Friday, May 26, 2017

David Henderson Corrects Larry Summers On Trade (gains to consumers matter)

See Larry Summers Trumps Trump at EconLog.
"On agriculture, China reiterated a promise that it has broken in the past to let in more beef. Previously, we, as reciprocity, had been withholding publication of a permissive rule on Chinese poultry, but we have now relented. Advantage China.
This is from Larry Summers, "Trump's 'China Deal' is only a good deal for China," May 24.

HT2 Mark Thoma.

In estimating "advantage," what factor is Larry missing? U.S. consumers who like poultry. There are a lot of us. When you see someone forgetting even to point out that our consumers gain when foreign producers send us cheaper products, what prominent U.S. politician does that sound like? That's right: Trump. Thus the titled of this post: Larry Summers, in his rhetoric, is starting to imitate Donald Trump.

Back in May 2000, I wrote an article in Fortune titled "What Clinton and Gore Don't Say." In it, I pointed out that U.S. trade negotiators rarely point out the benefits to consumers from free trade. I ended by writing:

In the negotiation process, the U.S. treats cuts in its trade restrictions as concessions rather than as the benefits they are. That's why the consumers' gains get lost in the shuffle. Economists like U.S. Treasury Secretary Lawrence Summers understand that. But U.S. Trade Negotiator Charlene Barshefsky and Vice President Gore? I'm not so sure.

Now, I'm no longer sure about Larry. And, in a way, he's even worse than Trump. He writes:

In addition to the leverage we sacrificed by committing to issue the poultry rule, we made other meaningful concessions. First, we agreed to allow exports of liquefied natural gas from the US to China. To at least a small extent that would mean higher heating costs for U.S. consumers and higher energy costs for U.S. producers.

Get it? Normally, even the Trumps and Summers of the world will at least regard as a gain an increase in U.S. exports due to declines in trade barriers. But because this particular gain in U.S. exports is due to a decline in a U.S. trade barrier, Larry counts it as a loss. It is a loss for U.S. consumers, but it's not hard to show that it's a net gain to the United States when we include the gains to LNG producers."

Who’d a-thunk it? Like most central planning, public transit systems are very costly and often don’t serve the public very well?

From Mark Perry.
"Some recent news reports on the declines in the use of mass transit systems across America:

Example 1: L.A. bus ridership continues to fall; officials now looking to overhaul the system
Example 2: CARTA’s (Chattanooga, TN) Main Route Suffers Another Blow As Overall Ridership Continues To Drop
Example 3: Miami-Dade shrinking Metrorail hours as ridership dips
Example 4: Subway Ridership Declines in New York. Is Uber to Blame?
Example 5: City Colleges (Chicago) has paid $3 million for a bus shuttle with few riders
======================

A few related items here……

Related 1: “Does America Need More Urban Rail Transit?” is the title of a recent Manhattan Institute report, and I think the answer is “No.” Here’s an excerpt from the abstract:
Low-density U.S. cities with new rail-transit systems have experienced limited ridership and single-digit transportation market share. Federal funds should be directed to rebuilding aging rail transit in cities where it already exists and where it serves a critical transportation function. In most cases, state and local governments should focus on providing transit service via traditional buses, not building new rail lines.
Related 2: Transit Crime Is on the Rise, here’s an excerpt:
Is there an upsurge in crime on and around transit, and if so, why? A few days ago, a Portland woman was stabbed at a light-rail stop, supposedly by a complete stranger. The very next day, a remarkably similar report came out of Tempe, Arizona, except in this case police said the victim and alleged perpetrator were acquaintances.
A month ago, a gang of at least 40 teenagers boarded a BART train and, while some held the doors to prevent the train from leaving the station, robbed seven passengers and beat up two or more who refused to cooperate. A few days before that, someone shot and killed a passenger and wounded three more on board a MARTA train in Atlanta. After arresting a suspect, police called it an “isolated incident,” but it doesn’t sound so isolated anymore. New York City is enjoying a drop in crime–except on board transit vehicles, where crime is up 26 percent.
… The numerous reports of transit crimes in the last few weeks are only going to depress ridership even further.
Related 3: From the new report “A Canadian town wanted a transit system. It hired Uber,”:
Uber, the global car-hailing service, has fought its way into resistant cities around the world, despite being hit by raw eggs and rush-hour roadblocks in Montreal and Toronto, fires in Paris and smashed windshields in Mexico City. But in Innisfil, a small yet sprawling Canadian town north of Toronto, the company has met a somewhat different reception. Town leaders have embraced the service as an alternative to costly public transportation, causing local taxi companies to worry about the effect on their business.
Innisfil is a rural quadrilateral-shaped town of about 104 square miles, on the southwestern shore of Ontario’s Lake Simcoe. It has no public transportation other than stops on a regional bus line. This week, the town inaugurated a pilot program for what Uber says is its first full ridesharing-transit partnership, providing subsidized transportation for the town’s 36,000 people.
Update…..
Related 4: “10 Reasons to Stop Subsidizing Urban Transit” by Cato’s Randall O’Toole."

