CHAPTER 28 POPULATION GROWTH, NATURAL RESOURCES, AND FUTURE GENERATIONS CHAPTER 28: TABLE OF CONTENTS The Family Analogy A Model of the Increase in Natural Resources The "Energy Crisis" and Population Policy Are We Running a Ponzi Scheme on Future Generations? Natural Resources and the Risk of Running Out Can We Be Sure Technology Will Advance? Summary: The Ultimate Resource - Is the Human Imagination in a Free Society Afternote From the Beach Afternote on the Economics of Chelm (Pronounced "Kahelm") How will the supplies of natural resources be affected by different rates of population growth? Part I discussed the supply of natural resources without reference to population growth. Now we investigate the effects of different rates of population growth, concentrating in this chapter on mineral resources for simplicity. Let's go back to the Crusoe story in chapter 3 and ask: How are the situations different if both Alpha and Gamma Crusoe are on the island, compared to Alpha being alone? We saw that in the short run, the cost of copper to Alpha will probably be higher if Gamma is there too, unless or until one of them discovers an improved production method (perhaps a method that requires two workers) or a product that can substitute for copper. And Alpha's offspring, Beta, also probably would be better off if Gamma had never shown up. But we of later generations are almost surely better off if Gamma does appear on the scene and hence (a) increases the population size, (b) increases the demand for copper, (c) increases the cost of getting it, and then (d) invents improved methods of getting it and using it, and discovers substitute products. A larger population due to Gamma and other persons influences later costs in two beneficial ways. First, the increased demand for copper leads to increased pressure for new discoveries. Second, and perhaps even more important, a larger population implies more people to think and imagine, be ingenious, and finally make these discoveries. THE FAMILY ANALOGY The analogy of the family is sometimes (though not always) a satisfactory intuitive shortcut toward understanding the effects of population growth. For example, if a family decides to have an additional child, there is less income available to be spent on each of the original family members, as it is with a country as a whole. The family may respond to the additional "need" with the parents working more hours for additional pay, and so it is with a nation. The family may choose to save less, in order to pay for the additional expenses, or to save more in order to pay for later expenses such as education; so it is for a nation as a whole. The additional child has no immediate economic advantages to the family, but later it may contribute to the parents and other relatives; so it is for society as a whole. And like a nation, the family must balance off the immediate non-economic psychic benefits plus the later economic benefits against the immediate cost of the child. The main way that the family analogy diverges from the situation of a nation as a whole is that an additional person in the nation contributes to the stock of knowledge and to the scale of the market for the society as a whole, which benefits the entire economy, whereas an individual family is not likely to benefit much from its own discoveries. The family model goes wrong, however, when it directs attention away from the possibility of creating new resources. If one thinks of a family on a desert island with a limited supply of pencils and paper, then more people on the island will lead to a pencil-and- paper scarcity sooner than otherwise. But for a society as a whole, there is practically no resource that is not either growable (such as trees for paper) or replaceable (except energy). And the supply of energy should present no problems, as discussed in chapters 11- 13 and below. If the family starts with a given plot of land and an additional child is born, it would seem as if the result would be less land per child to be inherited. But the family can increase its "effective" land by irrigation and multiple cropping and even hydroponics, and some families respond by opening up whole new tracts of previously uncultivated land. Hence an additional child need not increase the scarcity of land and other natural resources, as appears to be inevitable when one looks at the earth as a closed resource system; instead, there is an increase in total resources. But, you ask, how long can this go on? Surely not forever? In fact there is no logical or physical reason why the process cannot indeed go on forever. Let's return to copper as an example. Given substitute materials, development of improved methods of extraction, and discoveries of new lodes in the U.S. and in other countries and in the sea and perhaps on other planets, there is no logical reason why additional people should not increase the availability of copper or copper equivalents indefinitely. To make the logical case more binding, the possibility of recycling copper at a faster rate due to population growth also improves the supply of the services we now get from it. To illustrate, consider a copper jug that one rubs to obtain the services of a genie. If only the single jug exists, and there are two families at opposite ends of the earth, each of them can obtain the genie very infrequently. But if the earth is populated densely, the jug can be passed rapidly from hand to hand, and all families might then have a chance to obtain the recycled jug and its genie more often than with a less dense