Measuring Scarcity

Scarcity is a scary subject. Are we running out of the raw materials used to build our society? Will a society be able to function when some of the materials—oil etc. begin running out? How should we deal with the issue of running out of materials when it happens?

First we must take inventory—are we actually running out of stuff? There is no easy answer. Yes and no. The arguments on both sides are important.

First—yes—we are running out. We have a finite amount of raw materials in the ground—and with our constant rates of production growth it looks like we’re about to run out of many different raw materials in the near future (50 years or less on most industrial metals.) So if we continued to do the same thing we would reach the end of our rope by the middle of this century. This is the logic behind the peak oil theory. Simply put—we only have so many minerals in the ground we’re bound to run out.

Secondly—no—we’re not running out. The method used to calculate the above scarcity is flawed. It ignores the fact that methods of production and extraction continue to grow just as fast as consumption. We are developing better and more efficient ways to get minerals out of the ground. Using similar estimates to measure scarcity we could be facing serious scarcity problems in 100/200 years. Though obviously the calculations for scarcity rely on which will grow faster—our methods of extracting stuff out of the ground or our consumption of the stuff we pull out.

There is another way of approaching the problem that may help us get closer to a concrete answer—price. It is obvious that producers will charge a little bit more than it cost to pull the minerals out of the ground. If there are fewer and fewer sites for building mines or mines with worse quality, it will cost more to pull the stuff out of the ground. This higher cost would be reflected in price. When it becomes harder for companies to extract because of growing scarcity their costs—and the price will rise.

The issues with this are that many prices of minerals are more closely tied to existing market conditions rather than unique mineral scarcity. For instance, Oil was $140 a barrel until the stock market crashed in 2008. The price of oil dropped $100. It is obvious that this price movement had less to do with the scarcity of oil and more to do with the economic situation. Additionally minerals all have unique changes to economic change. Copper—used mostly for wiring and parts in new construction—fluctuates with the economic outlook. If people expect more growth—new homes etc.—the price will rise. Oil, on the other hand, is used mostly for transportation and heating. People need to go to work and live in a warm house regardless of the economic outlook. Moreover, analyzing trends is difficult. Good economists are on both sides of the question—is price of raw materials is increasing or decreasing.

So price didn’t get much closer to analyzing scarcity but perhaps costs can. If we could analyze how much all of the mine operators were paying to extract their goods perhaps we could see if their costs are rising or decreasing. With this information we could infer if the minerals they mine are becoming more or less scarce. But finding costs are difficult, as companies don’t publish costs of extraction. Costs are closely guarded secrets. This makes it difficult to analyze if costs are increasing or decreasing.

There is a fourth difficult in understanding scarcity. There is so a fixed amount of Iron, Copper etc, on the earth—regardless of what form they are in. If we mine every speck of copper out of the earths crust we will still have every speck of copper—it will just be on the earth’s surface. Instead of extracting it from the earth we will have to work recycling it from junkyards and trash heaps.

So we have only answered our question with more questions. These are the questions I hope to analyze in more depth the coming year on this blog.

Creation of Anthonomics

In the beginning Anthony created the Blog and the Writing... it has yet to be decided if it is good.