Thursday, May 25, 2017

A 2016 report from the Pentagon claims that 22% of the military’s infrastructure is unnecessary

See Trump's Cost Cutting May Involve Military Closures, But Cities Shouldn't Worry by Adam Millsap of Mercatus.
"Yet there is little evidence that base closures have significant adverse effects on local economies. One study examining base closures from 1970 to 1994 found that the effect of a closure on local (county-level) employment was limited to the actual number of military jobs lost and that there was no negative employment effect on other sectors of the economy. In fact, it actually found evidence of indirect job creation rather than job destruction, though the effect was small. The study also found that, on average, local per capita income was unaffected by a closure.

Another study that explicitly takes into account reutilization of military infrastructure after a closure found that the long-run effects of a closure on local employment were positive overall. In addition to the reutilization of valuable infrastructure, the authors attribute the positive effect to increased federal education assistance that often accompanies a base closure, increased spending by military retirees on non-military-base retailers (instead of the BX and PX) and an increase in optimism as people adjusted to the new circumstances. The authors note that while base closures are never appealing to the workers and communities directly impacted, “the overall picture is most certainly not one of doom and gloom.”"

"But as the research shows, many of the places affected by base closures adapt and turn out just fine: The infrastructure can be refurbished and reused by private companies .

Reutilization is especially important when considering the economic impact of military facilities. Since the products and services provided by the military are not sold on a market and subject to the signals of profit and loss, we have little knowledge about how much people actually value them. This makes it hard to know whether the military’s inputs, including land and infrastructure, are being put to their highest-valued use. And if the land and infrastructure are not being put to their highest-valued use, the economy is not operating as efficiently as it could be.

A former military facility in Key West, the Truman Annex, was developed after being relinquished by the military, and today its hotels and rental homes contribute to the area’s robust tourism industry."

ACA Medicaid Expansion: A Lot of Spending of Little Value

By Brian Blase of Mercatus
"In new research published by the Mercatus Center, I analyze the causes and impact of the much higher-than-expected enrollment and spending associated with the Affordable Care Act (ACA) Medicaid expansion. Though unpredicted by Washington experts, the results were predictable. The federal government’s 100% financing of state spending on expansion enrollees has led states to boost enrollment and create high payment rates. (See this 2-minute Mercatus video for additional information on this significant development.)

In states that have expanded, enrollment and per enrollee spending are nearly 50% higher than predicted. While interest groups within the states—particularly hospitals and insurers—benefit from the higher spending being charged to federal taxpayers, substantial evidence suggests much of this new spending is wasted or provides little value for its intended recipients.

An important 2015 study showed that Medicaid expansion enrollees obtain low value through the program. Moreover, an increasing amount of spending on the program is lost to waste, fraud, and abuse. The Wall Street Journal highlighted a new government report showing that improper Medicaid spending exploded between 2013 and 2016. Improper payments amounted to about $67 billion in 2016, a $41 billion increase from the estimated $26 billion in 2013. The large increase in improper Medicaid payments has occurred while the ACA Medicaid expansion took effect, suggesting that the expansion is the main cause of the stunning rise. (Interestingly, the Department of Health and Human Services has pulled the report from the Internet.)

Perverse Incentives Produce Lots of Waste

Under the ACA, the federal government reimburses 100% of state spending on expansion enrollees—non-disabled, working-age adults with income between the state’s previous eligibility thresholds and 138% of the federal poverty level ($16,394 in 2016). After this year, the federal share gradually phases down until 2020 when it reaches 90%, where it is scheduled to remain.

Common sense suggests that a jurisdiction is more likely to increase spending on an area when the costs can largely be passed to other jurisdictions. This type of financing structure also lessens a jurisdiction’s incentive to ensure that the spending provides high value with low amounts of waste.

ACA Medicaid Explosion

Medicaid, already on an unsustainable cost-growth trajectory before the ACA, has experienced unprecedented enrollment and spending growth since 2013. Medicaid spending in 2015 was nearly $100 billion above the 2013 amount.