population. So it could be with copper pots, or whatever. The apparent reason that this process cannot continue - the seeming finitude of copper in the solid earth - is invalid, as we have seen in chapter 3. Of course, it is logically possible that the cost of the services we get now from copper and other minerals will be relatively higher in the future than now if there are more people in the future. But all past history suggests that the better guess is that cost and price will fall, just as scarcity historically has diminished along with the increase in population. Either way, however, the concept of mineral resources as "finite" is unnecessary, confusing, and misleading. And the notion of our planet as "spaceship earth," launched with a countable amount of each resource and hence having less minerals per passenger as the number of passengers is greater, is dramatic but irrelevant. To repeat, we cannot know for certain whether the cost of the services we get from copper and other minerals will be cheaper in either year t + 50 or year t + 500 if population becomes 1 thillion rather than 2 thillion in year t. The historical data, however, show that the costs of minerals have declined faster in recent centuries, when population was larger, than in earlier centuries. This is not conclusive evidence that a bigger population implies lower costs. And higher income and a larger base of existing knowledge contribute to the cost-reduction process. But there is much less evidence - in fact, none at all - that a higher population in year t means a higher cost and greater scarcity of minerals in year t + 50 or t + 500. Do you still doubt that the cost of mineral resources will be lower in the future than now? Do you still doubt that higher population growth now will eventually mean lower mineral costs? If so, I suggest as a mental exercise that you ask yourself: Would we be better off if people in the past had used less copper or coal? How great would our technological capacities to extract, process, and use these materials now be if we were just discovering these materials today? Jokes don't always go over well in serious books. But a joke that I have long been fond of seems appropriate here. Seventy-year- old Zeke's girlfriend has just left him after thirty years, and Zeke is in despair. His friends try hard to console him, and they especially point out again and again that in time he'll get over it, and might well meet another woman. Finally Zeke turns his tear- stained face to them and says, "But you don't understand. What am I going to do tonight?" Similarly, you may well ask about the near-term effect of population growth on resources, after all this talk about the long run. There is more comfort for you than for Zeke, however. True, within a very short time there is little chance for the natural- resource supply to accommodate to a sudden increase in demand. But population growth is a very slow-acting phenomenon, not changing radically in any short period. And it is not until many years after the birth of a child that the additional person uses much natural resources. For both these reasons, modern industry has plenty of time to respond to changes in actual demand, and we need not fear short-run price run-ups due to increased population growth. This analysis jibes with the continued long-run decrease in the prices of all raw materials, as discussed in chapters 1-3. A MODEL OF THE INCREASE IN NATURAL RESOURCES Chapters 1-11 showed that all natural resources - minerals, food, and energy - have become less rather than more scarce throughout human history. But it is counter-intuitive, against all common sense, for more people to result in more rather than less natural resources. So here is the theory again: More people, and increased income, cause problems of increased scarcity of resources 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, 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 end up lower than before the increased scarcity occurred. The sequence by which the stock of new resources is increased was illustrated in a historical account, using the example of energy in England, in chapter 00. The reason for believing that this process will occur even with respect to resources for which we do not have historical data is discussed in chapter 4: The Grand Theory. It may also help you understand the process by formalizing it in the form of a graph, showing the channels through which population influences the outcome. THE "ENERGY CRISIS" AND POPULATION POLICY It is standard wisdom that population growth worsens the energy situation. Here is the typical view of the predecessor agency of the U.S. Department of Energy, in a brochure written for the public at large. In other parts of the world, particularly in the developing areas, populations are growing rapidly and each new baby further strains already inadequate energy resources. Thus, if developing areas are to grow economically, it seems clear that they must first deal with the population problem. But the rich nations, too, must control population growth. If not, there simply will not be enough energy to go around, unless per capita energy consumption is held steady or reduced - and that seems unlikely.... We must learn to conserve energy and use it more wisely or we're going to be in serious trouble. The prevalence of this unsound thinking demands that we inquire into the effects of population upon the supply of energy. We want to know: What will be the effect of more or fewer people upon the future scarcity and prices of energy? This much we