Matt Ridley on Differences between Economists and Ecologists

Matt Ridley, who bills himself as the Rational Optimist, has a post on his blog about "Why most resources don't run out" that looks at the different views that economists and ecologists have about natural resources.

He notes that ecologists frequently argue that natural resources are being exhausted at an unsustainable rate and are running out. Ridley 'had me at hello' here because I grew up during the first oil crunch in the 1970s and remember the dire warnings that we only had so many years (20 or 30) of oil left.Yet, here we are four decades later and we still have plenty of oil. Indeed according to BP's 2013 Statistical Review of World Energy, we had 52.9 years of oil at the end of 2012, up from 48.3 years a decade earlier.

Note that in the 10 years since 2002, when we supposedly had 48.3 years of oil left, we didn't go from 48.3 to 38.3 as you would expect, but we went from 48.3 to 52.9. This sort of reminds me of the line from "The Polar Express" in which the annoying kid says, "Come on, it's been 5 minutes to midnight for the last half hour."

Ridley comments on this foible among projected limits of resources:

But here's a peculiar feature of human history: We burst through such limits again and again. After all, as a Saudi oil minister once said, the Stone Age didn't end for lack of stone. Ecologists call this "niche construction"—that people (and indeed some other animals) can create new opportunities for themselves by making their habitats more productive in some way. Agriculture is the classic example of niche construction: We stopped relying on nature's bounty and substituted an artificial and much larger bounty.

Economists call the same phenomenon innovation. What frustrates them about ecologists is the latter's tendency to think in terms of static limits. Ecologists can't seem to see that when whale oil starts to run out, petroleum is discovered, or that when farm yields flatten, fertilizer comes along, or that when glass fiber is invented, demand for copper falls.

That frustration is heartily reciprocated. Ecologists think that economists espouse a sort of superstitious magic called "markets" or "prices" to avoid confronting the reality of limits to growth. The easiest way to raise a cheer in a conference of ecologists is to make a rude joke about economists.

The big point here is that ecologists often take static views of resource stocks and consumption rates when projecting trends forward. In contrast, economists see supplies and consumption rates as dynamic and changing in response to relative scarcities.

Take oil. When the supply of oil decreases, the price goes up. People respond by using less oil and trying harder to find more. If the price goes up enough supplies of oil that were previously economically nonviable will become viable. Also, higher prices give people an incentive to develop new technologies to extract oil, such as hydraulic fracking.

Mark Perry provided this graph showing the amount of energy the US uses per $1 of  Real GDP (i.e., adjusted for inflation). Note that from 1970 (when energy prices started rising significantly) to 2013, the amount of energy of all types used to produce $1 of GDP shrunk from 14.4 thousand BTUs to 6.2 thousands BTUs. This is a 57% reduction in 43 years.

Of course, the US is using more energy because our Real GDP grew 238% in the same period. But the point is that if, back in 1970, you had projected that the US economy would grow 238% and used 1970 energy intensities to calculate the amount of energy the US would be using, you would over estimate today's energy consumption by 142%. Put another way, we are only using 41% of the energy to produce our current level of GDP as we would have had to use to produce the same amount with 1970 technologies and usage rates.

This is not the result of "superstitious magic" but the working of the market and, to a debatable extent, the effects of government policies. There should not be anything mysterious about the fact that, when a resource becomes more scarce, its price rises. Nor should there be anything unfathomable about consumers responding to a rise in price by using less or producers responding by producing more. Indeed, it is more unfathomable to assume that consumers and producers will not change their behavior in the face of changing prices as ecologists do when they project current patterns of behavior forward.

Ridley gives an example of the difference between the way ecologists and economists look to the future with regard to food production:

In his recent book "The View from Lazy Point," the ecologist Carl Safina estimates that if everybody had the living standards of Americans, we would need 2.5 Earths because the world's agricultural land just couldn't grow enough food for more than 2.5 billion people at that level of consumption. Harvard emeritus professor E.O. Wilson, one of ecology's patriarchs, reckoned that only if we all turned vegetarian could the world's farms grow enough food to support 10 billion people.

Economists respond by saying that since large parts of the world, especially in Africa, have yet to gain access to fertilizer and modern farming techniques, there is no reason to think that the global land requirements for a given amount of food will cease shrinking any time soon. Indeed, Mr. Ausubel, together with his colleagues Iddo Wernick and Paul Waggoner, came to the startling conclusion that, even with generous assumptions about population growth and growing affluence leading to greater demand for meat and other luxuries, and with ungenerous assumptions about future global yield improvements, we will need less farmland in 2050 than we needed in 2000. (So long, that is, as we don't grow more biofuels on land that could be growing food.)

If the economists seem to be overoptimistic, consider this chart from the USDA showing the corn yield per acre in the US from 1983 to 2013. While there have been yearly fluctuations due to weather, the trend line shows that there has been over a 50% increase in the amount of corn produced on one acre of land in 30 years.

Keep in mind that the US agricultural industry was already one of the most technologically advanced in the world in 1983. Brad Plumer at WaPo's Wonkblog notes that US corn yields have increased dramatically since the 1940's. Prior to then, the average yield was between 20-30 bushels per acre. The recent yield of 158.8 bushels per acres is about a 600% increase over that level.  In the same period, the US population has only somewhat more than doubled.

If you look at the chart of US corn production per acre that Plumer provides (shown below) you get a sense of the expansion of production that is possible once an nation industrializes its agricultural sector. You also start to understand why Ridley has adopted the moniker of rational optimist.