Mon, 05 May 2008

So-called "Junk Economics"

David Isenberg drives me batty. He's the fellow who pointed out that a stupid network (intelligence at the edges) produces more public benefit than the smart network that his then-employer, AT&T, was building. Well, of course when you make a public fuss like that, you either change your employer's direction, or you have to leave. He left, and has been a successful consultant since then.

Unfortunately, David doesn't know much economics. Like most people who don't know much economics, he feels free to cast aspersions on what he calls junk economics. He complains therein that some of his friends deny the peak oil hypothesis. Maybe he means me? I don't deny the hypothesis in the sense that I'm not an expert on oil. I have been studying economics, however, and can make some predictions which counter David's "Junk" economics.

First is that there are sources of huge amounts of oil which are not profitable to extract when the Saudis are dumping oil. Second is that nobody is going to invest in these oil sources unless it looks like they can successfully sell their oil. So they're not going to act simply because the price of oil is high. Everybody expects the Saudis to try to push the price of oil up to extract the maximum possible profit.

But if the Saudis are artificially restricting the supply of oil, they can artificially expand it as well. The people sitting on more expensive oil are going to wait to extract it until they're sure that the Saudis can't screw them by expanding production.

As I said at and after David's WTF conference back in 2004, people will not act simply because experts say that peak oil has occurred on such-and-such a date. People will act when they wish to avoid discomfort and not before.

Yes, the end of cheap oil is going to be a challenge. But it's not going to be the end of the world. Probably the only bigger challenge we'll face as a species is the global cooling of the next ice age. That is going to be a problem when the ice starts covering the northern hemisphere.

UPDATE (since a friend pointed out that I hadn't made my point) 5/5.

The world lurches from crisis to crisis. You might think this is a sign of mismangement, a flaw in human nature, or simply God screwing up. (As for the last, I believe that God stops in from time to time to see if we've blown ourselves up yet, so he can promote the great apes, but that's the extent of his involvement in the world.) Regardless of your opinion, that is how people work.

In these crises, many people take different actions to try to resolve the crisis. People fitting underneath a bell curve, they will try all sorts of things. Some of them work, some do not. Sooner or later, a smart person invents something that totally crashes through the crisis. Blows it apart. The crisis is gone, and what we have is better than what we had before the crisis. For example, a hundred years ago, New York City was fast approaching a crisis of equine proportions: piles of horse shit in the streets, and no place to put them. "We" invented the automobile, and have experienced huge benefits in personal mobility.

The key to remember is that nobody can predict who will invent this new thing, nor what it will be. In order to facilitate this solution to the crisis, the best thing government can do is: nothing. Don't favor anyone or anything, let everybody do everything, don't stop anything that's peaceful.

You may ask yourself, "but why don't we get the government to do something to avert these crises before they become full-blown crises?" The answer is simply that the government is doing something. It is actively maintaining the peace. It is choosing not to interfere with peaceful human relations. It is choosing not to favor one solution over another. Choosing not to choose is a choice -- probably the hardest choice to make.

UPDATE 5/12: David doesn't have much to say about this post. I think he is trying to trivially refute me by pointing to the fact that I don't think much of some people who call themselves economists. I've been saying that all along.

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