flinthills

Cafe Hayek Link

Russ Roberts over at Cafe Hayek has a nice post on Energy Politics. Don Boudreaux has a wonderful commentary on Julian Simon there as well.

Are We Running Out of Oil?

Quick answer? No. But there's no shortage of "experts" out there who will try to tell you that the sky is falling. One of the clubs they use is Hubbert's Peak.

In the 1950's a geophysicist named M. King Hubbert developed a model focusing on the rate of discovery of new oil wells in the lower 48 US states; he predicted a pattern of US oil production that looked much like a normal curve, and concluded it would peak in the early 1970's. His prediction may or may not have been accurate (the data are conflicted and the issue is still debated).

I'm not sure Hubbert's peak matters from a practical standpoint regarding the availability of oil. While it seems to have some serious science behind it, it doesn't seem to incorporate much of what is known regarding economics and market forces.

Unfortunately, the "experts" often apply this Hubbert Peak analysis to global oil production to create a perceived "crisis." They tell us they've predicted the peak to be some soon-to-arrive date, after which we will experience a worldwide economic meltdown. They typically use this panic-inducing "information" to try and influence public policy according to their agenda - whether it's conservation, public investment in their pet alternative energy project, etc. It's trickery and misdirection.

Here are some things to consider when you read the next doom and gloom report:

One useful metaphor comes from Dr. Russell Roberts in the first chapter of his book The Invisible Heart: An Economic Romance (Highly recommended book). It goes something like this:

I give you a gift of a big room packed with pistachio nuts. Let's assume you LOVE pistachios. There's only one rule - you must leave the shells in the room as you eat the pistachios. At some point in time, even though there are a lot of nuts left, it starts to get rather "expensive" to find them, searching through all those empty shells. At some point, would you concede that you might prefer to go out and buy a bag of pistachios -- even though there's a bunch still in that room that are "free?" My wife likes to remind me that "never" is a strong word. But as a thought experiment consider the assertion in light of the above that you would never run out of pistachios in that room. Why? You'd move on to less expensive alternatives and substitutes.

Next consideration: Do you find it interesting that the world's proven oil reserves have steadily increased every year in the last several decades? In fact, they're up today at least 25% over the 1970's when we had the US "Oil Crisis." BP has an excellent website where you can find this data for yourself. Clearly this is not because the amount of oil in the world is infinite. It more likely that market forces (i.e. increased demand) induce the investment in finding new, cheaper ways to look for and extract oil. How many more reserves are out there? How much more can be extracted from existing reserves? Remember the crystal ball problem - this would require perfect knowledge of future scientific and technological advancements... No small feat.

As a final consideration, the price of oil relative to wages has trended downward from the 1870's to present day. You might balk at this form of a "call-to-calm" by saying, "what? you're predicting future trends by historical extrapolation?"

Julian Simon said that might be like historically extrapolating - just before you hit the ground - that a fall from the Eiffel Tower is an exhilarating experience. But he goes on to say,

"Please notice, however, that for a jump from the tower we had advance notice there would be a sudden negative discontinuity when reaching the ground. In the case of energy and natural resources, there is no persuasive evidence for a negative discontinuity; rather the evidence points towards positive discontinuities -- nuclear fusion, solar energy, and discoveries of energy sources that we now cannot conceive of."

Clearly there's a rational market-based alternative viewpoint to the Hubbert Peak.

Regulation and Suffering the Sufferable...

From the Declaration of Independence:

"[...] that mankind are more disposed to suffer, while evils are sufferable, than to right themselves by abolishing the forms to which they are accustomed."

I find myself coming back to this line often... I have a vivid memory from childhood of one of the rougher, older boys in the neighborhood telling me about "the chinese water torture." It wouldn't be so bad to start, he said. You might even laugh at how stupid it was - no way would you cave in, you'd tell your torturer. But there you'd be, lying back with your hands and feed tied together in a bath tub and someone would just start dripping water - one small drop at a time - on your forehead. Eventually though two things would happen -- the constant drip... drip... drip... would drive you crazy; and at some point the water in the bathtub would rise and drown you. I was terrified.

Later in life a light products trader and good friend of mine, in talking about being aware of market conditions, used the analogy of cooking a live frog... Put a frog in a pot of boiling water and he'll do his best to jump out. But put that frog in a pot of cool water and slowly increase the heat over a long period of time and he won't perceive the problem until it's too late.

I always wonder if it's too late.

Job Losses and Offshoring: The Truth is Cheerier

Brink Lindsey, Director of Trade Policies at Cato and author of Against the Dead Hand, has a good article -- the cover story -- in July's Reason Magazine, "10 Truths About Trade". The more in-depth paper at Cato that this article was based upon is, "Job Losses and Trade: A Reality Check".

In it, he points out that:

• The number of jobs grows with the population;
• Jobs churn constantly;
• Challenging, high paying jobs are becoming more plentiful, not less;
• Imports have not been a major cause of the recent manufacturing job losses;
• Offshoring is not a threat to high-tech employment;
• Offshoring creates new jobs and boosts economic growth;
• The digital revolution has been eliminating white-collar jobs for many years;
• Fears that the US economy is running out of jobs are nothing new.

Yes, I only listed nine. You'll find all 10 and the support arguments in the Reason article - it's a good read. A quote as a teaser:

"In recent years, many Americans have lost their jobs and suffered hardship as a result. Many more have worried that their jobs would be next. There is no point in denying these hard realities, but just as surely there is no point in blowing them out of proportion. The U.S. economy is not running out of good jobs; it is merely coming out of a recession. And regardless of whether economic times are good or bad, some amount of job turnover is an inescapable fact of life in a dynamic market economy.