Why Julian Simon is both right and wrong

[This is the followup to my earlier article about Julian Simon.]

Now I’ll restate this line of thought into a theory that will appear again and again in the book: More people, and increased income, cause resources to become more scarce in the short run. Heightened scarcity causes prices to rise. The higher prices present opportunity, and prompt inventors and entrepreneurs to search for solutions. Many fail in the search, at cost to themselves. But in a free society, solutions are eventually found. And in the long run the new developments leave us better off than if the problems had not arisen. That is, prices eventually become lower than before the increased scarcity occurred. (From The Ultimate Resource 2, Chapter 3)

This is perhaps the key passage in Chapter 3 of Simon’s book. It highlights a key part of the drive that has led humanity to develop a dizzying array of technologies, achieve the longest lifespans, the most comfortable lifestyles and the healthiest populations in history. It also illustrates why Paul Erhlich lost his infamous bet with Julian Simon.

Unfortunately, the copy of the book on the internet I’ve been using seems to have Chapter 3 cut short, so I don’t have the reasoning there that takes Simon from the problems of defining “natural resources” discussed in Chapter 2 and the passage above to his conclusion that resources are not finite. However, an article of his published at the Cato Institute, does shed some light:

…the term “finite” is not only inappropriate, it is downright misleading when applied to natural resources. The mathematical definition of “finite” is quite different from a useful economic definition.

For instance, the quantity of services we obtain from copper should not be considered “economically” finite because there is no way of counting them appropriately. We should also consider the possibilities of using copper more efficiently, of creating copper or its economic equivalent from other materials, of recycling copper or even obtaining copper from sources beyond planet Earth.

Therefore, a working definition of the total services that we could obtain from copper now or in the future is impossible to construct. (emphasis added)

There is also his reply to critics in which he says:

Finiteness by itself is not testable, except insofar as the fact that no one is able to state the absolute size of the relevant system (our cosmos) demonstrates the absence of finiteness in its dictionary sense. But the relevant evidence we have available – decreasing prices and increasing substitutability – is not what one would expect from a finite system. (emphasis added)

And:

Nothing I have written is intended to suggest that during any particular period there may not be too much use of any resource, renewable or non-renewable; indeed, I expect temporary overuses (for example, overuse of forest resources in various countries in various centuries) just as I expect boom-and-bust cycles in all other human endeavors. But this is a matter of management and adjustment in dealing with, and riding out, the ups and downs, rather than a matter of ultimate finiteness.(emphasis added)

From this I posit that Simon’s argument can be boiled down to the following:

  • As reserves of resources run down, the resulting price rises spur the search for new sources of them, for more efficient ways of using them and for ways of substituting other resources for them.
  • The long run trend (for centuries) has been for the price of resources to continue falling. Temporary shortages have often led to discoveries that leave humanity better off than before those shortages occur.
  • We do not know, ultimately, what resources are available to humanity in the long run. All we know is what resources are available now/in the forseeable future, given current technology.
  • We don’t know whether the universe is finite or not, and we cannot thus state that the resources available to us are finite. The long run trend of falling prices and greater abundance of resources seems at odds with the assumption of finiteness.
  • Since we do not know what resources will be ultimately available to us, we cannot say they are finite in any meaningful sense.

There are several problems here:

  1. We do know that the earth is finite. This is an incontrovertable fact. There is a finite amount of energy reaching earth from the sun each year, and a finite amount of matter falling to earth each year from outer space. Until we can exploit extra terrestrial resources at least as easily as we currently exploit the resources on earth, i.e. until we can escape the confines of earth as easily as we can escape the confines of a continent, this really does limit how many people the earth can support and the standard of living those people can enjoy. That seems unlikely to happen for at least a century — on that timescale the most I’d expect is colonies on the moon and a manned trip to mars.
  2. The trend for falling resource costs is a matter of a few centuries — this is a short time compared to (a) recorded history (b) the existence of humanity. We know that civilisations in the past have thrived and then collapsed. It seems likely that some of them died because of resource shortages.
  3. For the process of resource discovery and creation to keep us from “running out”, it must produce new resources at or above the rate at which we consume them. If we’re to rely on this process to prevent disaster, we must therefore posit that there will always be sufficient resources that can be reached via the process within the timescale required to stave off disaster, at every point in time. It seems to me unlikely that this can be guaranteed.