can say with some certainty: (1) With respect to the short-run future - within say thirty years - this year's population growth rate can have almost no effect on the demand for energy or on its supply. (2) In the intermediate run, energy demand is likely to be proportional to population, all else equal; hence additional people require additional energy. (3) For the longer run, whether additional population will increase scarcity, reduce scarcity, or have no effect on scarcity is theoretically indeterminate. The outcome will depend on the net effect of increased demand on the current supplies of energy as of a given moment, together with increases in potential supplies through discoveries and technological advances that will be induced by the increase in demand. In the past, increased demand for energy has been associated with reduced scarcity and cost. There is no statistical reason to doubt the continuation of this trend. More particularly, there seems to be no reason to believe that we are now at a turning point in energy history, and no such turning point is visible in the future. This implies a trend toward lower energy prices and increased supplies. It is important to recognize that in the context of population policy, who is "right" about the present state of energy supplies really does not matter. Yes, we will care in the years 2000 and 2010 whether there will be large or small supplies of oil and gas and coal at prices relatively high or low compared to now, and even more so if government intervention in the market worsens the situation (as it usually does) and forces us to wait in line at the service station. And it matters to the State Department and the Department of Defense whether our national policies about energy pricing and development lead to large or small proportions of our energy supply being imported from abroad. But from the standpoint of our national standard of living it will matter very little even if energy prices are at the highest end of the range of possibilities as a result of relatively unfruitful technological progress and of maximum increases in demand due to maximum rises in GNP and population. At a very unlikely high price of energy equivalent to, say, $50 per barrel of oil (1992 dollars) there should be enough energy from coal, shale oil, solar power, natural gas, and fossil oil plus oil from biomass - buttressed by the virtually inexhaustible supply of nuclear power - to last so many hundreds or thousands of years into the future, or millions if we include nuclear energy, that it simply does not matter enough to estimate how many hundreds or millions of years. And even if energy would sell at such a most-unlikely high price, rather than the actual 1993 oil price of (say) $15 per barrel, the difference in our standard of living would hardly be noticeable. From this we may conclude that whatever impact population growth might have upon the energy situation - negative effects through increased demand, positive effects through new discoveries, with a net effect that may be positive or negative - the long-run effect of population growth on the standard of living through its effect on energy costs is quite unimportant. And refined calculations of its magnitude are of no interest in this context. ARE WE RUNNING A PONZI SCHEME ON FUTURE GENERATIONS? Several writers -- among whom the first may have been the Nobel-prize-winning economist Paul Samuelson (in 1975) -- have said that population growth constitutes a pyramid game or "Ponzi scheme." Here is how one letter-writer put it: Julian Simon's solution for our economic woes is a pyramid scheme for which our children will pay with a degraded environment and a worsened quality of life. Shame on American Demographics for touting such stuff. Barbara Willin, Summerville, South Carolina A Ponzi scheme is a fraud in which each early buyer is sold a franchise for recruiting several additional buyers, each of whom receives a franchise for recruiting additional buyers, and so on. Each person who succeeds in recruiting his/her full quota makes money. But eventually there are no more buyers to be found because the market is saturated. The scheme collapses, and the later franchise buyers lose their money. The scheme is named after Charles Ponzi, who perfected a similar scheme in the securities market in the 1920s. But population growth does not constitute a Ponzi scheme: there is no reason to expect resources to run out. Instead, as Part I of this book demonstrates (on the basis of the history of long-run price declines in all natural resources, plus theory that fits the data), resources may be expected to become more available rather than more scarce. Hence there is no reason to think that consumption in the present is at the expense of future consumers, or that more consumers now imply less for consumers in the future. Rather, it is reasonable to expect that more consumption now implies more resources in the future because of induced discoveries of new ways to supply resources, which eventually leave resources cheaper and more available than if there were less pressure on resources in the present. There is a second important difference between a Ponzi scheme and this book's view of population and resources. As the Ponzi scheme begins to peter out, the price of franchises falls as sellers find it more difficult to induce more buyers to purchase, and the system begins to fall apart. But if a resource becomes in shorter supply in any period, price rises in a fashion that reduces usage (and presumably reduces population growth), and