IRAQ-KUWAIT AND NUTTY THINKING ABOUT ENERGY


             The Iraq-Kuwait rise in oil prices has triggered the

        inevitable silly season in energy pronouncements.  Some call for

        rationing and price control that would create gas lines and petty

        racketeering.  Others lament the lack of a national energy "plan"

        that would surely twist energy industries into knots, and

        eventually reduce supply and raise prices.  But the nuttiest are

        those who use this event as the hook on which to hang the call

        for a return to a "simpler life" in order to save the supply of

        energy.

              A clutch of well-known biologists and "ecologists," and

        even a few economists, would have us waste our time and effort,

        slow the progress of civilization, and cripple the economy in

        order to mitigate a shortage of energy that they speculate will

        finish us off starting perhaps seven billion years from now.

        (Yes, you read right.  That's 7,000,000,000 years.)  They write

        fearfully about an increase in "entropy" -- a disappearance of

        order and a disintegration of all patterns of life into chaos.

             Yet the trend is just the opposite.  Over the decades and

        centuries, energy is becoming less rather than more scarce, just

        like all other raw materials such as copper and land.  Human life

        becomes better organized rather than more disordered.  And there

        is no reason to believe that this trend will ever reverse.

        Instead, this benign trend can go on forever.  Governmentally-

        mandated conservation of energy would only be a drag on this

        progress.

             The historical facts entirely contradict the commonsensical

        Malthusian theory that the more we use, the less there is left to

        use, and hence the greater the scarcity.  Through the centuries,

        the prices of energy -- coal, oil, and electricity --  have been

        decreasing rather than increasing, relative to the cost of labor

        and even relative to the price of consumer goods, just as with

        all other natural resources.  And nuclear energy costs less than

        either coal or oil.

             In economic terms, this means that energy has been getting

        more available, rather than more scarce, as far back as we have

        data.  This implies that the rate at which our stocks of

        resources increase, or increasing efficiency of use, or a

        combination of the two forces, have overmatched the exhaustion of

        resources.

             Another way to look at the matter:  energy has become less

        and less important as measured by its share of GNP.  This is the

        same story as revealed by all other natural resources.

             For perspective, reflect on the history of another resource

        that people have worried about since time immemorial: land.  It

        has always seemed as obvious as the nose on your face that the

        supposedly-fixed supply of agricultural land must eventually

        limit the growth of population, and must make food increasingly

        more expensive as the number of people increases on Earth.  But

        lo and behold, just the opposite has happened.  Food has

        decreased in price, nutrition has become progressively more

        abundant, and hunger and famine have diminished worldwide, even

        as population has grown.  The explanation lies in the advance in

        knowledge of how to produce food.

             Just as people throughout history have said that the supply

        of land is limited and cannot be increased, many people have said

        that the energy-cost trend must turn around sometime because

        energy is "finite."  And they have gone on to assert that we

        should build a new system of economics upon energy as a standard

        of value.  (Here they resemble Marx and his labor theory of value

        in seeking a material standard of value, a solid physical

        foundation on which to stand.

             The reason that the prices of energy and other natural

        resources decline even as we use more is the advance of

        technology.

             Energy differs from other resources because it is "used up,"

        and cannot be recycled.  Energy apparently trends toward

        exhaustion.  It seems impossible to keep using energy and still

        never run out of it, or even reach a point of increasing

        scarcity.  But just as with land and copper, there are other

        forces at play which make it possible for us to have increasing

        amounts of the services we need even as we boost the demands we

        make upon the supplies of those resources.

             One saving grace is declining use of energy.  Consider the

        steam engine, which at first operated at perhaps 1 percent

        efficiency.  Engines nowadays operate perhaps thirty times more

        efficiently.  That is, they use perhaps a thirtieth as much

        energy for the same result.  When someone finds a way to increase

        the efficiency of a resource by, say, 1 percent, the discovery

        not only increases the efficiency of the energy we use this year,

        but it also increases the effective stock of all amounts of that

        resource in stock or as yet undiscovered.  And this process could

        continue a long time, perhaps indefinitely.

             Also important are increases in energy supply.  We learn how

        to dig deeper, pump faster.  And we invent new sources of energy

        -- aside from coal, shale, tar sounds, and the like.  We can also

        "grow" oil substitutes as long as there is sunlight to raise

        plants.  And nuclear fission power will be available at constant

        or declining costs practically forever.

             And who knows, there may be nuclear fusion, or some other

        suns to take care of our needs after this one runs out.  We've

        got seven billion years to discover solutions to the theoretical

        problems that we have only been able to cook up in the past few

        centuries of progress in physics.  It's reasonable to expect the

        supply of energy to continue becoming more available, forever.




        Julian L. Simon teaches business administration at the University

        of Maryland, and is the author most recently of Population

        Matters:  People, Resources, Environment, and Immigration

        published by Transaction Press and Hudson Institute.








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