07 January, 2008

Resource Constraints

I wanted to write a post about this Jared Diamond op-ed in the Times a few days ago, but I waited too long and my will petered out. These were the points I would have made:

  • The worst opening sentence I have ever ever read: "To mathematicians, 32 is an interesting number: it’s 2 raised to the fifth power, 2 times 2 times 2 times 2 times 2."

  • We don't need political will to deal with limited resources, we need well-defined property rights and a market. This is exactly what a price-driven allocation system is designed to deal with.

  • A wild prediction: we will never run out of any resource! As we use up current sources of a particular resources, new sources are discovered. Except it costs more to get oil from those sources, so the price rises. As the price rises, people use less. When oil is $1000/barrel, someone will still want it for some purpose and people will still be willing to drill very very deep for it. This is not to say that the transition away from oil won't be painful, but it is to say that it will happen without government intervention.

  • The whole piece purports to be about running up against resource constraints and how we unsustainably use forests and fisheries and oil and the like, but his policy prescriptions are about climate change. These are very distinct issues and have very different implications. If the only problem with using oil was that we might run out of it some day I would absolutely not be in favor of a gasoline tax. But since using oil also contributes to climate change, I am.

  • Diamond says "Real sacrifice wouldn’t be required, however, because ... [m]uch American consumption is wasteful and contributes little or nothing to quality of life." That's just silly, of course real sacrifice is required. Any time the price of something rises, people's real incomes fall.

  • This op-ed just fuels the conservative canard that those crazy environmental activists want us to return to primitive standards of living.

  • Matt Yglesias points out that it is not so much inequality in resource consumption as U.S. government actions that are the root cause of terrorism.


Elliot said...

I read this too. A couple comments:

--I think you're being unfair with number 2: both property rights and and markets are politically created and sustained constructions. And beyond that, unless you are absolutely laissez-faire, there is a need for political intervention in the distribution of resources - thus, the corresponding political will.

--I was also confused by his lumping of climate change with general environmental degredation. They are surely connected and reinforcing, but their solutions may not be.

--I read Yglesias' point, and I only half agree with it. Diamond is wrong to put all the blame on resource inequality, but I think its silly to say "theres no evidence for that" argument as Yglesias does because Switzerland hasn't been attacked. Well, Denmark has, Germany has, Britain has, Spain has, France has. Political humiliation and the legacy of colonialism are the main factors - but a main legacy of colonial administration is resource inequality. So I don't think Diamond deserves quite the disdain he has received on that point.

--Finally, despite the wierdnesses and digressions of his article, Diamond's fundamental point remains intact: that the First World's rates of consumption are currently unsustainable for a variety of reasons, and so we are in trouble if the Third World is going to model their development on ours. Furthermore, the normal course of economic innovation is not going to change that diagnosis without us politically manipulating the incentives. Thus, going back to my first point, the need for political will.

spencer said...

(1) Okay, completely agreed, you may in fact need political will to establish the property rights that allow you to have a market (as we see in water markets in the West, where the will does not yet exist.) Rodrik has convinced me that there is no such thing as laissez-faire.

(3) I'd bet that if you compared the areas of the world that have high anti-Western sentiment with those that do not, it would be much more strongly correlated with recent political actions than anything else. Look at India, China, various Southeast Asian countries, Africa. They were mostly colonies of some sort, are all fairly poor, yet ill-will toward the West is limited. On the other hand, consider Latin America and the Middle East, where we have had our way politically.

(4) Again, we need to separate the sustainability from the climate change. Sustainability (optimal conservation of resources) is solved by market forces alone if property rights are well-defined. No subsidies or taxes required. Climate change requires some subsidies and taxes to get the best result. I don't think there's really a huge danger of the Third World following our course. The price for oil is vastly greater than what it was when we started using a lot of it. That's a large incentive to find a different path to development and it will only increase.

Elliot said...

As for (3), yes, this is a point well taken, and I was not trying to argue Diamond's point, but rather point out that there is a grain of truth behind his exaggeration. There is not a one-to-one relationship between lack of per capita income and support of terrorism against the West. Immediate political, religious, and economic contexts all intermingle.

What I think you can say is that resource inequality is a backdrop that increases the likelihood of violent competition for resources, ideological radicalization, or other destabilizing processes, but that in each situation what form those reactions take and who the anger is directed at depends upon the more or less immediate context.

In India, Pakistan and Bangladesh, political violence has largely taken the form of regional rivalry. In China, an agrarian-communist revolution and then a massively bloody dictatorship that nonetheless was seen as putting the country on the right path economically absorbed those tensions internally. Southeast Asia did wage long, terror-based wars against first the French and then the United States (as did many nascent African nations -- I suggest "the Battle of Algiers"), and international terror threats have emerged from the Pacific rim, especially Indonesia.

The Middle East since the creation of Israel (speaking of colonialism) is just the latest and most currently salient reaction against the West. The immediate political context is the trigger, but the colonial legacy -- which means the industrialization of the West due to the buildup of capital achieved through "extra-market" transactions with the colonial holdings -- is the gunpowder.

(4) It seems we are talking about two different definitions of sustainability. Yours, the economic, I understand as this: that as a resource becomes more scarce, its price goes up, producers will duly transition to other resources, and the resource never disappears.

I mean unsustainable in an environmental sense (and I will now attach an adjective to every use of the word sustainable to avoid confusion!), which includes but is not limited to climate change. I know that you're trying to point out that Diamond looks silly when he makes it sound like we'll just one day run out of resources. But that fallacy aside, development being environmentally unsustainable is quite enough to make his basic argument work. The third world is already following our course to such an extent that it is adding to the environmental unsustainability of the world economy.