hence it constitutes a self-adjusting rather than a self-destructing system. Of course this view of population and resources runs against all "common sense" -- that is, against conventional belief. But science is only interesting when it gives us knowledge that is not arrived at by common sense alone. NATURAL RESOURCES AND THE RISK OF RUNNING OUT You might wonder: Even if the prospect of running out of energy and minerals is small, is it safe to depend on the continuation of technical progress? Can we be sure that technological progress will continue to forestall growing scarcity and even increase the availability of natural resources? Would it not be prudent to avoid even a small possibility of a major scarcity disaster? Would it not be less risky to curb population growth to avoid the mere possibility of natural-resource scarcities even if the chances really are good that higher population will lead to lower costs? A reasonable person may be "risk averse." The matter of risk aversion was considered at length in the discussion of nuclear energy in chapter 13; it will also be considered in the context of population and pollution in chapter 30, where risk is more crucial to the argument and to policy decisions. The reader interested in this topic should turn to those discussions. Risk aversion is not, however, very relevant for natural resources, for several reasons. First, the consequences of a growing shortage of any mineral - that is, of a rise in relative price - are not dangerous to life or even to the standard of living, as noted above with respect to energy. Second, a relative scarcity of one material engenders the substitution of other materials - say, aluminum for steel - and hence mitigates the scarcity. Third, a scarcity of any mineral would manifest itself only very slowly, giving plenty of opportunity to alter social and economic policies appropriately. Fourth, just as greater affluence and larger population contribute to the demand for more natural resources, they also contribute to our capacity to alleviate shortages and broaden our technological and economic capacity, which makes any particular material ever less crucial. Fifth and perhaps most important, we already have technology in hand - nuclear fission - to supply our energy needs at constant or declining cost forever. Even so, let's next say a word about the appropriate level of confidence that progress will continue in the future. CAN WE BE SURE TECHNOLOGY WILL ADVANCE? Some ask: can we know that there will be discoveries of new materials and of productivity-enhancing techniques in the future? Behind the question lies the implicit belief that the production of new technology does not follow predictable patterns of the same sort as the patterns of production of other products such as cheese and opera. But there seems to me no warrant for belief in such a difference, either in logic or in empirical experience. When we add more capital and labor, we get more cheese; we have no logical assurance of this, but such has been our experience, and therefore we are prepared to rely upon it. The same is true concerning knowledge about how to increase the yield of grain, cows, milk and cheese from given amounts of capital and labor. If you pay engineers to find ways to solve a general enough problem - for example, how to milk cows faster, or with less labor - the engineers predictably will do so. There may well be diminishing returns to additional inventive effort spent on the same problem, just as there are diminishing returns to the use of fertilizer and labor on a given farm in a given year. But as entirely new forms of technology arise and are brought to bear on the old problems, the old diminishing-returns functions then no longer apply. The willingness of businesses to pay engineers and other inventors to look for new discoveries attests to the predictability of returns to inventive effort. To obtain a more intimate feeling for the process, one may ask a scientist or engineer whether he/she expects his/her current research project to produce results with greater probability than if she/he simply sat in the middle of the forest reading a detective novel; the trained effort the engineer applies has a much greater likelihood of producing useful information - and indeed, the very information that is expected in advance - than does untrained non- effort. This is as predictable in the aggregate as the fact that cows will produce milk, and that machines and workers will turn the milk into cheese. Therefore, to depend upon the fact that technical developments will continue to occur in the future - if we continue to devote human and other resources to research - is as reasonable as it is to depend upon any other production process in our economy or civilization. One cannot prove logically that technical development will continue in the future. But neither can one so prove that capital and labor and milk will continue to produce cheese, or that the sun will come up tomorrow. As I see it, the only likely limit upon the production of new knowledge about resources is the occurrence of new problems; without unsolved problems there will be no solutions. But here we have a built-in insurance policy: if our ultimate interest is resource availability, and if availability should diminish, that automatically supplies an unsolved problem, which then leads to the production of new knowledge, not necessarily immediately or without short-run disruption, but in the long run. I'm not saying that all problems are soluble in the forms in which they are presented. I