Technology and resources: The value judgments
Posted August 26, 2008on:
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.
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:
- It allows us to create more output with the same input of the resource,
- It allows us to access more of the input,
- It allows us to speed up the process of creating output from input,
- It creates new outputs that can be created with the input,
- 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.