Medicaid expansion enrollment and spending is higher than projected even though not as many states as expected have adopted the expansion. My research shows the difference in the Congressional Budget Office’s (CBO) Medicaid expansion enrollment and spending projections over time. The first figure shows CBO’s most recent estimate of expansion enrollment along with CBO’s estimates from 2010, 2014, and 2015.




Enrollment is much higher than CBO expected when the ACA passed in 2010, and it is also significantly higher, particularly in 2017 and beyond, than estimated in both CBO’s 2014 and 2015 reports. Essentially, this means that far more people—roughly 50% more—have enrolled and are projected to enroll in Medicaid in the states that expanded than was expected by CBO previously. In addition to higher-than-expected enrollment, spending per newly eligible Medicaid enrollee is much greater than expected. As I wrote in July when the Obama administration released the 2015 Medicaid actuarial report, government spending on newly eligible enrollees equaled about $6,366 in 2015—an amount 49% higher than its projection of $4,281 from just one year earlier.

Both higher-than-expected enrollment and spending per enrollee has resulted in the Medicaid expansion being much more costly than projected. For example, in April 2014, CBO projected that the Medicaid expansion would cost $42 billion in 2015. The actual cost was $68 billion, about 62% higher.

The second figure shows CBO’s projections of federal spending on the Medicaid expansion and how CBO’s most recent projection of the cost are substantially above previous expectations.



Using CBO’s current projections of state adoption of the expansion for its previous estimates shows that federal Medicaid spending between 2016 and 2024 is $232 billion in excess of its April 2014 estimates.

Both figures adjust CBO’s previous year estimates for its current assumptions about state adoption of the expansion. CBO now expects states to adopt the expansion at a slower rate than it has previously projected. In 2010, before the Supreme Court made Medicaid expansion optional for states, CBO expected all states would adopt the expansion. This adjustment allows for a better comparison of enrollment and spending because it holds constant CBO’s assumptions about the percentage of the newly eligible Medicaid population residing in expansionary states.

Too Little Value from Medicaid Expansion

Prior to the ACA, when states shouldered their traditional share of Medicaid spending (an average of 43%), only Vermont and the District of Columbia concluded that the tradeoffs—higher state taxes and reduced spending elsewhere—justified expanding Medicaid to the ACA expansion population. It turns out that states that did not expand Medicaid prior to the ACA almost certainly made a wise cost-benefit calculation.

A 2015 study from economists at Harvard, MIT, and Dartmouth, assessing an earlier Medicaid expansion in Oregon to a similar population to the ACA expansion, found that “[a]cross a variety of alternative specifications … Medicaid’s value to recipients is lower than the government’s costs of the program, and usually substantially below.” They estimated that the “welfare benefit to recipients from Medicaid per dollar of government spending range from about $0.2 to $0.4.” Oregon Medicaid expansion enrollees did not have significant improvements in blood pressure, cholesterol, or blood sugar relative to people who did not enroll in Medicaid.

Reform Medicaid, Stop Viewing Program as Economic Stimulus

In order to increase the value that enrollees receive from Medicaid and lessen the amount lost to waste, fraud, and abuse, it is necessary to change the central incentives underlying the federal-state partnership. In particular, the incentives of the ACA’s elevated reimbursement rate lead policymakers to view Medicaid as an engine for economic stimulus instead of as a welfare program. For example, according to the White House:

“By expanding Medicaid, States can pull billions in additional Federal funding into their economies every year, with no State contribution over the next three years and only a modest one thereafter for coverage of newly eligible people.”

A study by Deloitte Consulting and the University of Louisville projects that the ACA’s Medicaid expansion will add 40,000 jobs and $30 billion to Kentucky’s economy through 2021. The problem with this and similar studies is that they assess the decision of a state in isolation without factoring in other states’ decisions regarding expansion. For example, Kentucky is worse off when other states expand, because her citizens pay federal taxes to finance health benefits that accrue only to individuals in those other states.

Economist Robert Book points out that the American economy is worse from the ACA expansion “because taxation itself has a negative effect on economic activity, over and above the amount of tax collected.” Book estimates a reduction of $174 billion in economic activity over a 10-year period if all states expand Medicaid. He also estimated a total job loss of more than 200,000 positions from 2014 to 2017 if all states expanded Medicaid.

