In the comments section of my "A Brief Defense of Suburbia" post, Jody writes several times and mentions his fear/certainty that a continuously expanding suburbia will lead to the "depletion" of natural resources and available land. However, his concept of depletion is an economic myth that's used by various dooms-dayers to manipulate the masses.

The following explanation can be applied to almost any non-renewable resource, such as land, oil, or diamonds. (Renewable resources, such as trees and animals, will obviously never be depleted. Yes, animals can become extinct, but that's not because they're "used up".) I am not an economist, but I play one on TV. If you'll note the title of this blog, I'm not a master of anything, but the following views on depletion are economic and logical fact.

The myth of depletion is simple to state: if we don't force people to reduce their consumption of resource X, eventually all the X will be gone. This is false. It is true that if there is a finite supply of X that it can eventually be consumed, but it is not true that it is necessary to force people to reduce consumption in order to prevent depletion.

Consider oil. As the readily available supply of oil dwindles, the price of oil will start to increase due to free-market principles of supply and demand. This increase in price will have many effects.

1) People will use less oil, because it's more expensive. Thus the mere increase in price will reduce consumption all by itself, without any need for government coercion.

2) Suppliers will start hoarding. As prices rise, suppliers will observe that their oil will be more valuable in the future than it is today, and so they will begin to hoard their supply for the future (with each supplier making the determination of when to hold and when to sell based on their own costs). If too many start withholding, then others will start to sell as the price gets even higher. There is no need for cooperation between suppliers (and in fact cooperation cartels are always bad in free markets). Suppliers will act to ensure that they are able to reap the benefits of future scarcity, and thus there will always be some supply remaining to be had at some price.

3) New sources will become economically viable. There's lots of oil everywhere, but most of it is too hard to get to and isn't worth pumping. For example, there's far more oil under the ocean than there is under the dry land -- unfortunately, except for the parts of the ocean right near shore it's very expensive to utilize. However, as prices rise, sources of oil that aren't worth drilling now will suddenly become profitable, thereby increasing the available supply.

These three factors together will ensure that humanity will never "run out" of oil, or any other non-renewable resource. What about land? Good question. Apparently, there's more than 70 sextillion stars out there, I'll bet some of them have some nice real estate. Maybe even oil!

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» COTC 12 APRIL from Knowledge Problem

Carnival of the Capitalists is up over at my neighbor The Chicago Report. Although Mike, I'm your Chicago neighbor ... I especially recommend Michael Williams's post on why natural resource depletion doomsayers get it wrong (here's a hint: when prices... Read More



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