1. business and industrial
2. energy
3. oil
4. oil and gas prices

PROGRESS
and the
THE COMING
AGE OF
ABUNDANCE:
THE DECLINING
SCARCITY
OF NATURAL
RESOURCES
Stephen Moore
February
s,
.;T;:
2
li
^,';
A Project
of
the
Competitive
Enterprise
Institute
1995
THE COMINGAGE
OF &WNDANCE:
The Declining Scarcityof
Natural Resources
by Stephen Moore
INTRODUCTION
The twenty-first century maybe the first era in the history ofhumanity that naturalresource scarcityceases
to act as a significant constraint on economic growth. Although this is by no meansinevitable, every
measurabletrend ofthe past century suugSests
that humanity will soon be entering an age of increasingand
unprecedentednatural resourceabundance.
This is admittedly an extraordi~
and controversialprediction to make. It contradictsvirtually everything
that we read in the newspapers,Mew on teletisioR and are told by many prestigiousacademicscholars. We
areroutinelydelugedwithpreciselytheoppositemessage:that humanitywill soonbeenteringaneraofsevere,
and perhapscatastrophic,physicallimits to growth
The prediction that we may soon be entering an age ofresource abundancealso seemsto collide with pure
common sense.There are already5.6 billion people on earth eachof whom consumevaStquantitiesofthe
earth’snaturalresourceseveryday.That numbermaydoublebytheyear2050alone. Andalarger population
meansmore consumptionofthe earth’s energysources,minerals.and other natural resources. As Herman
Dalyofthe WorldBank hasinsisted.morepeopleusingmoreresourcescan
continueindefinitelyonlyifscientistsdiscover“awaytowidenthediameter
ofthe earth.” ’ In other words, we seemto be speedingtoward a head-on
For thepast one
collision with the geological reality of resource scarcity
hundred years virtually
evey natural resource
has experienced
declining prices.
Yet history provesthat the pundits, aswell asour intuitiok are wrong. For
at least the past one hundred years virtually every natural resource has
experienceddecliningprices. A drop in price is a market signalof/u, not
ntol~’ scarcity. Figure 1 shows how the composite price of I3 major
minerals,metals,and energy sourceshaschangedsince 1900. The prices
are indexedto the wage rate. This yields a uset3 statisticthat allows us to
comparefor any two points in time the numberofhours a worker hadto work to purchasea given quantity
of these resources. The results co&m the conclusion of a long term trend toward increasingresource
abundance:
Moore: TheCorningAge of Aburxixm
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.Nattnal resourcestodayareabouthalfasexpensiverelativetowagesastheywerein 1980~
l Natural resourcesare three times lessexpensivetoday than they were f&y years ago.
l Natural resourcesare roughly eight ties
lesscostly than they were in 1900.
Howisitpossiblethatevenasweuseeverincreasingamountsofseeminglyfiniteamountsofnaturalresources,
they still declineover time in price? Part of the explanationliesin the fact that technological improvements
andadvancesinproductivitycontinuallyoutpaceourconsumptionofresources. New miningtechniques,for
example,haveopenedthedoorstovastnewquantitiesofmineralsthatwere
neverformerly thought to be available.Fifty yearsago it would havebeen
inconceivablethat oil could be minedfrom the bottom ofthe oceanor that The histov ofprogress
oilcouldbeproducedf?omsand(orshaJe).Yettodaywehavetheknowhow is one of human@ .k
to obtain huge quantities6om eachofthese sources.
But, one might ask might this be only a temporary benefit? Aren’t there,
infact, onlylimitedquantitiesofoilandotherresources,whichmaybelarger
thanwepreviouslyrealized.but stillnot iniinite? Yes-andno. Thehistory
ofprogressisoneofhumanity’sabilityto produceincreasinglevelsofoutput
and wealth with decreasingamountsof natural resourcesand humantime
and effort Moreover, the paceofthis progressthroughout the pastcentury
haspersistentlyaccelerated,rather than slowed. And it hasdone so despite
the increasein population.
ability to produce
increasing levels of
output and wealth with
decreasing amounts of
natural resources and
human time and eflort.
As we progresstInther into the current information age,the notion oftinite physicalresourcesis becoming
all the more outmoded. At a pace unparalleledin human history, man’s ingenuity is unlocking ever more
spectacularadvancesin technology andscientificknowledgethat are further advancingour masteryoverthe
hnite physicaluniverse.