Sensible Medicaid reform has two central goals: reduce the unsustainable trajectory of spending and produce better outcomes for people most in need. The ACA Medicaid expansion significantly adds to the unsustainable spending trajectory of the program, likely fails to produce health outcomes or value to recipients worth the corresponding cost, and creates a large federal government bias toward nondisabled, working-age adults at the expense of traditional Medicaid enrollees. Moving Medicaid back in the right direction requires ending the ACA’s elevated federal reimbursement rate that has given rise to these problems."

Wednesday, May 24, 2017

Allan Meltzer Meltzer’s history book found that the Fed had rarely come up with just the right medicine for the economy

See Allan Meltzer Made a Career as the Chief Scourge of Financial Regulators: Professor wrote 2,100 pages on Fed history and found little to admire. Obituary from the WSJ. By James R. Hagerty. Excerpts:
"Allan Meltzer devoted a large share of his scholarly life to telling the Federal Reserve and other financial regulators, politely but firmly, that they were falling down on the job.

Dr. Meltzer’s two-volume history of the U.S. central bank, stretching beyond 2,100 pages, found that the Fed had rarely come up with just the right medicine for the economy. He chastised Fed officials for paying too much heed to the “daily yammering” of financial markets and too little to the long-term health of the economy.

The Carnegie Mellon University economist also was a co-founder of the Shadow Open Market Committee, a gathering of monetarists and mavericks who since 1973 have advised and second-guessed the Fed.

Through his books and articles, Dr. Meltzer became an influential opponent of what he saw as excessive regulation of banks and of bailouts for those that misbehaved. If banks were allowed to fail, he argued, shareholders and executives would learn to be more prudent. “Capitalism without failure is like religion without sin,” he often said.

Dr. Meltzer died May 8 of pneumonia at a hospital in Pittsburgh. He was 89."

"He evolved into a libertarian. Capitalism, he wrote in one essay, “works well with people as they are, not as someone would like to make them.”"

"At the University of California, Los Angeles, he earned master’s and doctoral degrees in economics."
"In 1957, he joined the faculty of what is now Carnegie Mellon in Pittsburgh."
"He was on the President’s Economic Policy Advisory Board during the Reagan administration and served as a consultant to congressional committees, the U.S. Treasury and foreign central banks. In 1999 and 2000, he headed a congressional panel seeking to improve the performance of the World Bank and International Monetary Fund.

His astoundingly deep dive into Fed history began in 1963 when U.S. Rep. Wright Patman, a Texas Democrat, asked him to do a study of the institution. His original studies “were hastily written to meet congressional deadlines,” he wrote. He kept digging and spent 14 years writing a history of the Fed. In 2003, The Wall Street Journal declared his first volume “masterly.” Former Fed Chairman Alan Greenspan wrote in the preface that the history was “fascinating and valuable.”

During the Depression of the 1930s, the Fed failed to prevent a steep fall in the money supply, missing a chance to alleviate the crisis, Dr. Meltzer found. Later errors by the central bank made inflation worse and contributed to the housing market collapse that helped precipitate the 2008-09 recession, he wrote.

Though he thought the Fed was usually too concerned with the short term, he said one exception was the fight led by Fed Chairman Paul Volcker against inflation in the early 1980s. Mr. Volcker “pursued a long-term strategy…knowing that it wasn’t going to happen in the next quarter,” Dr. Meltzer said during a panel discussion in 2010."

"Dr. Meltzer loathed the proliferation of regulations. Financial firms would sneak around them, and market changes would soon render the rules obsolete, he wrote. A wiser approach, he said, would be to require higher capital ratios for larger banks. That would deter banks from growing into behemoths deemed too big to fail, Dr. Meltzer said. If bankers “make the wrong calls,” he said in one interview, they and their shareholders “must be made to pay the price themselves.”

He worried about U.S. budget deficits and unfunded obligations. “At the city, state and federal government, we’ve promised people things that we aren’t going to be able to do,” he said in a presentation on one of his books. “We’re going to have to take away things that have been promised….We’re going to have higher tax rates and we’re going to have less spending.”

He deplored the congressional habit of leaving details to regulatory agencies. “Much regulation has the effect of replacing the rule of law with arbitrary decisions by lawyers and bureaucrats,” he wrote in a 2012 book, “Why Capitalism.”

Regulators were gaining too many powers to regulate as they saw fit, undermining the rule of law, he warned."

