Tuesday, February 12, 2019

The Ultimate Resource

We often don't fully appreciate the work and value of the American farmer.

This chart shows you how much appreciation and credit those farmers deserve in serving the American economy.

2.6 million jobs in farming support...

2.0 million food, beverage and tobacco manufacturing jobs
3.2 million jobs at food & beverage stores
12.5 million jobs at restaurants, bars and other food service facilities

In addition, our farmers also feed 330 million people in the United States and a significant number of other human beings around the world.

It is quite remarkable.

The year I graduated from high school I read a book by a biology professor at Stanford entitled "The Population Bomb". The author, Paul Ehrlich, argued that our planet's natural resources, minerals and food supply were under severe threat due to overpopulation.

Much of the book predicted an increasingly dire future with regard to our ability to feed the people of the planet. This is a quote from the book published in 1968.

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.

Ehrlich advocated for an immediate crash program of global population control to avoid the coming catastrophe.

Ehrlich received an enormous amount of media attention at the time about his alarming forecasts of the future. Does that sound familiar? Fortunately, we did not have elected representatives like Alexandria Ocasio-Cortez in Congress at that time or we might have done something really crazy to avoid the human-driven catastrophe.

Of course, we know nothing even remotely close to what Ehrlich predicted came true other than the world did grow in population. It was 3.6 billion at the time Ehrlich wrote his book. It is 7.5 billion today.

Why was Ehrlich so wrong?

He vastly underestimated the most important resource---human ingenuity and innovation.

This chart is about ten years old but it tells the story pretty well going back to the years right before Ehrlich wrote his book.

University of Michigan Population Studies Center

As you can see, even though population doubled in the 50 years after 1961, food production tripled.

This resulted in per capita food production being up over 40%.

Although Ehrlich received a lot of attention for his "population bomb" views in the 1970's, another man rejected the view that population growth and resource scarcity would doom us all. It was a bold challenge in that Ehrlich's views were fast becoming the conventional wisdom of the day due to the publicity that he received in the media.

That man's name was Julian Simon and he wrote a book in 1981 that argued that population growth is actually the solution to resource scarcities and environmental problems since people and markets innovate and solve problems. In effect, human beings are "The Ultimate Resource" which was the title of his book.

Credit: Wikipedia

To show the conviction that Simon had in his views, he challenged Ehrlich to a wager in 1980 on whether the price of five metals would increase over the next decade.

NPR did a story on the bet a few years ago.

Simon proposed that they bet on what would happen to the price of five metals — copper, chromium, nickel, tin and tungsten — over a decade.
And the logic was that these metals were essential for all kinds of stuff — electronics, cars, buildings. So, if Ehrlich was right, more people on the planet would mean we would start running out of stuff, and the price of these things should go up.
But, if Simon was right, the markets and human ingenuity would sort things out, and the prices would stay the same or even go down.
Those next 10 years, from 1980 to 1990, crept by. The world population grew by 800 million people. Then it was 1990. And they tallied it up. Simon, the economist, decisively won. Prices for the five metals went down by an average of 50 percent.
One of the reasons the prices dropped was just what Simon said. The catastrophe Ehrlich was predicting just did not happen. People invented substitutes, like companies switching from aluminum to plastic for packaging.

The Cato Institute recently updated the Simon story using a longer timeframe-1960 to 2016. It also looked at many more commodity items.

What did they find?

Despite the fact that the population had increased by more than 145% over those 56 years, inflation-adjusted GDP had increased by 183%. In other words, incomes grew 26% faster than population, just as Simon predicted it would due to human ingenuity and innovation.

In addition, even though there were more people, they were richer, and they consumed much more, prices on almost all commodities fell relative to income growth adjusted for inflation.

Credit: Foundation for Economic Education

The only exceptions---silver, crude oil and gold.

Cato explains that crude oil was an outlier over this period due to the fact that OPEC manipulated the market thereby preventing normal market forces to occur. However, the shale oil revolution and high-tech drilling techniques in the United States are examples of how human ingenuity and innovation make more resources available over time. As a result, we might seen a different story on oil prices looking forward.

Gold and silver are outliers because they have been considered stores of values for thousands of years. They are not consumed to the same degree that other commodities are. People save and store these commodities. The data from the last 56 years shows that remains to be true.

Where will we be in another 56 years?

I trust the farmers and mankind to figure it out.

Liberals seem to want blame all problems on mankind. They have too many children. They pollute the environment. They use fossil fuels. They hunt and fish.

The fact is that human ingenuity and innovation is what solves problems on this planet.

After all, as Julian Simon told us years ago, human beings are the ultimate resource.

Would you want to live on this earth without that resource?

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