Thispointismostvividlyillustratedbythebreathtakinglyrapiddevelopmentsnowtakingplaceinthecomputer
microchipindustry3 The microchipis slightly larger than the sizeofa man’sthumbnail. It is madeofsilicon,
or sand - a natural resource that is in great abundanceand has virtually no monetary value. Yet the
combinationofafeWBainsofthissandandtheinfiniteinventivenessofthehumanmind,hasledtothecreation
ofa machinethat will not only createtrillions ofdollars ofadded wealth forthe inhabitantsofthe earth in the
next century.butwilldo sowithincomprehensiblyvastsavingsinman’sphysicallaborandtheearth’s natural
resources.Today,asinglemicrochipiscapableofretainingasmuchinformationasiscontainedinallthebooks
inasmaUcommunitylibrary.Bytheendofthiscenturythecomputerindustrycouldpotentiallyreleaseamicrochipwith the capabilityof retainingand processingall oftheinformation containedin everypublication in the
U.S. Library of Congress. Even ifthe world’s population were to double every fifty years,the microchip is
doubling in capacityroughly everyfour years. This is a geometricalrate ofgrowth that is severalmagnitudes
larger than population growth.
Herein liesthe explanationfor the seemingparadoxofthe abundanceofnatural resourcestoday asmeasured
bycontinuouslydecliningprices.Humanity’singenuityhasledtothenetcreation, overtimeofmoreresources
that are availableto us and future generations,not less.
Moore: The Coming Age of Abundmce
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THE MODERN DOOMSDAY MINDSET
Throughout the 1990sAmericanshavebeeninundated with horror storiesabout the demiseof the planet.
Never was this more apparentthan in September 1994 when the international environmentalcommunity
gatheredin Cairo for the WorldPopulation Conference.Thedelegatesfrom over one hundrednationssigned
adocumenturgingthat the world community shouldjoin together to work
toward a policy of population stabilization. “What is needed,” the
Humanityk ingenuity
conferencereportstated.“isasustainablebalancebetween
humannumbers
has led to the net
and the resourcesofthe planet.” Among world statesmen,there was little
dissentfrom this opinion.
creation,
over time, of
that aI%? In large part theseconcernsof political leadersonly reflect the consensus
opinion of most academics- particularly demographers, biologjsts,
available to us and
geologists, and environmentalscientists. For example,one of the most
@we generations, not widely-quoted academicson population issues,biologist Paul Ehdich of
Stanford University, recently noted: “We are literally using up in a few
less.
generationsthebiologicalandmineralwealthoftheEarththattookmiltions
and millions of years to create.“4 He ridiculed the idea that economic progress can solve the ecological
problems ofthe globe as “growth mania” which he describedas“a fixation on growth for growth’s sake.
It is the creedofthe cancercell.” I Lester Brown. editor ofthe annualS/L& of ihe WorW report, concurs
with this anti-economicgrowth visionasthe only way to savethe planet. Brown writes that “current notions
of economic growth. .areat the root of so much ofthe earth’s ecological deterioration.”
mOi%? KSOUKeS
Another highly influentialenvironmentalist,Barry Commoner ofthe Centerfor Biology of Natural Systems
hasaddedhis voice to the choir Commonerrecentlylamented:“Ifwe do nothing andjust continuethe way
we are, using 95 percent of our energyfrom fossil tieIs, it will create an economic collapselong before 50
yearsfrom now.”
Even the Vice Presidentofthe United Stateshasbecomea fervent and influential disciple ofthe doomsday
logic. In his best-sellingbook Earth in the Balance. Al Gore lamentsthat fUturegenerationsofAmericans
“will look back on 1990, at the kind ofecological destructionwe have,andwill wonder, as they shaketheir
heads,how people could havethought in ways that allowed them to condone that kind of activity” 6
Of course,thesedoomsdayoutlooks and predictionsare anything but new. Just over twenty yearsago, for
instance,the Club of Rome releasedits highly intluentialLimifs to Growrh report, which predictedthat over
the next thirty yearsunbridledpopulationgrowth would leadto massfaminesand severeshortagesofenergy,
minerals,trees,and other preciousresources.’The book’s famousconclusionwas that “shortagesofnatural
resourcestill leadtoadismal anddepletedexistencebythebeginningofthenextcentury.” LintifstoGmvth
was recently updatedwith a new title, Bqm/ihe Limirs. The new version attemptsto validatethe earlier
conclusionsandthenglumlyreponsthatresourceandenvironmentaltrends
Doomsday outlooks
are much worse today than even previously suspected
andpredictions are
anything but neW.
In 1980. this apocalypticvision of the future receivedthe official sanction
of the U.S. Eovemment when the Carter Administration released its
frightening &al
2000 report.’ The $1 million report sponsoredby the
StateDepartmentandtwelve other federalagenciespredictedthat most resources- energy.minerals,food,
and forests-would be in severeshortageby the year2000 “ifpresent trends continued.” It also predicted
Moore:TheComingAgeof Abundance
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that“theworld’speoplewouldbemuchpoorerthantoday(l980).“Theseterrifyingpredictionscommanded
headlinesthroughout the nation9 We will reservejudgment on the accuracy of thesepredictions for later,
The point here is that this apocalypticoutlook was the prevailingview ofthe U.S. government at the end of
the 1970s.