do not claim that biologists will make us immortal in our lifetime, or even that the length of human life will be doubled or tripled in the future. On the other hand, one need not rule out that biogenetics can create an animal with most of our traits and a much longer life. But such is not the sort of knowledge we are interested in here. Rather, we are interested in knowledge of the material inputs to our economic civilization. A sophisticated version of this argument is that the cost of additional knowledge may rise in the future. Some writers point to the large teams and large sums now involved in natural-science endeavors. Let us notice, however, how much cheaper it is to make many discoveries now than it was in the past because of the existing base of knowledge and the whole information infrastructure. Simon Kuznets could advance further with his research on GNP estimates than could William Petty. And a run-of-the-mill graduate student can now do some things that Petty could not do. Additionally, a given discovery is more valuable now than it was then; GNP measurement has more economic impact now than in Petty's day. I have calculated that the net present value of the invention of agriculture in social terms at the time of discovery was less than the net present value now of something even as trivial as computer games, because of the small population and income then (discounted even at 2 percent per year) in gross social product from the transition to nuclear fission. And agriculture was the only big discovery for thousands of years, whereas the transistor and nuclear power and lots more inventions occurred within just a few recent decades. SUMMARY: THE ULTIMATE RESOURCE IS THE HUMAN IMAGINATION IN A FREE SOCIETY There is no persuasive reason to believe that the relatively larger use of natural resources that would occur with a larger population would have any special deleterious effects upon the economy in the future. For the foreseeable future, even if the extrapolation of past trends is badly in error, the cost of energy is not an important consideration in evaluating the impact of population growth. Other natural resources may be treated in a manner just like any other physical capital when considering the economic effect of different rates of population growth. Depletion of mineral resources is not a special danger for the long run or the short run. Rather, the availability of mineral resources, as measured by their prices, may be expected to increase - that is, costs may be expected to decrease - despite all notions about "finiteness." Sound appraisal of the impact of additional people upon the "scarcity" (cost) of a natural resource must take into account the feedback from increased demand to the discovery of new deposits, new ways of extracting the resource, and new substitutes for the resource. And we must take into account the relationship between demand now and supply in various future years, rather than considering only the effect on supply now of greater or lesser demand now. And the more people there are, the more minds that are working to discover new sources and increase productivity, with raw materials as with all other goods. This point of view is not limited to economists. A technologist writing on minerals put it this way: "In effect, technology keeps creating new resources." The major constraint upon the human capacity to enjoy unlimited minerals, energy, and other raw materials at acceptable prices is knowledge. And the source of knowledge is the human mind. Ultimately, then, the key constraint is human imagination acting together with educated skills. This is why an increase of human beings, along with causing an additional consumption of resources, constitutes a crucial addition to the stock of natural resources. We must remember, however, that human imagination can flourish only if the economic system gives individuals the freedom to exercise their talents and to take advantage of opportunities. So another crucial element in the economics of resources and population is the extent to which the political-legal-economic system provides personal freedom from government coercion. Skilled persons require an appropriate framework that provides incentives for working hard and taking risks, enabling their talents to flower and come to fruition. The key elements of such a framework are economic liberty, respect for property, and fair and sensible rules of the market that are enforced equally for all. We - humanity - should be throwing ourselves the party to outdo all parties, a combination graduation-wedding-birthday-all-rites-of passage party, to mark our emergence from a death-dominated world of raw-material scarcity. Sing, dance, be merry - and work. But instead we see gloomy faces. They are spoilsports, and they have bad effects. The spoilsports accuse our generations of having a party - at the expense of generations to come. But it is those who use the government to their own advantage who are having a party at the expense of others - the bureaucrats, the grants-grabbers, the subsidy-looters. Don't let them spoil our merry day AFTERNOTE FROM THE BEACH One merely needs to read the daily newspaper with open eyes to see evidence that the benefits of natural resources are becoming more available daily, and that the cause is additional people. (If I did not severely limit the number of such items, this book would run a thousand pages - and would never get done.) Consider this one, for example: An ocean is as fundamental a natural resource as there is. One of the ways that