. To use economic jargon, we need to internalize the externalities. The challenge is to delineate such problems clearly and accurately and then develop institutional arrangements that are right for the particular context. We must distinguish what is important from what is not. Everything can’t be a priority or nothing will be. We must develop a good understanding of the time frames of particular problems, and define an appropriate geographic scope. Some common property problems may be too small to worry about. Radon is probably an example. Some should be treated as very long run, and the precipitous rush to judgement avoided. The possibility of human induced climate change is in this category. Many, perhaps most, can be resolved at the local or regional level rather than treated as a national problem. Exhibit A here: hazardous waste sites. Dealt with at a national level, through Superfund, the problem is utterly intractable, and the program is a disaster. Treated at a local or state level, the problem gets addressed smarter, faster, and cheaper.

All of these are problems, amenable to solution through the use of the ultimate resources of human ingenuity, will, action, and above all a sense of humility. Our ability to predict the future is truly limited. To assume that our generation has the competence to foresee and solve all prospective human problems is the height of hubris. Although some apocalyptics have become rich by eloquently explaining away one failed prediction after another, historical evidence is a reason for optimism about the future. The four horses of the apocalypse are not on the horizon.

In thinking about this topic, I was struck with a significant irony. We have come to praise out of the box, non-linear thinking in many areas of human endeavor. But, when it comes to environmental issues and policy, we remain captive to a linear, in the box straight jacket. Our challenge should not be to anticipate every potential eventuality. It must be to create mechanisms that promote a resilient society.

Because of the stature of this University and this Observatory, you can play an important, indeed an essential, role in relegating Malthusean thinking to the scrap heap of bankrupt ideas. One of Franklin Roosevelt’s memorable observations was “The only thing we have to fear is fear itself.” Our responsibility to future generations is to take counsel from our strengths, not our weaknesses, and from our hopes, not our fears. If we do this while remembering that humans will always be fallible, our collective future will look brighter as we explore frontiers without limits.