In the Reaganyears of the 1980s the shifi toward a f?eemarket-basedgoverning philosophy led to the
abandonmentofthese apocalypticviews. Indeed,most ofthe callsby Carter administrationofficialsfor price
controls, population stabilization policies, the developmentof synthetic
fuels.governmentfimded conservationprograms.commandand control‘Pvoven reservesof
tpe energyrationing, and stricternaturalresourceregulatory policieswere
virtually all important
not only ignored, but pre-existingcontrols were in many caseslieed.
minerals have s&y-
TheClinton administratioq not swprisimglygivenVice-PresidentAl Gore’s
environmentalphilosophy, has re-embracedmany of the environmental rocketed since 19.50.”
groups’ concerns over world population growth and natural resource
scarcity In sum, the United Statesgovernmenthasreturnedfull circle to once again promoting the “limits
togrowth”govemingphilosophy andpolicyoutlookthatwasfirst popularizedtwodecadesago bytheclub
of Rome’s work.
How much stock should we put in thesefears?
TAKING INVEWIDRY OF THE Pm
In late 1973, asthe United Statesfound itselfin the grip ofan energy crisis,Newwerk magazinededicated
its cover story to the haunting question:“Are We Running Out OfEverything?” ” What we really needto
ask is: How do we even go about objectivelyansweringthat question?
Oneway to measurethe stock ofnatural resourcesavailableis to examinethe quantity of”known reserves.”
EnvironmentalanalystJerry TayloroftheCato Institute recentlycompiledthe statisticsforreservesoftwelve
strategicnaturalresourcesin1950andin 1990” (seetable1). Taylorfoundthat“provenresewesoftirtually
all important mineralshave skyrocketed since 1950.” I2 Only reservesof tin fell over the past forty years
Perhapswhat is most surprisingin thesetrendsis that “proven reserves”for oil and gas haveclimbedby over
700 percentsincethe 1950s. This is roughly equivalentto a five hundred year supply of know reservesof
fossilfuels. How can reserveshavegone up? The answeris they havebeennewly discovered,or newly made
feasiblyaccessible.The data in table 1 not only calIsinto questionthe idea that we face imminentscarcityof
the earth’s resources,it also contradictsthe standardnotion that for every barrel ofoil humanity uses,there
is one lessavailableto us, our children and our grandchildren.
YetthetnrthisthatthesomewhatencouragingdatainTable 1provesverylittleaboutthelongtermavailability
ofnatural resources. The table shows that as of 1990 we had 350 million metric tons ofknown reservesof
copper. Does this meanthen that asthe ezrth’s growing population usesup this 350 million ton reservethat
theearth’sinventorygaugetillthenhit empty?Theanswerisno. Provenresewesmerelymeasuretheamount
ofa mineralthat can be extracted economicallyat any given point in time given current prices and current
technologicalcapabilities. As Taylor emphasizes,“Proven reservesare a function of economicsand knowhow, not geological abundance.”‘I Indeed, aswe examinecurrent trends in industry we seethat firms are
movingaggressivelytowardfindingwaystoholdlessinventoriesofgoodsandservices,throu&suchpractices
Mcwre: The Cauiin~ Age of Abuuduce
c j
as the ‘Sust-in-timeinventog methods. Yet we don’t fear that we are running out of the supply of milk
becausethe Seven-Elevenstore holds only a three day’s supply. Similarly,we should not expectto run out
ofcoppersimplybecausecopperminingcompaniescalculatethattheyonly
have a certain number of years of reserves. When they use ap those
The best, andperhaps reserves.they&l havearenewedincentivetolocatenewsourcesofsupply.
the only reliable,
meaSureof a resourceb
supply is the change in
its market price.
As a resultofthese defects,the best,and perhapsthe only reliable,measure
ofaresource’ss~pplyisthechangeinitsmarketprice’~ Pricesarethemost
objective way that economistshave of measuringthe relative scarcity of
goodsandsewices.Arisingpriceofacommodity,goodorsewiceisasignal
that demandis outstripping supply (or is expectedto outstrip supply in the
future) and that a shortage may emerge.‘I
This samelaw of supply and demandappliesto natural resources. If there were an impending shortageof
coal,copper>rubber, or tin. thenbuyersandsellerswould consistentlybid up their price. Conversely,ifa huge
new reserve of oil were discovered, or demand for oil were expected to drop becauseof the sudden
introduction ofan alternativeenergysource,buyersand sellerswould consistentlybid down oil prices In sum,
a rising price ofa resourceindicatesincreasingsupply relative to demand;a falling price indicatesdeclining
supply relativeto demand.16
It is noteworthy that even the doomsayersacknowledge that increasedscarcity necessarilytranslatesinto
higher pricesofthe resourcein question. One ofthe consistentand dire predictionsofLim;ts 10Growth was
that with lessavailabilityofresourceswe can expectever increasingprices. Similarly,Barry Commonerhas
writtenthat“each barrel ofoil drawnfiomtheearth causesthenextone to bemoredifficult to obtain.. .The
economic consequenceis that it cc~sesfhe price fo incrw.w cot?tim~~sly” (emphasisadded).” A final
examplecomesfiomtheGloha12000Re~~. Itpredictedthat non-!%elmineralpriceswouldriseby5percent
per year through the year 2000, as a consequenceofimpending scarcity So it would seemto be a generally
acceptedpropositioc fromdoomsayersandresourceoptimistsaliie,thatifweareenteringanageofresource
scarcity,wemzrrlobserverisingprices.Fallingrealpriceswouldbeincompatibletith theconceptofresource
exhaustion.
