Technology and resources: The value judgments

Technology and the limited nature of non-renewable resources is an important issue in economics, the social sciences, and general policy making. It is an issue where each side of the political spectrum feels that the other side is stupid.

In an article we have linked to here, there are people that feel economists ignore the concept that our natural resources are limited (something that would be quite a fail, given that economics is the study of scarcity). However, there are also many people that feel a stroke over-confident about the ability of “technology” to evolve in a way that will allow us to substitute, easily, and cheaply away from these resources when the time comes.

In truth many people sit between these two extremes, believing that non-renewable resources will run out, there will be some cost, but that technology will provide some type of substitute. However, the value judgments involved in this opinion, especially when looking at technology, are not entirely clear. As a result, lets have a look at “technology” in more detail and see what framework we can come up with.

Technology!

To start with, lets see what Jeffrey Sachs has to say about technology (ht Economists View):

Our increase in know-how has not only been about getting more outputs for the same inputs, but also about our ability to mine the Earth for more inputs … Much of what we call “income,” in the true sense of adding value from economic activity, is actually depletion instead, or the running down of natural capital.

Ok, so according to the man himself technology increases output by allowing us to make more with the same inputs, and by allowing us to “mine the earth for more inputs”. According to the original economic rockstar the first allows us to improve the value of our natural capital, while the second type simply allows us to shift wealth from the future to now (by running down our natural capital). However, I think we can do a bit better than this.

Fundamentally, technology influences the use of a non-renewable natural resource in five ways:

  1. It allows us to create more output with the same input of the resource,
  2. It allows us to access more of the input,
  3. It allows us to speed up the process of creating output from input,
  4. It creates new outputs that can be created with the input,
  5. It creates substitutes for the input.

Sach’s description of technology only really took the 1st and 3rd of these factors – and although it provided a useful description it does not tell us the whole story of how technology and non-renewable resources interact.

Discussing the factors

More output with the same input

This type of technology does not get us past the problem of scarcity – it merely increases the value we can create with the resource while it is around.

As a result, if we used this resource solely for consumption, then technology that allows us to have more consumption from the same limited resource is good – but it is not infinitely sustainable 😉

Access more of the input

This one is the same as above – however, in this case instead of making more output from the same input we have more inputs to make the output out of.

Now some people may say that this technology helps us “run down our natural capital” instead of increasing it. However, this is wrongheaded. By allowing us access to more natural resources it provides a boost to our natural capital – it is our consumption of the resources that “runs this down”.

Speed up the process of creating output from input

This technology does help increase the rate that we run down our natural capital.

This in no way helps “sustainability” – however, if people do want to consume more now and less later but they had previously been limited by the rate of extraction then this helps to increase social happiness.

New outputs, same input

This is a “complementary” factor for the input – fundamentally, it increases the value of the input, as otherwise there would be no point creating the new output in the first place.

This does not help the golden issue of sustainability – but it does increase welfare from the limited inputs.

Substitutes for the input

This is the only technology that could fully remove the “substitutability” issue.

By creating a substitute, this implies that we can now use something else to make the output instead. If this something else is infinitely renewable then we don’t have to worry about scarcity – however, this is a stretch 😉

The impact of technology?

The scarcity of resources, and the existence of natural capital is a fact – surely no-one can deny that. However, how pressing the issue of running out of resources is depends on what impact you believe technology will have.

If you believe technology only does 3 and 4 on the above list – then it brings the period where we run out of resources closer. If you believe that 1, 2 and 5 are more likely, then this will be a less pressing issue.

So, given that economists do believe that resources will run out why are we not concerned?

Prices and substitutes

Economists believe that substitutes do exist in some form (even if they are much less cost effective), and that, as long as prices are set efficiently these substitutes will come into use when the time is right.

Beyond this, we also believe that the prices give us information pertaining to the scarcity of resources and the underlying demand.

As a result, we have learn’t to accept that scarcity exists and that full information and prices that reveal this information are the best way to deal with these uncertain times – rather than running away from the idea of scarce natural resources we embrace it.