Simon is correct to highlight the existence of the process of resource discovery and creation, and at a highly abstract level he is even right that we don’t know whether the resources ultimately available to humanity are finite or not. But the process is not automatic, and even when running efficiently, it is not guaranteed to provide us with all the resources we might need at a given point in time.

To act as if resources are infinite, when we know that running out is a real possibility and when even our most advanced science and technology tells us we can do no more than an exploratory flight to our nearest planetary neighbour (let alone colonise it, terraform it or get there in the sort of timescale we can travel to other continents) would be irresponsible.

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Julian Simon, the limits to growth and infinite resources

The Earth’s physical resources are finite. We threaten our future if we try to live beyond those means, so we must build a sustainable society that guarantees our long-term future.

The above quotation comes from a document describing the philosophical basis of the Green Party. The late economist, Professor Julian Simon, rejected this view in his book, The Ultimate Resource 2. To quote from Chapter 3 (entitled “Can the supply of natural resources – especially energy – really be infinite? Yes!”):

Chapter 2 showed that natural resources, properly defined, cannot be measured. Here I draw the logical conclusion: Natural resources are not finite. Yes, you read correctly.

So here we have a deceased but influential economist claiming that resources are infinite! Note the “properly defined” bit above. The following paragraph from the summary of Chapter2, illustrates the thinking here:

Material-technical forecasts of resource exhaustion often go wrong for two reasons. (1) No matter how closely defined, the physical quantity of a resource in the earth is not known at any time, because resources are sought and found only as they are needed; an example is the increase in the known supplies of such resources as copper, as shown in table 2-1 and figure 2-1. (2) Even if the physical quantities of particular closely defined natural resources were known, such measurements would not be economically meaningful, because we have the capacity to develop additional ways to meet our needs – for example, by using fiber optics instead of copper wiring, by developing new ways to exploit low grades of copper ore previously thought not usable, and by developing new energy sources such as nuclear power to help produce copper, perhaps by extracting it from sea water. Thus the existing “inventory” of natural resources is operationally misleading; physical measurements do not define what we will be able to use as future supplies.

What Simon has demonstrated is that it is hard to measure what resources are available in the earth, that we don’t know what future means of providing those resources or substituting for them will become available and it is thus hard to define what resources the earth can/will ultimately provide to humanity.

However he has not demonstrated that the earth can provide us with “infinite” resources, merely that we do not know what resources it could ultimately provide us with. However Chapter 3 is where he attempts to demonstrate that resources are in fact “infinite”. I shall tackle the reasoning there in my next article.

One might ask why I am bothering with this. The answer is that, whilst Simon is wrong about getting “infinite” resources from the earth, he has sound arguments to make about the economics of resource usage/scarcity and I believe he goes wrong in an “interesting” way. Understanding where he goes wrong can help understand what the real situation is regarding “the limits to growth”.

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The Commoner-Erhlich Equation

Further to my previous article, on the report from the Optimum Population Trust, I’ve been doing a bit of digging around on the I=PAT equation. Remember here that I is the measure of the impact of humanity on the environment and P is the population and A is a measure of affluence (or consumption). The question is what is T measuring? The OPT reports talks about T somehow measuring “technology”.

Anyway according to Wikipedia, T is in fact humanity’s ecological impact per unit of consumption. A is measured as consumption per capita. So by multiplying the population P by the consumption per capita A, you get total consumption, after which you multiply by T the total impact per unit consumption to get I, the total environmental impact of the population and its level of consumption.

Given this, it is clear Tim Worstall’s criticism of the I=PAT equation, saying that we should divide by T, not multiply by it, is mis-placed. Mr Worstall is treating T as if it measures technological sophistication. I agree with him that technological advancement reduces our environmental impact, at least for a given standard of living and population size, but that is not what T is measuring here. Technological advancement allows us to e.g. use less energy and resources and/or reduce pollution per unit of consumption. Thus such advancement reduces the value of T. The question then is whether the equation is an adequate description of what’s going on. It assumes independence of its variables and it also assumes the variables can be measured reasonably accurately. It seems to me both assumptions are questionable.