Somedo argue, however, that the price of a resourceor raw material may only reflect the availablesupply
today, wt the relative abundanceor scarcity in t%tureyears. If world population growth were to place
enormousnew demandpressureson resources.then evenifthe priceshad
beenfalling inthe past,they maysuddenlyandsharplyrisein the future. Yet
Falling realprices
this common argument reveals a deep misunderstanding of how the
would be incompatible modem-dayprice systemoperates.
with the concept of
resource exhaustion.
Today’s price of oil reflectsnot only the availabilityofthat resourcetoday
relativeto demand,but its expectedavailability in the future. An asset’s
valueis determinedby the discountedpresentvalueof its future return If
themarketbelievedthatoil wasgoingto beir short supplyinten years,then ownerswould bidup pricesrodq.
And any singlemarketanalystwho 6rmly believedthat oil priceswill soarin the !%turecould buy oil at today’s
prices,hold on to it, and sell it in the future at the expected higher price, Indeed one would not evenneed
to take physicalpossessionofthe resource. There are now htures marketsfor most resourceswhich allow
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traderstopurchasethefutureresalerightsofoil,orporkbeUies, orothercommodities. Andindeed.thousands
ofspeculatorsdo this;they hoard gold, copper,chickens,farmland.orwhateverthe resourcethat is expected
to grow scarcemight be.
In sum the priceofanatural resourcetoday not only equilibratescurrent supply and demand,but reflectsthe
market’sbest estimateabout the&u= levelsofsupply and demand. There is no law of naturethat saysthat
the market is always setting the right price. Speculatorswho bought oil fUturesin the early 1970sand then
soMthemin the late 1970smadea forhme. Speculatorswhobought oil t%uresin the 1980slost fortunes,But
the market price doeshavethe virtoe of incorporating all ofthe best and most relevantinformation we have
available.
RESOURCEPRICE TRENDSOVER m
LONG TERM
There is no conceivable
f&p&icting any
Historical price data for natural resourcesin the U.S. are readily available case
fiomstandardgovemmentsources.Forsomeoftheresourcesthesefigures
datebackasfaras 1800.‘8Thefollowingsectionsexaminethepricetrends world shortage of
forthreecategoriesofresources:energy forestproducts,minerals.andraw basic ym materials.
materials.
Mineralsare commonlythought to be“nonrenewabie” resources.For this reason.mostanalystsbelievethat
theseresourcesmust be becoming more scarceover time -almost by definition ..Yetthe long term price
trendsforthe 13mineralsintable2revealsthatrelativetotheconsumerpriceindex,all butfouroftheminerals
havedeclined in real price over the past 100 to 150 years That is, the price of most mineralshas declined
relativeto the price of other goods and setices. Antimony, platinum and tin are notable exceptions,
Relativeto wages. however, all but one mineral(platinum) havefallen steeplyin price (seetable 3). Most of
themineralsatthetumofthecenturywerefiveto tentimesrnoreexpensivethantodayintermsofthenumbers
ofhours ofwork neededto purchasethem. As an example,the declinein lead pricesrelativeto wages since
1820 is shown in figure 2.
The steadydecline in mineral prices is attributableto severalfactors. One of these has been the constant
discoveryofnew mines. A secondhasbeennewtechnologicalinnovationsin mining techniqueswhich lower
the cost of resourcerecovery andallow mining 6om areaswhere excavationwas previouslytechnologically
andeconomicallyinfeasible.Finally, the introduction ofless expensiveor superior substitutesfor the use of
someminerals- such asthe use of more efficientfiber optic cablesin placeof copper telecommunication
cables- havelowered demandfor some of thesecommodities.
Pricedata for basic raw materialsare unforhmatelyonly availableback to 1960. But astables4 and 5 show,
the pricesofcement, glassand metalshavedeclinedrelativeto prices and wages sincethen~The worldwide
price trends for theseraw materialsare muchthe sameasfor those in the U.S. There is no conceivablecase
for predicting any world shortageofbasic raw materials.
