Optimistic Cynic

Yeah Right!

Actually, We’ll Run Out of Oil

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Via Something Like Life, and also via India Uncut, I reached the provocatively titled article We’ll never out by Donald J. Boudreaux (professor of economics at George Mason University). He is talking about oil.

He asserts that “economics assures us that we will never run out of oil.” Really?

He differentiates (rightly) between the physical and economic limits of exploiting the oil reserves. He asserts (rightly, again) that we don’t know how much oil there really is in the ground. However, he does admit that there is a physical limit on the amount of oil, even though we don’t know exactly what this limit is.

His argument for reassuring us about never running out of oil relies on an analogy:

Scenario One: You’re a mosquito on the surface of a balloon containing as much blood as an Olympic-size swimming pool contains water. You, hungry mosquito that you are, inject your proboscis into the balloon and enjoy a meal. By doing so you negligibly reduce the volume of blood in the balloon. Whether you know it or not, you can gorge yourself on blood from this balloon for the rest of your life and there will still be ample blood remaining to feed countless generations of your offspring.

Scenario Two: You’re a mosquito on a balloon the size of a pea. You eat a meal. The size of your meal relative to the blood-contents of the tiny balloon is large; you significantly reduce the contents.

By his own admission, he doesn’t know which situation we are in. He guesses that we are in an intermediate scenario, while being confident that we are definitely not in Scenario Two.

Note the complete absence of any pointers to supporting evidence. Without them, it amounts (roughly) to Argument from Authority (a professor of economics, who is talking about economics) which I am not a big fan of.

Point is, we could be like the mosquito in scenario one. That mosquito needn’t know that she’s atop a quantity of blood that’s practically limitless. If she’s informed that the amount of blood in her balloon is finite, she might needlessly worry that she’ll run out of blood. She might pointlessly reduce her consumption to avoid a mythical “end of blood.”

Again, I don’t know that we’re like the mosquito in scenario one — but no one knows that we’re not. A resource physically finite might be economically inexhaustible.

The assertion that “no one knows that we’re not” in Scenario One can be turned on its head and would apply equally well to Scenario Two (unless some evidence is presented, which wasn’t). So, what if we are really in Scenario Two, but sitting smugly in the false belief that we’ll never run out of oil? Not good.

If we are in an intermediate scenario, as he suspects, we would still do well to try to rid ourselves of our oil addiction and invest in alternative sources of oil. Why? Because the basic assumptions of Scenario One would fall apart in an intermediate scenario. The supply of oil would not be virtually limitless, and our consumption would significantly deplete the reserves. As a consequence, there would not be ample oil remaining to satisfy the needs of “countless generations” of our offspring. In other words, we’ll run out of oil.

Words like “never” and “countless” are not to be easily deployed.

I understand that he is just writing an article, not a thesis. There are word-limits and editorial deadlines to keep in mind. But, such articles, especially when coming from someone who is generally considered a figure of authority, run the risk of giving the layperson a false sense of energy security. The consequences can be serious. Already, Amit Varma’s maid agrees with the professor and is presumably not switching the lights off at night.

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Written by OC

September 5, 2008 at 8:34 am

Posted in Economics

Tagged with ,

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