America’s trade deficit isn’t nearly as large as the official figures suggest because of where companies report their profits

See The True Trade Deficit: Halving the official figure gets closer to the truth, as the iPhone example shows by Martin Neil Baily and Adam Looney in the WSJ. They both are senior fellows at the Brookings Institution. Excerpts:
"Protectionists like to cite the U.S. trade deficit—last year imports of goods and services exceeded exports by $501 billion—as evidence that unfair trade agreements have hurt American competitiveness. But a new working paper from the Bureau of Economic Analysis, published in March, challenges this narrative: Turns out, America’s trade deficit isn’t nearly as large as the official figures suggest.

To illustrate this finding, the economists Fatih Guvenen, Raymond Mataloni, Dylan Rassier and Kim Ruhl examine the iPhone. The device is said to be “Designed by Apple in California. Assembled in China.” Yet to lower its tax bill, Apple reports that its iPhone profits were earned in neither place, but were instead accrued in some other country.

Assume an iPhone is assembled in China for $250 and sells in Europe and the U.S. for $750. Apple’s profit is $500. Often that economic value gets attributed to an Apple subsidiary set up in a low-tax nation like Ireland or Luxembourg.

If most iPhone development is actually done in California, most of the $500 represents American production and should be included in U.S. gross domestic product. Then, when an iPhone is sold in Europe, that value should count as an export from the U.S. When a phone is instead sold in the U.S., the net amount of the import should only be the $250 cost of manufacturing in Asia, since the rest is produced by Californians.

With this in mind, the study’s authors estimate how much American trade is mismeasured. Although the official trade deficit in 2012 was $537 billion, they conclude that U.S. exports were undercounted and imports overstated by a combined $280 billion. With this adjustment, the real trade deficit that year shrinks to $257 billion—or about 1.6% of GDP. Trade still isn’t balanced, but the deficit appears to be less than half the size everyone thought.

In other words, more than half the goods and services that were counted in the U.S. trade deficit actually were produced right here in America. This makes it harder to argue that an outsize trade deficit is responsible for American manufacturing’s woes. It’s true that traditional blue-collar workers have had trouble competing globally. But high-skilled American workers and the companies that employ them have been competing just fine."

Tuesday, May 23, 2017

Between 1960 and 2015, the population grew by 142%, from 3.035 billion to 7.35 billion. Yet commodity prices fell.

See Why the human brain is our most precious commodity by Marian L. Tupy of HumanProgress.org.
"Between 1960 and 2015, world population increased by 142 per cent, rising from 3.035 billion to 7.35 billion. During that time, average income per capita adjusted for inflation increased by 177 per cent, rising from $3,680 to $10,194. Moreover, after 56 years of human use and exploration, the vast majority of the commodities tracked by the World Bank are cheaper than they used to be – either absolutely or relative to income. That was not supposed to have happened.

According to conventional wisdom, population growth was to be a harbinger of poverty and famine. Yet, human beings, unlike other animals, innovate their way out of scarcity by increasing the supply of natural resources or developing substitutes for overused resources. Human ingenuity, in other words, is “the ultimate resource” that makes all other resources more plentiful.

Earlier this year, the World Bank updated its Pink Sheet, which tracks the prices of 72 commodities going back (in most cases) to 1960. I have eliminated some repetitive datasets and some datasets that contained data for only very short periods of time. I was left with 42 commodity prices, which are included in the chart below.


As can be seen, out of the 42 distinct commodity prices measured by the World Bank, 19 have declined in absolute terms. In other words, adjusted for inflation, they were cheaper in 2016 than in 1960. Twenty-three commodities have increased in price over the last 56 years. However, of those 23 commodities, only three (crude oil, gold and silver) appreciated more than income. In a vast majority of cases, therefore, commodities became cheaper either absolutely or relatively.

Figure 1: Worldwide Commodity Prices, Population and Income, 1960-2016

It is often assumed that population growth must inevitably result in the exhaustion of natural resources, environmental destruction and even mass starvation. Take, for example, The Limits to Growth report, which was published by the Club of Rome in 1972.  Based on MIT computer projections, the report looked at the interplay between industrial development, population growth, malnutrition, the availability of nonrenewable resources and the quality of the environment. It concluded:
 “If present growth trends in world population, industrialization, pollution, food production, and resource depletion continue unchanged, the limits to growth on this planet will be reached sometime within the next 100 years… The most probable result will be a rather sudden and uncontrollable decline in both population and industrial capacity… Given present resource consumption rates and the projected increase in these rates, the great majority of currently nonrenewable resources will be extremely expensive 100 years from now.”
It has been 45 years since the publication of The Limits to Growth. So far, the dire predictions of the Club of Rome have not come to pass. On the contrary, we have seen an overall decline of commodity prices relative to income – in spite of a growing global population.