Over the past century energy prices in the U.S. have fluctuated substantially. Unlike many other natural
resources.most ener-q prices, indexedby consumerprices,are no lower today than in the early 1900s(see
table6). The exceptionisthe price ofelectricity, which today is only one-halfto one-third its levelin the early
Mwre: The Corning Age of Abmdance
l
part ofthe century. Relativeto wages,however, all forms of energyhaveexperiencedprice reductions. In
1920, for example,asshown in table 7, the wage-indexedprice ofoil was roughly twice its current level,the
price ofelectricity was sixtimesaboveits current level,and coalwas almostseventimesmore expensive.The
data for thelong-termtrendinoilpricesindexedbywagesisshowninfipure3. Likeallothernaturalrescurces,
energy is not becoming more scarceover time, it is becoming more plent&l, just not as rapidly as other
commodities.
THE RECORD M THE 1980s
Sowe seethat for almostall basicnaturalresources,the longtermtrendsarealmostuniversallyin the direction
oflowerpricesandgreateraffordability Nowwearriveatthecorequestionofthischapter: Havethesetrends
continued in recentyears? Or to put it anotherway, how havethe predictionsofPaul Ehrlich, Lester Brow%
Global 2000, Limits to Growth, and other leadingde&is& comparedwith the actual evidenceover recent
years? Let’s examineeacharea separately.
Minerals
Back in 1976 Paul and Anne Ehrlich projczted that “before 1985 mankind will enter a genuine age of
scarcity...inwhich theaccessiblesuppliesofmany key mineralswill be facing depletion.” I1 A few yearsprior
to that the authorsofLimits lo GrowrthMote: “Even taking into account sucheconomicfactors asincreased
priceswith decreasingavailability,it would appearat presentthat the quantitiesofgold, zinc, andleadarenot
sufficientto meetdemands.At the presentrate ofexpansion...silver,tin, and uraniummay be in short supply
at higher prices by the tom of the century.” m
Virmallyallofthosepredictionscannowbeprovenwildlyinaccurate. Figure4showsthatfrom 1980to 1990:
. Ofthirteen mineralsexamined,elevendeclined in price. The two exceptionswere
manganeseand zinc.
. The real prices ofantimony, mercury, platinup siiver,tin, and tungsten declinedby
more than 50 percent over the ten year period.
. Copper, lead, and magnesiumprices dropped by 20 percent over the decade.
Contrary to the statedpredictionsofLimi?s fo Growth, silver,ti& uranium and lead havelower pricestoday
than in 1972, not higher prices Only zinc hasrisenin price aspredicted. As for the Ehrlich’s claimthat “by
1985 many mineralstill be facing depletion,” we now know that it is plainly and completelyfalse.
Raw Materials
On a recent popular televisionshow. “The Nature of Things.” co-hosts Anita Gordon and David Suzuki
lamentedthat “our insatiableappetitefor more of the planet’s resourceshas finally caught up with us.” I’
Meanwhile Paul Ehrlich recently wrote of the past ten years that we cannot afford “another catastrophic
decadelikethe 1980s.” ?2This is the kind ofpublic informationthat is disseminatedabout raw materialusage
in the 1980s. Are we really running up againstlimits?
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No. In the 1980salmost all raw materialsdeclinedin price. Figure 8 showsthe fall in pricesofcement, glass,
rubber, and a composite index of ail metalsbetween 1980 and 1990:
. Glassprices fell by 34 percent.
. Cement prices fell by 39 percent.
. Metals prices showed a 15 percent decline
. Rubber prices declinedby 40 percent.
In fact, contrary to the unending rhetoric about the over-consumptionof the 1980s.this was a decadeof
enormousincreasesin the supply of resources. Economist G.F. Ray recently reported that the 1980s“will
go down in economic history as a period when [the price] of primary products hit rock bottom whatever
method is used to illustratetheir real valueof purchasingpower. There havebeenhardly any exceptionsto
this decline.”23
Throughout the 1970s as America was held hostageto the OPEC oil embargo,it becamecommonplaceto
seenewspaperstoriesandtelevisionreports predictingmassiveand worsening energyshortagesasthe world
entereda new era of scarcity Oil prices were expectedto reach $50 per gallon or more by the year 2000.
Lengthy waiting lines at gas stationswere expectedto becomea routine occurrence. Energy conservation
and price controls were the public policy prescriptionsof the day. Jimmy Carter urged stores and public
buildingstotumthethe~ostattowhatN~~wrrkdescribedas“achilly65
degreesinthewinterandnolower
than a sweaty 80 in summer.” The nationalDemocratic patty endorsedgas rationing as a way to slow the
impendingcrisis.
Seeminglyeveryonewas caught up in the hysteria. PresidentJimmy Carter gloomily predicted in 1977that
“we could useup all of the proven reservesof oil in the entire world by the end ofthe next decade.” zi Two
environmentalscientists,LawrenceRocksandRichardRunyon,releasedawell-publicizedbookin 1972,77te
,%qy Crisrs, which declared:“During the next two decades,severeoil and gw shortagesare inevitable!