However, this does not mean that we want to invest in every possible contingency – it is all about balancing risks. An economist that believes we need to build lots of roads will have a different set of value judgments about the state of non-renewable resources than an economist that believes we should focus solely on public transport – however, the fundamental framework of technology we have discussed still exists.

Ultimately, the view of both the far left and the far right will fit inside this framework – however, any underlying discussion of scarce resources must allow the above role of technology, or it will suffer the same fate as the original version of Malthus’s Population theory – whether it is a statement from the far left or the far right.

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  • Steve

    “given that economists do believe that resources will run out why are we not concerned?”

    Great article, there’s a saying I heard that sums it up perfectly, that ‘the stone age didn’t end because of a lack of stones’. this sums up the assumption that technology will provide a cheaper, substitute.

    I disagree that economists believe resources will run out. It is simply supply and demand. For example, the supply of oil will become less and less untill a substitute is more cost effective. Ordinary combustion engines can be converted to run on hydrogen (or LPG). So quite simply petrol will become so expensive that a car can achieve the same ammount of energy from the same ammount of money’s worth of hydrogen (or other substitute), that it becomes worthwhile purchasing a H-cell car, or coverting an existing vehicle to hydrogen. The difficult part is finding a cheaper way to produce hydrogen. How about a cheaper way to produce electricity? (nuclear – fission or fusion?) in order to produce hydrogen from water.

    I read an article recently saying that now was the time to return to nuclear. It’s focus was climate change and that its better for the environment than burning coal/oil to produce electricity – but again maybe it’s also better than burning petrol in our cars?

  • “I disagree that economists believe resources will run out. It is simply supply and demand. For example, the supply of oil will become less and less untill a substitute is more cost effective”

    Good point – run out was the wrong term.

    “this sums up the assumption that technology will provide a cheaper, substitute”

    The substitute does not have to be cheaper than oil was at its cheapest point though – it merely has to be cheaper than oil at that point in time. As a result, it is possible that our productive capacity could be adversely affected. However, it is not the end of the world 😉

    Still good comment Steve – I think you sum up the issue well

  • John

    You make assumptions about a. The amount of natural capital and b. Technological progress in the future. Once it seemed easy to believe that in 2001 we would be flying through the Galaxy on a Pan Am space craft.
    There have been breakthroughs but so far limited:
    http://peswiki.com/energy/Congress:Top_100_Technologies_–_RD

  • John

    Perhaps I don’t follow the argument but given the importance of oil if/ when we reach peak oil the price will rise and (we are told) it will be economic to go for harder to get oil. The counter argument put forward is that it will take more energy to extract energy and there’s nothing money can buy that will get around that (assuming no miracle technology)?

  • i need to know what the definition of technology is?

  • “You make assumptions about a. The amount of natural capital and b. Technological progress in the future”

    In order to reach different conclusions you do have to make different assumptions about the amount of natural capital and the degree of technological progress yes. However, that was what I was saying in the article – I was just providing a framework where you could make those assumptions.

    “The counter argument put forward is that it will take more energy to extract energy and there’s nothing money can buy that will get around that”

    I did not say there would not be any cost, in fact few economists think the transition will be low cost. – after all we only start using other forms of energy once oil is “scarce” enough (which is what makes the price go up).

    However, the degree people are concerned about the problem of peak oil will rely on their assumptions about the rate of certain types of technological growth, and their belief in how large the natural capital stock is. The price mechanism is useful here, because it tells people when oil is becoming scarce by increasing the price – thereby leading to changes in society to account for this. The fear economists have is that governments will try to buffer the increase in prices – which will lead to bad investment choices by households and firms.

    Ultimately, this post is only a characterization of technology – as I felt that the Sacks piece underplayed the role of technology in development. I also get the feeling that some people feel technology will save us and some people feel it will make the problem worse – with the above characteristation of “technology” you can make either argument, following from some transparent value judgments.

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