What would Julian Simon have said?

What would Julian Simon have said?
March 1, 2001

How many times, in just the past few months, have the headlines called that question to mind?

When electricity brownouts disrupted California, and gasoline shortages caused panic in the Midwest. When the Clinton-Gore administration fretted over whether its use of the Strategic Petroleum Reserve was too big, or too small, a response to the latest energy "crisis." When Al Gore told us that the fate of the planet was at stake in the November election. When the World Wildlife Fund proclaimed that, at the rate we are going, we will need "two more Earths" to supply us with the natural resources we need. When perennial pessimist Paul Ehrlich announced his latest lament: that the Internet is "too fast."

Julian Simon (1932-1998) was a professor of economics at the University of Maryland, famous for his optimism about human resourcefulness and for his willingness to de-bunk the apocalyptic pronouncements of those who are always sure we are running out--of food, of minerals, of energy, of space, . . . of time.

Since the time of Thomas Malthus 200 years ago, we have never had a shortage of such doomsayers. In our own day, many of them are merely advocates for bigger government, and they find it useful to argue we need more government because markets can never solve our problems. But many of them also sincerely believe we are bumping into resource constraints that must be managed, or "planned," or rationed.

Simon, a dedicated empiricist, found the historical record showed otherwise. Markets were extraordinarily effective, not just in rationing resources that were scarce, but also, over time, in abating that scarcity. Technology--broadly defined as the knowledge of how to change what we have into what we want--advances continually, in ways we cannot imagine more than a few years into the future. All it requires is a legal system (including property rights and reliable contracts) in which markets and entrepreneurs can flourish. And, of course, it requires people--what Simon called "the ultimate resource."

Today, economists are puzzling over a record-breaking streak of productivity growth in the U.S. economy, even as they worry that the rate of savings, and thus the rate of capital investment, is too low. The leading candidate to explain this progress is the dramatic expansion of intellectual capital: intangible assets that are difficult to capture with the economists' usual measures of capital investment.

What Simon saw, with a clarity few others could match, was that all capital was ultimately intellectual. Human minds constructed the roads and the factories, as well as the Internet and the genetic codebook. Creative human minds find ways for us to farm without running out of land, to communicate without running out of copper wire, to travel without running out of energy. If we cannot imagine the solution to a problem, then we cannot design a government program that can solve it. But markets, by eliciting, testing, and harnessing the best ideas that anyone can come up with, can do what governments cannot.

A May 2000 report from the American Legislative Exchange Council, Julian Simon and the Triumph of Energy Sustainability, picks up these arguments where Simon left off. The book was written by Robert L. Bradley Jr., president of the Institute for Energy Research in Houston.

There have been many natural resources that have given rise to scarcity concerns in our lifetimes: rubber, strategic minerals, land, water, the electromagnetic spectrum, etc. But none has gotten quite the attention energy has, complete with its own federal Department. It was our "obvious" scarcity of energy that prompted the most bitter denouncements of Simon during the 1970s. And, Bradley argues persuasively, it is Simon's view of sustainable energy markets that is most triumphant as we enter the twenty-first century.

Bradley adheres closely to Simon's own methods, collecting time-series data that allow us to measure the scarcity of real resources and their impact on human welfare. Looking at the historical record, it is difficult to make the argument that our "depletable" fuels--coal, petroleum, and natural gas--are in fact being depleted in any real economic sense.

  • Proven oil reserves worldwide stood at 68 billion barrels in 1947. In the ensuing 41 years, we used 783 billion barrels . . . and wound up with more than a trillion barrels in proven reserves in 1998.

  • World reserves of natural gas were about one quadrillion cubic feet in 1966; since then, we have used almost two quadrillion, and we have more than five quadrillion left.

  • World coal reserves were 256 billion short tons in 1949; we have used 168 billion of that, and still had more than a trillion short tons left in 1998.

Far from running out, these depletable fuels are becoming more abundant as technology gives us access to greater and greater quantities even as it improves the efficiency with which we use them.

The prices of various forms of energy--the best summary statistic reflecting their abundance--have been declining over the past century, with temporary interruptions, as often as not caused by government regulation or taxation. Bradley documents myriad discoveries and innovations, on both the supply and demand sides of the equation, that have contributed to the overall trend.

But Bradley goes beyond the question of energy supplies to enter the debate about climate change. The two issues are intertwined. In the 1970s, advocates for central planning used the energy crisis to argue the government needs to measure, and ration, all energy use throughout the economy. The proposed "BTU budget" was, of course, doomed to failure and never got very far; only petroleum and its products were allocated by government fiat. After Ronald Reagan deregulated petroleum in 1981, the terrible scarcities of the 1970s quickly vanished, and along with them the arguments for total government control of energy.

But, since most of our energy comes from oxidizing carbon (coal) or hydrocarbons (oil and gas), the advocates for central planning took another tack. Now they argue we're increasing carbon dioxide levels in the atmosphere, thus enhancing the "greenhouse effect" that warms the Earth by making the atmosphere less transparent to outgoing (infrared) radiation even while it remains fully transparent to incoming (visible) solar radiation.

So now we are presented with proposals for a carbon dioxide budget, most notably in the form of the Kyoto global warming protocol. The ubiquity of CO2 emissions (we are, after all, carbon-based life forms) means any such budget would effectively hand control of economic activity to governments, just as effectively as a BTU budget would have done.

Instead of teaching developing countries and former communist countries about the power of free markets, western diplomats have been telling foreign governments that, in order to save the planet, they must adopt central planning and seize control of their economies before they grow. That would be a tragic step backwards, and the result would be widespread corruption, economic stagnation, and environmental degradation.

We know from rock-solid theory and bitter experience that state control of the economy is disastrous for man and nature. Not even the scariest forecast of the global warming models comes close to being as scary as the world would be if governments decided to go down this path.

Still, we have not answered the question: What are we doing to the climate? Others (Peter Huber, for example) have dismissed the question as unanswerable by science. Despite the trappings of scientific research--instruments, calculations, computer models, peer-reviewed journals--we can no better forecast climate change in the year 2100 than we can forecast the winner of that year's elections.

But Bradley takes the question seriously, looks past all of the propaganda that has been published in this area, sorts through the evidence, and concludes there is little reason to worry. Forecasts of anthropogenic warming, as they get more refined, also get less extreme. The evidence for any such warming remains mixed. And if we are warming the Earth, we are doing so in the most benign way: at night; in the winter; near the poles.

There is little reason to believe that any of the dire predictions--rampant tropical diseases, for example--have any basis in science. If a slight warming does occur, it is likely to be beneficial. Theory and experiment suggest that plant growth will be stimulated by higher levels of atmospheric CO2. The natural climatic variations in the historical record suggest that warmer times are better times. The improved technology of today, and of the future, will permit us to mitigate any harmful climatic trends that do emerge, from whatever causes, in whatever direction.

Bradley's compelling book is faithful not only to Julian Simon's method, but also to his message: that humanity will be best prepared to meet the challenges of the future if people are free to explore, create, learn from each other, and trade with each other. The only constraints to be seriously concerned about are those we impose on ourselves.




Brian F. Mannix is director of science and technology studies for The Manufacturers Alliance/MAPI Inc.




For more information . . .

Rob Bradley's book, Julian Simon and the Triumph of Energy Sustainability, can be purchased for $20 in The Heartland Institute's online store at www.heartland.org. Or call the American Legislative Exchange Council's publications line at 202/466-3800, ext. 262.