We shallbe powerlessto infuseenergy sourceson a sufIiciently massivescaleto meet the demandsof our
industriallife-support system.”26They saidthat at current ratesofuse, the earth held 30 yearslet?ofgas and
20 yearsleft of oil.
FederaJofficialsalmostallagreedwiththisa.ssessment.
TheViceChaitmanoftheFederaJPowerCommission
in 1971,JohnA. Carver, describedthe energycrisisaheadas“endemic and incurable.” He continued: “We
cananticipatethat beforethe end ofthis centuryenergysupplieswill becomeso restrictedasto halt economic
developmentaround the world.” 27
How did thesepredictionsfare? Today, in 1994,oil doesnot sellfor $50. or $40 or even$30 per barrel. The
current price is below $20 a barrel. Contrary to the doom and gloom forecastsof soaringenergy prices,the
1980swere yearsofgradual. and at timesrapid, energyprice reductions(see fiyre 6). This trend reversed
the upward spiral of the 1970s.
. Oil prices fell by 35 percent.
. Electricity prices fell by 14 percent.
Moore: Tlx Coming Age of Abundance
. Coal prices fell by 47 percent.
. Natural gaspricesfell by only 4 percent. (Natural gas was still under price controls in the
1980s.)
A July 1991New York Times story buried in the Businesssectioncontrastedthe actualenergysituation in the
1990swith the predictionsmadeten to hventy yearsearlier. The Timrs reported that “adjusting the price
ofgasolineat thepump toreflectchangesintheconsumerpriceindex,theaveragepticeinthefirstfivemonths
ofthis year, $1.15, was 6 percentlower than in 1972,the year before the OPEC oil embargo.” zBGasoline
prices may seemhigh today, but that is only becauseof the general intlation of the past twenty yearsand
becausetaxeson gasolinehavesurgedto over 35 centsa gallon in manystates Yet the pm-tax price is lower
todaythanat anytimesince1947.“Thegoodolddayswhenit comestooil prices,arenow,“recentlyexulted
Daniel Yergiq energy historian at CambridgeEnergy ResearchA.ssociates.‘9
WorldwideResourcePrice Th&
ThereductionsinpricesintheUnitedStatesinthe 1980spresentedabovewereenjoyedbyconsumersofother
nations as well. The World ResourcesInstitute recently compiled worldwide indexesfor more than 50
commodities-rangingf?omPeruviantishtoMalaysianaluminum (seetableS). Allbuttwooftheresources
declinedin real price. For consumersall over the world, natural resources
havebecomemore affordablesince 1980.
The objective, scientific
evidence available
today reveals that the
prophets of doom were
wrong in virtually every
prediction they made.
. The worldwide real price offood declinedby49 percentbetween
1980 and 1992.
. The worldwide real price of petroleum declinedby 62 percent
from 1980 to 1992.
. The worldwide real price oftimber fell by 13 percent6om 1980
to 1992.
. TheworldwiderealpriceofmetaJsandmineralsfell by38 percent
from 1980 to 1988.
In sum the objective.scientificevidenceavailabletoday revealsthat the prophets of doom were wrong in
virtually every prediction they madein the 1960sand 1970swhen they forecast increasingnatural resource
scarcityandrisingpricesofcommodities.Inthe 1980sintheU.S. andabroad,naturalresourcesbecamemore.
not less,plentiful. Those trends havegenerallycontinued in the early 1990sso far.
WHY THE DOOMSAYERSGET IT WRONG
Thepersistentpticedeclinesofthe1980sthoroughlyconfoundedthedoomsayerswhohadpredictedprecisely
the opposite course of events. Yet it is important to emphasizethat a vocal minority of scientistsand
economists,suchasJulianSimonandHermanKahn,correctlyforecastthepricetrendsofthepastfifteenyears.
At the time these scholarswere wnmarily dismissedby critics as holding views that are outside of the
mainstreamand irresponsible.”
In 1980,oneofthose“outsidethemainstream” economists,JulianSimonofthe UniversityofMaryland, bet
Paul Ehrlich $10,0C~Ithat the real price offive natural resourcesof Ehrlich’s own choosing would be less
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expensivein 1990than in 1980. All five ofthe resourceswhich Ehrlich chose- copper, chrome, nickel. tin.
andtungsten-feNin price and Ehrlich lost the bet, aschronicledin 77wNew York TimesMagaz~e not long
ago.3’
Inthefaceofamountainofevidencetodaythattheenvironmental predictionsofthedoomsayerswerewidely
off-target, many of thesepundits now maintain that their reports issuedvaluable warnings and led to the
implementationofpolicyprescriptionswhich helpedaverttheecologicaldisastertheyhadpredicted.Thetruth
is that the limits to growth corrective measuresthat had been urged were rejected outright by the Reagan
administration,which preferred to focus on economicexpansionand wealth creation. IfLImits to Growrh
and Global 2000 had beencorrect, the predictedpath toward severescarcity should haveacceleratedin the
1980s.notreversed.Priceandproductioncontrolswereliftedmtherthanexpanded. Mandatoryconservation
programswere abandonedrather than extended. The windfall profits tax was repealed. The doomsayers
routinely attacked thesepoliciesas wrongheadedand dangerous.
