Don’t Shift Paradigms Without a Clutch
February 4th, 2004 | by mtpolitics |We’re talking about marginal cost and marginal value in Micro today, and the prof is steering the discussion from demand into supply.
Just as class is about to wrap up for the day, the prof says, “I’m going to give you something to think about for a couple weeks. Here is a prediction I will stand behind: In a billion years, when the Earth crashes into the sun, and all of our descendants are fried –if they haven’t gotten off the planet– there will still be crude oil available on Earth.”
You should have heard the wailing and gnashing of teeth! “But…but…oil is a non-renewable resource!” “My science teacher said oil usage increases exponentially!” “He’s got to be joking!”
Someone actually said, “You’re joking, right?” He calmly smiled and said, “Not a bit.”
I could only sit back and smile, since I am of the same opinion.
My reasoning is that rapidly decreasing supply will increase price to the point that demand for substitute products will increase, and the price of those substitutes will fall accordingly.
What say you, fellow armchair economists?
12 Responses to “Don’t Shift Paradigms Without a Clutch”
By Daniel Morris on Feb 4, 2004 | Reply
I think that’s more likely than imagining we’ll let our modern, energy-gobbling culture evaporate without a second thought.
By Dorsai65 on Feb 4, 2004 | Reply
Available, yes. Economically viable to retrieve, no.
Also, there are bound to be pockets of oil that are too small to detect, thus too small to exploit.
By Sarpy Sam on Feb 4, 2004 | Reply
I don’t know if it is so much that the price of the substitutes will fall accordingly, it’s that the price of the oil will get so high to make them economically attractive. I keep hearing talk about how ethanol is the answer to our energy and farm problems. I don’t think it is until the price of oil gets so high as to make them a viable alternative. This is why OPEC will never allow the price of oil to get too high. So that no competitor can become viable.
By Sean Hackbarth on Feb 4, 2004 | Reply
Bingo! You don’t need no stinkin’ econ class.
By Rita on Feb 5, 2004 | Reply
Well sure, just look at what happened to coal.
There’s also an interesting little ’scientific’ theory that oil is in fact a renewable resource…doesn’t come from fossils at all but is produced by chemical interactions in the earth’s core. Or something like that.
By T.L. Hines on Feb 5, 2004 | Reply
Plus, all of us living today will be oil. Or a renewable resource of some kind.
By mtpolitics on Feb 5, 2004 | Reply
Soyl…..
Ah, never mind.
By jr on Feb 5, 2004 | Reply
Right on, Craig—wish I could of been there to hear the wailing and gnashing of teeth!! If the greens would only get a basic understanding of micro, they would understand that higher prices of current energy sources are their allies. Mandating things like wind energy via top-down regulation is inefficient and causes consumer resentment–letting free markets move people towards these choices, in an environment of free choice, makes much more sense. Of course liberals will continue to try to get governments to set artificially low prices which is ultimately self-defeating—nothing will drive prices down for the consumer like open and free competition.
Your professor’s statement is a bit like the famous challenge issued by the free market economist Julian Simon in the late 70’s. He called the bluff of the environmental doomsayer Barry Commoner–who forecast shortages af all kinds of basic materials and much higher prices–Simon proposed a bet for $1000 and said that he would pay to Commoner if any of the basic materials were in shorter supply or had a higher price in ten years. Commoner took the bet, and it cost him 1000.In fact the bet wasn’t even close. Sorry for the rambling but one more point: most estimates of oil reserves are based on known reserves which can be captured at today’s price. This vastly understates the amount of potential reserves since a higher price will make more resources available–think of the tar sands of Alberta to the north of us. To an economist, this is how a price works; to a liberal, it’s a conspiracy by the oil companies and we need to tighten up the government regulation.
By david on Feb 5, 2004 | Reply
Agreed, Craig. And I, too, wish that I had been there to see the other students howl in protest.
By jr on Feb 6, 2004 | Reply
After your micro classmates get through working on your professor’s forecast, you might want to throw this one out for consideration—by Julian Simon of the Chicago School of Economics:
“This is my long-run forecast in brief: The material conditions of life will continue to get better for most people, in most countries, most of the time, indefinitely. Within a century or two, all nations and most of humanity will be at or above today’s western living standards. I also speculate, however, that many people will continue to think and say that the conditions of life are getting worse.”
By Jim Brady on Feb 7, 2004 | Reply
Your Econ Prof must be a UM sociology major..
All they could ever teach was Malthus..populations exploding exponentially.
It’s the only argument that supports the “sky is falling” hypothesis..
Laws of supply and demand do not apply..
JMB
By Ghost Dog on Feb 8, 2004 | Reply
Quoting JR “Mandating things…via top-down regulation is inefficient and causes consumer resentment–letting free markets move people towards these choices, in an environment of free choice, makes much more sense.”
Is this anything like the sense that deregulating electricity in Montana made?