08 August 2012

High Prices are the Cure for High Prices; An Obscure Lesson in Human Nature

The error of the peak oil alarmists was not understanding that the cure for high prices is high prices. When prices rise, this may indeed signal scarcity, but if so, it also provides a financial incentive to throw investment, ingenuity and effort at the problem. Moreover, a high price for one commodity makes alternatives more competitive by comparison. _DailyMaverick
Alarmists and doomers -- no matter what their particular choice of doom -- never seem able to get a handle on human nature and human motivations. Doomers seem unable to look beyond the natural traits of human greed and sloth. They cannot seem to understand the human capacity for invention, innovation, and hard work. Why is that?

Peak oil theory fits neatly into the larger topic of "resource scarcity." And the scarcity of resources is precisely what the field of economics is all about. Therefore one cannot rationally think about resource scarcity and peak oil without at least a foundational level understanding of basic economics.

It would be difficult for an area to be more closely tied to basic human nature than is simple market economics. But how many resource doomers understand even the bare basics of simple market economics? Apparently very few, if any.

Even famous Canadian economist Jeff Rubin failed miserably when he attempted a basic, short term prediction of a simple commodity.
In April 2008, Jeff Rubin, chief economist at CIBC World Markets, predicted a barrel of oil would cost $225 by 2012. With oil at $118, it was a controversial call.

...These days, it’s trading under $90 a barrel. So not only was Rubin off by a huge margin, he got the direction wrong. And for Rubin, the stakes couldn’t be higher.

In 2009, he famously quit CIBC to publish his first book, Why Your World Is About to Get a Whole Lot Smaller. It was a No. 1 bestseller and won the National Business Book Award. Rubin argued peak oil supply and rising prices would push up transportation costs and slam the brakes on globalization. Say goodbye to New Zealand lamb in Canadian fridges. Air travel would also become prohibitively expensive. We’d drive less, shop closer to home and generally live in a smaller world.

You can still get New Zealand lamb, of course, as well as cheap vacation deals in Mexico. But Rubin is undeterred. The End of Growth, his new book, continues his argument that oil is the single most important factor guiding global economic progress, or lack thereof. Because of insatiable energy demand from developing countries, oil will become permanently and prohibitively expensive, Rubin claims. And this will bring our era of cushy First World prosperity to an abrupt end. “Living in the static world will be much different than the world we’ve come to know,” he warns. _Canadian Business
Why are the resource scarcity doomers so wrong, time after time -- even those who should know better? Does their perennial "wrongness" testify to their ignorance of human nature?

It depends upon whether or not they are honest in their predictions. If they are honest, then they are ignorant of at least some aspects of human nature.

But it is just as likely that they are cynically playing to the peanut gallery -- the dumbed down mobs who salivate at the thought of the collapse of civilisation. Masses of doomers are willing to pay a lot of money for cleaned-up, barely modified, oft-recycled prophecies of doom.

There is a lot of money to be made in playing down to the masses and their dreams of a great doom-reckoning and judgment day. Such an unscrupulous posture on the part of doom-purveyors might indicate a superior grasp of another aspect of human nature.

But back to the original question: Why do doomers repeatedly fail to grasp the aspects of human nature dealing with the motivations which underlie hard work, innovation, invention, substitution, and other clever ways of dealing with common and predictable economic obstacles (PDF)?

It doesn't really matter except insofar as doomers affect public policy. And as that happens, public policy becomes just another predictable economic obstacle to be worked around. Other than that, doomers have made themselves into an irrelevant side show.

For those who wish to understand basic, human nature level economics, a good place to start is: "Economics in One Lesson."

The economic primer can be read online at the link above, or can be downloaded in PDF form.

We are not talking about Nobel Prize economics, academic economics, or Wall Street investment bank economics. We are talking about basic human nature economics. Without an understanding of that, anyone who attempts economic predictions of mass consumer activity, is largely whistling in the dark.

One of my favourite books on basic human nature economics was written by economist Thomas Sowell, entitled "Knowledge and Decisions." Those who already have a basic level understanding of simple human nature economics may wish to start there.

These are concepts which doomers will rarely take the time to understand. But it would save them a great deal of time, trouble, and expense in the long run, if they would.

More: Commenter Yamahaeleven aptly reminds us of the very pertinent online book by Julian Simon: Ultimate Resource II

Bruce Hall takes a look at the Malthusian mindset

In the blogosphere, consider following the most famous anti-doomer blog, NextBigFuture

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Blogger Whirlwind22 said...

I keep reading and hearing that Rommney is a believer in peak oil. Have you heard about this?

Wednesday, 08 August, 2012  
Blogger al fin said...

WW22: That may or may not be true, depending upon which of the over 100 definitions of "peak oil" which you are using.

The relevant question is whether or not he is a doomer, like the greens who surround President Obama as advisors and members of his administration. I suspect he is not.

Wednesday, 08 August, 2012  
Blogger yamahaeleven said...

Add the late, great, Julian Simon to the list of economists Rubin and his ilk fail to learn from.

"The Ultimate Resource" by Julian Simon is well worth a read by any who dare confrontation with the facts of ever expanding material wealth.

Love when you post about economics, Al.

Wednesday, 08 August, 2012  
Blogger Matt M said...

The doomers always ignore the huge oil fields that we already know about and have already taken the easy 5% from. They forget that when prices go up the next 5% is going to get pumped. Then, if technology improves (fracking) the next 10% is coming as well.

At the right price - we can pump a shed load of oil from existing 'tapped out' reserves.

Wednesday, 08 August, 2012  
Blogger Bruce Hall said...

From my blog:

Malthusian Scarcity Economics And The Fear Of Innovation


Thursday, 09 August, 2012  
Blogger neil craig said...

The ecofascists have to believe that human nature prevents us solving out own problems without their beneficent leadership. If they didn't believe that they couldn't justify wanting to control us.

On the other hand I don't believe the masses are inherently attracted to doom It is just that it is good survival practice to rake note when somebody cries wolf & yhat "the practical purpose of politics is to keep the populace scared and eager to be led to safety by threatening them with an endless series of hobgoblins, all of them imaginary." Mencken.

The optimum strategy then would seem to be to make shouting wolf a counter survival strategy. Put Al Gore in the stocks and tell him that if he doesn't repay all the money he has cost us everybody defrauded is allowed one swing at him with a baseball bat, though they can choose Hansen, Mann, Obama, Ehrlich etc.

300 million Americans later I think the message about not not doing fraudulent scares would have sunk in, at least to observers.

Thursday, 09 August, 2012  

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“During times of universal deceit, telling the truth becomes a revolutionary act” _George Orwell

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