Indeed we now havefairly compellingevidencethat it was preciselythegovernmentinterventionistresource
policies of the 1970s that exacerbatedand lengthenedthe energy crisis of that unfortunate era. Take the
experiencewithoilpricecontrols.Firstimplementedin1971,theobjectiveofthesepriceceihngswastoprotect
U.S. consumersby preventingU.S. oil companies!?omcollecting “windfall profits” as a result ofthe higher
pricesbeing chargedby OPEC. Instead the oil price controls had the following three effetis (seefigure 7):
U.S. oil production fell t?om 11 to 9
1)Price conrroLsreLhrceddomestic oiIpro&ction
millionbarrelsadayfiom 1971to 1980. Pricecontrolsmadeitunprofitablefordomestic
producers to increaseoutput through more expensiveprocesses,suchas drilling deeperwells, fracturing steamor water
injection, off-shore drilling, and so on. Oil price controls The energy crisis in
brought new drilling in the U.S. to a standstill.
1970s was mainly
the
2) Price controls increased KY. oil commpfiorr Oil consump- attributable to
tion by U.S. householdsand industry increasedhorn 15 to 19
millionbamelsofoiladayfrom 1970through 1978,becausethe
price controls kept oil prices artificially lower than they would have otherwise been in
the short term This discouragedconservation. Thanks in large part to price controls
from 1975 to 1978 the real price of oil fell. These artificially low prices contributed
directly to the wrenching 197Xto 1981 energy crisis.
government
fol/'
3) Price conr@ofsincreosedreliance onfore@ oil. U.S. imports of foreign oil rose from
4to 8.5 millionbarrelsofoil aday6om 1970to 1977,asdemandforoil roseanddomestic
production fell.
In 1981Ronald Reagan’sfirst act asPresidentwas to immediatelylift all oil pricecontrols. The impact was
immediate:
1)Energv e~c;etlcyar,dco~~se~~~~;~~7
irrcremed. In 198 1 the price ofcmde oil rose from
$29 to $36 per barrel atIer lifting price controls. By the end of 198I oil consumptionin
the U.S. dropped by 20 percent.
Moore: The Coming Age of Abundmce
rose. OPEC commanded almost 60
percent of the U.S. market in the 1970s. By the end of 1981 after the lifting of price
controls, the imported sharewas down to 45 percent(today it is about 50 percent). By
January 1982 U.S. oil production rose by SOpercent above 1980 levelsand by 100
percent above 1979 levels.
2) Oil imports declined ami domestic prod&ion
3) Oilpricesevet~t~m/Iydeciit~edandOPEC’war defeated The increasedU.S. production
ofoilledtoaglutinthemarketbylate1982.Asalwayshappenswithanincreaseinsupply,
eventuallypricesbeganto tumble-from their high of $35 per barrel in 1981 to a low
of$13 perbarrelin 1986.TwoyearsaflertheeliminationofenergypticecontrolsOPEC
hadbeencrushed.A Timemagazinecaption read:“Down Down, Down: OPEC Finds
that It Is a Crude, Crude, World.” 32Newsweek was even more to the point. writing:
“OPEC: From Cartel to Chaos!” 33
In sum the energy crisis in the 1970swas mainly attributable to governmentfolly. Congresspreventedthe
price systemf?om operatingproperly. When the market systemfor energywas permitted to function in the
1980s.the crisis quickly subsidedand American consumersenjoyed cheaperand abundantoil
A casecould be madethat the very conceptthat is embracedby geologists
of’finitenaturalresources”isaflawedwayofthinkingabouttheearthand
nature. ‘Natural resources”only havevaluewhenhumanity inventsause
for them.Y In the eighteenthcentury. humanity wortied about shortages
ofthe major transportationform ofthe day, horses,and ofthe “iirel” that
madethem run, rangelandfor grazing. In that sameera,the discoveryof
a black gooey substanceknown asoil underneathone’s property actually
depreciatedthe value ofthat property.3sHumanity had not inventeda use for it. Now it is valuedas one of
our most vital resources~ Meanwhile. grazing land is relatively abundantand inexpensive.
“hiatural resources”
only have value when
humanity invents a use
fir them.