For example, there may be feedback loops between the variables that aren’t catered for and it’s not entirely clear how one would measure either “consumption” or “environmental impact” in a clear, accurate manner.

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Technology, Affluence and the Optimum Population Trust

The Optimum Population Trust recently published a study which claims that Britain’s optimal population is about 17 million people:

If the UK had to provide for itself from its own resources, it could support a population of only 17 million – 43 million less than its latest official population figure* – according to new research by the Optimum Population Trust.

Even if the UK dramatically improved its sustainability with a 60 per cent cut in carbon emissions by 2050 – the target set by the present Government – UK “overpopulation” would grow from 43 to 50 million, the research shows. This is because projected population growth of 17 million**, taking the country’s population to 77 million by 2050, would cancel out the sustainability benefits of carbon savings.

The sustainability of human populations: How many people can live on Earth? ***, published today (Monday February 18), is based on a new analysis of biological capacity and ecological footprinting data. It suggests that in 2003, the last year for which comprehensive data are available, total world population was 6.3 billion but the sustainable figure was 5.1 billion. Global overpopulation was thus 1.2 billion. (italics in original)

A 9-page report based on this study can be downloaded here. From pages 2 to 3:

Not surprisingly, the impact of this population growth on the environment since 1750 has been extensive. Now, not a day goes by without news of droughts, floods, famines, conflicts over resources, extinctions, and, in the last 20 years, the increasingly evident effects of global warming. This impact has been expressed in what has become known as the Commoner-Ehrlich Equation:

I = P x A x T.

This states that the impact (I) on the environment is directly proportional to the population size (P), the ‘affluence’ (A) (defined as the resources a population consumes and wastes) and technology (T) through which we (1) prolong life, (2) produce things more quickly and cheaply (thus feeding back into consumerism and affluence) and (3) grow food faster which feeds back into ‘population’. This equation thus neatly summarises the impact of humankind on the planet.

Note that it is assumed that technology is multiplicative factor that increases the human impact on the environment. Yet technology mitigates the impact we have on the environment by enabling more efficient use of resources and/or less polluting methods to be used.

It is technology that has enabled us to sustain the large population we currently have on earth, living longer and healthier than at any time in history. Remove the technology and the environment would be devastated as people desparately try to grow food and obtain water using methods that simply cannot sustain us. Indeed, based on similar points to mine above, Tim Worstall argues that we should divide by T rather than multiply. However reading further, it seems that T isn’t measuring technological advancement, but rather the impact of technology on the environment:

Politicians, unsure what to do, offer solutions which include suggestions such as: develop fuel-efficient cars; change to efficient light bulbs; fly less; build renewable energy and nuclear power plant; increase mass transit systems; and plant trees. These solutions only address the reduction of the affluence and technology variables of the equation, but never the population variable.

Reducing impact by decreasing affluence (consumption) only partly addresses the problem since populations are growing faster than affluence – for example, in Africa. Technology, meanwhile, tends not to “decrease” at all. Whilst it can be used to reduce the impact of affluence, it is likely that its benefits in energy saving devices will be cancelled out by its disadvantages, as businesses continue to use it to maximise their economic growth via consumerism. So, realistically, impact will continue to rise since economic growth demands it. This is bad news since, as we will now see, human impact on the planet is already unsustainable. (italics in original)

Here the paper acknowledges that technology can in fact reduce the impact of humanity on the environment (though it argues that the drive to economic growth will then cancel this out). To retain T as a multiplicative variable, whilst acknowledging that it can reduce humanity’s impact on the environment, one must consider it to be a measure of the impact of our technologies on the environment, rather than a measure of advancement. Technological advancement will thus tend to reduce T, and I’d suggest it has been doing so for centuries whilst increasing population and affluence have offset the reductions in impact it enabled.

An interesting point is that there is no mention in this study of one of the main findings in demography which is that increasing affluence has lead to a fall in birth rates resulting in slow population growth rates or even declining populations in rich countries. This implies that rising affluence may in fact help with the goal of slowing population growth, a finding that is at odds with the arguments presented on the OPT’s paper.

I intend to return to other aspects of this paper in later posts.