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06/01/2004: "Scarce Resources"

I was just going back and saw a debate between Alex and Byrne about scarce resources. I posted this link in both places, about a wager between Julian Simon and Paul Erlich.

Simon had Byrne's faith in mankind's ingenutiy; Erlich thought that we were running out of resources and, unless mankind learned to reduce, reuse, recycle, etc., we were doomed. So they bet on the prices of five metals: copper, chrome, nickel, tin, and tungsten. If Erlich was right, these commodities would become scarce, and their prices would rise. Erlich was wrong. The ingenuity of mankind won out.

But I am not convinced that all basic resources are as abundent as these metals. Alex cited oil. A more stark example would be center cut hard wood.

There are different kinds of wood. Soft wood, like pine, grows fast is is not so well suited for building. Hardwood, like oak, teak, and mahogany takes a long time to grow and is well suited for construction. Builders prefer center cut wood rather than wood from the edge of the tree; it does not warp as much.

A few decades ago, builders could go to the lumber yard and get all the low cost center cut hardwood they needed. It was cheap and well suited for the job of home construction. Now, such wood is not so cheap. Instead, builders use trusses. Trusses are softwood two by fours ingeniously assembled. Like hardwood, such trusses can span the living room ceiling with enough strength to support the waterbed upstairs. And unlike hardwood, trusses resemble a renewable resource (softwood is renewable; the metal for the connectors is plentiful).

I say this because, in my opinion, Alex and Byrne are both right. Alex is right that some resources will effectively run out. Byrne is right that it doesn't matter; we will always find a way to meet our needs.

Replies: 2 Comments

on Wednesday, June 2nd, Byrne said

Thanks for giving me somebody to thank for posting the link. I'm terrible with names, but I was sure someone would remember those of the people involved. And anyway, I suppose you're right, though I would add that in a completely free market, it would be just about impossible to use the last drop of oil. I mean, we can always seeks shale, which is much more expensive to extract -- if oil hit $150 a barrel, and we still had near the same consumption, I can assure you there would be many people interested in shale oil. However, at some point, prices get so high that use declines to essentially zero, and, at the same time, extraction costs increase to the point that even the high prices don't compensate. So, we don't run out. We just run very, very low.

on Thursday, June 3rd, Alan said

Good point about the oil -- I just read somewhere about oil companies revising the size of their reserves based on the price of oil. The higher the price of oil, the more they can pay to extract it, and the more oil they have. I also read in the dead tree edition of the Wall Street Journal (I think) some years back about the size of the oilfields under the gulf of Mexico. They were growing unexpectedly. My impression was that as we pump oil to the serface, the known resevoirs are being refilled from super deep resevoirs. The implication is that we are significantly understating the amount of oil available to us.