Another explanationfor why we are often confronted with spectacularlywrong environmentalpredictions
about the finure of the planet’s resourcesis that the traditional model for forecastingthe tI.nureavailability
ofresources is irreparablydamaged. hmmy Carter’s Global 2000 report, for example,was a casestudy in
the abuseof forecastingas science. Its dismalview ofthe future was basedupon forecastswhich assumed
that “current trends till continue.” It is suchanalyseswhich lead to the conclusion that the earth till hold
some 12 billion people by the middle ofthe next century or that the last barrel ofoil will be drilled from the
earth early in the next century This type ofextrapolation analysisoften leadsto bizarre conclusionsx” For
instance:
. EconomistsCharlesMaurice and CharlesSmithsonofTexas A and M computed that if
one were to extrapolatepublishing trends from the 1970s there would be 14 million
doomsdaybooks publishedby the year 2000- or more than halfas many books asthere
are in the entire Library of Congresstoday.?’
. At the endofWorld War II. economistsextrapolatingfrom the decliing birth figuresfrom
the 1930spredicted adeclining U.S. population in the post World War E era and thus a
period of“secular stagnation.” Thesepredictions were made only a few years prior to
the baby boom and two decadesof economicprosperity.”
Moore:TheCorningAgeof Abundance
P
R
0
G
RESS
and
t
h
e
PLANET
. 77~Economisf magadne recentlydemonstratedthat by using “present trend” analysis,
and dependingon the yearsone startsand endsthe data collection to developthe trend,
very di!Terentconclusionscan be forecast. Trend analysiscould predict that by the year
2000 Amold Schwarzen~er’s earningswould top $360 million. But ifdiierent starting
and ending points are chose& using the sameestimation technique one could predict
Schwarzenegger’sincome to be 4130 million in 20~X.~~
As nonsensicalastheseestimatesmayseenSnoneofthemareanylessdefensiblethanprojectingthat
resources
will run out or that population will explodein the next century The rwon that the analysesarewong is that
short term trends almost never continue, becausehuman beings adapt their behavior and change their
environmentinresponsetochangingconditionsForexample.althougheconomicoutputin 1989wasroughiy
30 percenthigherthan in 1979, and althoughthe U. S. population rose by IO percentover this period, energy
consumotionwasuaonlvrouzhlv3wrcent.
Inotherwords.BTU’suerdollarofGNPwasroughly20percent
- _
lower in 1989 than’in 1979. Inven;ive mindsrespondedto the economic
incentivesof “‘the energy crisis” by finding ways to make industry and Short term trends
consumersmore energyefficient. Trend analysiscannotaccount for such
behavioralchanges.Forthisreason,reportssuchasC;loba/2OOOhavevety almost never continue,
littlescientilicvalue. Their”contribution“istoneedlesslyscarepeopleand because human beings
divert resources6om real problems
CONCLUSION
adapt their behavior
and chaxge their
environment in
responseto changing
conditions.
Natural resourceshavebeengrowing more plentiful over the courseofthe
pastcentury,asmeasuredbytheirprice. The decadeofthe 1980s contrary
to popularbelieSwas no exceptionto this long term trend. Indeed,thanks
to the steep across-the-boarddeclines in natural resource prices in the
1980s today manyofthe earth’s resourcesare at their lowest price everin
recorded history Even as a growing population and a more economically developed society usesmore
resourcesthan everbefore,ofnew technologiesand innovations,which make usmore efficientin consuming
andproducingnatural resources,havemeantthattheearth’sresourceshavecontinuallybecomelessofalimit
to growth over time, rather than more so.
Eventhe U.S. governmentnow apparentlyrecognizesthe errors ofitsjudgments in the past Reversingthe
forecastsof studiessuch as Global 2000, the Oflice of Technology Assessmentin 1988 concluded “The
nation’s future has probably neverbeen lessconstrainedby the cost of natural resources.“”
There is no inevitabilityofdeclining pricesofnatural resources.Unwisegovemment interventionpoliciesas
wereexperimentedtithinthe 1970scanoffenhaveeconomicallyandecologicallydebilitatingconsequences.
But ifpoliticianscan resist the ever-presenttemptationto intervenein natural resourcemarkets,America and
the rest of the world face a surprisinglyrich resourcefuture in the twenty-first century.
Mwre: The Cowing Age of Abundance
ABOUT THE AUTHOR
StephenMoore is director of fiscal policy studiesat the Cato Institute. He is a contributing editor at the
Nalional Rev&w and his articlesfrequentlyappearin the Urn//S’OIW./~w~n/. Rem/d~ DIgm. and Hwww
Ewnls. lnadditiontohis mostrecentbook, G‘o~www~t: Amwic~ :Y; / C~,ow~hfw&~oy,Mooreistheauthor
of Slashir~gihe Defcir: A Rl?rrprbllforaBnla~f~~~~~f~~~f by I993 andPriwrizatiox A Slrtriqyfi~r Tcu,zit~g
lhe Fe&-d B1rdge1(with Stuart Butler). Moore earned a B. A. in economicsat the University of Illinois.
and did his graduate work in economicsat George Mason University. In I987 he servedas the research
coordinatorforPresidentReagan’sNationalCommissiononPrivatization.In 1988hewasaspecialconsultant
to the National Economic Commission.
Moore:The Coming Age of Abundance
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