Can this happy trend continue for another 55 years and beyond? To get a glimpse of the future, we must first understand the concept of scarcity.

Scarcity or “the gap between limited – that is, scarce – resources and theoretically limitless wants”, is best ascertained by looking at prices. A scarce commodity goes up in price, while a plentiful commodity becomes cheaper. That was the premise of a famous bet between Stanford University Professor Paul Ehrlich and University of Maryland Professor Julian Simon. Ehrlich shared the gloomy predictions of the Club of Rome.

In his best-selling 1968 book The Population Bomb, Ehrlich reasoned that over-population would lead to exhaustion of natural resources and mega-famines. “The battle to feed all of humanity is over. In the 1970s hundreds of millions of people will starve to death in spite of any crash programs embarked upon now. At this late date nothing can prevent a substantial increase in the world death rate,” he wrote.

Simon, in contrast, was much more optimistic. In his 1981 book The Ultimate Resource, Simon used empirical data to show that humanity has always gotten around the problem of scarcity by increasing the supply of natural resources or developing substitutes for overused resources. Human ingenuity, he argued, was “the ultimate resource” that would make all other resources more plentiful.

In 1980, the two thinkers agreed to put their ideas to a test. As Ronald Bailey wrote in his 2015 book The End of Doom: Environmental Renewal in the 2lst Century:
 “In October 1980, Ehrlich and Simon drew up a futures contract obligating Simon to sell Ehrlich the same quantities that could be purchased for $1,000 of five metals (copper, chromium, nickel, tin, and tungsten) ten years later at inflation-adjusted 1980 prices. If the combined prices rose above $1,000, Simon would pay the difference. If they fell below $1,000, Ehrlich would pay Simon the difference. Ehrlich mailed Simon a check for $576.07 in October 1990. There was no note in the letter. The price of the basket of metals chosen by Ehrlich and his cohorts had fallen by more than 50 percent. The cornucopian Simon won.”
Simon’s critics, Ehrlich included, have since argued that Simon got lucky. Had his bet with Ehrlich taken place over a different decade, the outcome might have been different. Between 2001 and 2008, for example, the world had experienced an unprecedented economic expansion that dramatically increased the price of commodities.

True, but Simon’s thesis does not have to account for price fluctuations that are heavily influenced by the ups and downs of the global economy as well as disruptive government policies (e.g., oil crises in 1973 and 1979). Rather, Simon posited that as a particular resource becomes scarcer, its price will increase and that will incentivize people to discover more of the resource, ration it, recycle it, or develop a substitute.

Commodity prices, academic research suggests, move in so-called “super-cycles,” lasting between 30 and 40 years. During periods of high economic growth, demand for commodities increases. When that happens, commodities go up in price. It is during this period that high commodity prices encourage the discovery of new supplies and the invention of new technologies. Once economic growth slows down, prices of “now copiously supplied commodities fall”.

Accordingly, the current commodity cycle seems to have peaked in 2008. In June 2008, for example, the price of West Texas Intermediate crude oil peaked at $154 per barrel. By January 2016 it stood at $29 (both figures are in inflation adjusted 2016 US dollars). The once-high price of oil has led to hydraulic fracturing, which has revolutionized the oil industry. Today, “fracking” continues to enable us to access previously inaccessible oil reserves in record volumes. In fact, humanity is yet to run out of a single “non-renewable” resource.

Unfortunately, many people, including Paul Ehrlich, and many organizations, including the Club of Rome, believe that the answer to scarcity is to limit consumption of natural resources. In reality, consumption limits are unpopular and difficult to enforce. More often than not, their effects fall hardest on the most vulnerable. A switch from fossil fuels to “renewable” sources of energy, for example, has increased the price of gas and electricity in many European countries to such extent that a new term – energy poverty – had to be coined.

According to the German magazine Der Spiegel, “Germany’s aggressive and reckless expansion of wind and solar power has come with a hefty price tag for consumers, and the costs often fall disproportionately on the poor.”  In democracies, such policies are, in the long run, unsustainable. More important is the fact that they are unnecessary, because real solutions to future scarcity are more likely to come from innovation and technological change.

I do not mean to trivialize the challenges that humanity faces or imply that we will be able to solve all of the problems ahead. Instead, I want to suggest that human brain, the ultimate resource, is capable of solving complex challenges. We have done so with disease, hunger and extreme poverty, which have all fallen to historical lows, and we can do so with respect to the use of natural resources as well."