people enjoy the ocean is by riding its surf - and even the most puristic of environmentalists have not yet been heard to complain about the destruction of the ocean by surfing. Yet the edges of oceans are scarce (though much of humanity takes care to live near them; see chapter 00). And access to surfing therefore is expensive in time and money, and hence rather limited. The future looks bright for surfers, however. A surfer-entrepreneur has invented an artificial surf machine for amusement parks, no matter how far from the ocean. It should be noted that a human brain was necessary to invent the Flow Rider. If inventor Thomas Lochtefeld's parents had opted not to bring him into the world, it might have been many years, even decades or centuries, before someone made life sweeter for surfing enthusiasts. AFTERNOTE ON THE ECONOMICS OF CHELM (PRONOUNCED "KAHELM") Though imagination is the key element in the speed of the advance of civilization, we can even get along reasonably well without more of the technical knowledge it produces - without sinking into misery. We now have in our hands - really, in our libraries - the technology to feed, clothe, and supply energy to an ever-growing population for the next seven billion years. The amazing part is that most of the specific techniques within this body of knowledge were developed within the past hundred years or so, though these recent discoveries rest on knowledge that had accumulated for millennia, of course. Indeed, the last necessary additions to this body of knowledge - nuclear fission and space travel and rapid computation - occurred decades ago. Even if no new knowledge were ever invented after those past advances, we would be able to go on increasing our numbers forever, while improving our standard of living and our control over our environment. The discovery of genetic manipulation certainly enhances our powers greatly, but even without it we could have continued our progress forever. The imagination required for the satisfactory working of the legal-political-economic system may be more crucial in the long run. Unfortunately, though the fundamental ideas have been known for centuries - since Mandeville, Hume and Smith - most laypersons and even many renowned economists do not understand the nature of the spontaneously-cooperating self-organizing social system. Too many people think of society as a zero sum game. Sometimes I think that the only way to get the point across is satire. So consider this excerpt from I. B. Singer's little book about The Fools of Chelm: The first Chelmites ... walked around naked and barefoot, lived in caves, and hunted animals with axes and spears made of stone. They often starved and were sick. But since the word "crisis" did not exist yet, there were no crises and no one tried to solve them. After many, many years the Chelmites became civilized. They learned to read and write, and such words as "problem" and "crisis" were created. The moment the word "crisis" appeared in the language, the people realized there was a crisis in Chelm. They saw that things were not good in their town... One day Gronam [the first sage of Chelm, as well as its first ruler] ordered Shlemiel to summon the sages to a council. When they assembled, Gronam said, "My sages, there is a crisis in Chelm. Most of our citizens haven't enough bread to eat, they are dressed in rags, and many of them are suffering from coughs and sniffles. How can we solve this crisis?" The sages thought for seven days and seven nights, as was their custom... "What do you suggest, Zeinvel Ninny?" asked Gronam Ox. "My advice," Zeinvel Ninny said, "is that there should be two fast days each week, namely Monday and Thursday. In this way we will save a lot of bread and there will no longer be a bread shortage." "That would solve the bread problem, but what about the scarcity of clothing and shoes?" Gronam Ox asked... "My advice," said Treitel Fool, "is that we put high taxes on shoes, boots, caftans, pants, vests, skirts, petticoats, and all other articles of clothing. The poor will not be able to afford any clothes. This will leave more than enough for the rich. Why worry about the poor?" "Bad advice!" exclaimed Sender Donkey. "Why is this bad advice?" asked Gronam Ox. "It is bad because the poor are the ones who work in the fields and shops. If they are ragged and unshod, they will always suffer from colds, coughs, and sniffles and thus be unable to work. They will not be able to produce enough bread and clothes even for the rich." "And what do you suggest, Sender Donkey?" "I suggest," Sender Donkey replied, "that at night, when the rich are asleep, the poor should break into their houses and take their boots, slippers, caftans, dresses, and whatever else they possess. The poor will then be properly dressed and they will be able to work in the fields and shops without catching cold. Why worry about the rich?" "All wrong," announced Shmendrick Numskull. "Why is it all wrong?" Gronam asked. "Because for each rich man in Chelm there are some hundred paupers," said Shmendrick Numskull. "There will not be enough clothes to go around. Besides, the rich are all pot-bellied and the poor are skinny, so the rich people's clothes won't fit." "What is your solution, Shmendrick Numskull?" asked Gronam Ox. "I say that clothes should be abolished altogether. The great historians of Chelm tell us that in ancient times our ancestors went about naked and dwelt in caves. They lived by hunting. Let's do the same, and all our problems will be solved." page # \ultres\ tchar28 February 9, 1994