John Holdren and Mineral/Energy Depletion (Revisited)

[Editor Note: An earlier series at MasterResource on John Holdren, President Obama’s science and technology advisor, is being reprinted given the recent controversy surrounding Dr. Holdren’s earlier views. This original post is dated January 2, 2009.]

Physical scientists are prone to viewing hydrocarbons as a fixed quantity. Being fixed, this volume must deplete with production. Extraction costs and thus selling prices must rise. The crisis is only a matter of when [“What will we do when the pumps run dry?” asked Paul Ehrlich and Anne Ehrlich in 1974 (The End of Affluence (p. 49)] . Physicist John Holdren is no exception to this view.

Reality is quite different from the hard science formulation, however. In a business or economic sense, mineral resources are not fixed, known, or depleting. They are created by entrepreneurship (”resourceship”) in a market economy where incentives are present and technology improves. Mineral quantities can and do expand over time as shown by time-series data of estimated world resources.

Social-science understanding of minerals harks back to the functional theory of resources espoused by institutional economist Erich Zimmermann. Zimmermann’s work from the 1930s has been advanced by economists working in the Austrian-school (read real-world) tradition of economics (see here and here).

In 1971, Paul Ehrlich and John Holdren stated:

“Today the frontiers are gone, and the evidence is mounting that technology cannot hold the law of diminishing returns at bay much longer. Resources being stressed today are often being stressed globally; they will not be replenished from outside the ‘system’.”

–  John Holdren and Paul Ehrlich, ‘Resource Realities’, in Holdren and Ehrlich (eds), Global Ecology, p. 8

And again from 1971 (p. 18):

“The rapacious depletion of our fossil fuels is already forcing us to consider more expensive mining techniques to gain access to lower-grade deposits, such as the oil shales, and even the status of our high-grade uranium ore reserves is not clear-cut.”

The two fussed (p. 177) at the “cornucopian dream” of economists whose studies of minerals documented large and growing supplies:

“Economists as a group have been guiltier than most in perpetuating the most dangerous myths of this troubled age … Mineral economists rely on the cornucopian dream, in which advancing technology conjures up ever cheaper minerals while consuming ever increasing amounts of energy and the earth’s crust to do it.”

Enter Julian Simon, whose 1981 book, The Ultimate Resource, offered a new way to view the economic interaction of man and nature. Having jettisoned his original Malthusian views in the face of contrary data, Simon challenged Ehrlich and Holdren to a wager on the future price of mineral resources. If prices fell in inflation-adjusted terms, Simon would win; if real prices rose, Simon would pay up.

The 1980 bet on 1990 prices was won by Simon for each of the five minerals chosen by Paul Ehrlich, John Holdren, and John Harte. The story was told to a national audience by John Tierney in an essay in the 12/2/1990 Sunday New York Times Magazine, “Betting the Planet”.

Simon’s triumph demonstrated that so-called depleting resources could and did grow less scarce over time, despite increasing consumption. “Depletable” resources expanded from the “ultimate” resource, human ingenuity.

What if the bet had been made for the next decade? What about bets made over a century? Simon would have had the odds in his favor in these situations too, according to a 2005 study by David McClintick and Ross B. Emmett.

Bowing to reality, Holdren would change his argument from private costs/prices to social costs/prices, the latter being hypothetical, what-I-determine-it-to-be, and, potentially, government-corrected. The energy problem was “nuanced,” as Holdren explained in a 2002 article in Scientific American, “Energy: Asking the Wrong Question.” The energy challenge was not depletion per se, but “environmental impacts and sociopolitical risks” that could involve “rising monetary costs for energy when its environmental and sociopolitical hazards are adequately internalized and insured against” (p. 65).

So we now have the Obama tee-up where Holdren the neo-Malthusian policymaker can make Holdren the neo-Malthusian theorist “correct.” But the new president should think twice about heeding Dr. Doom’s advice–really obsession. Americans are still smarting from $4 per gallon gasoline and want lower, not higher, gasoline, fuel oil, natural gas, and electricity bills.