So, there’s a lot more oil than we thought there might have been just a few years ago. This is a surprise to some. Others of us have a certain irrational faith in innovation, or the capacity of humans to find substitutes when the supply of certain resources starts to diminish, or when demand expands.
That is, we think prices are effective signalling mechanisms. When the price of oil gets high enough, entrepreneurs will go looking for alternatives. The rise in prices of oil can be driven either by decreasing supply or expanding demand. It appears that the US with its reserves of natural gas might be the next Saudi Arabia.
But none of this addresses a certain set of objections: environmental concerns.
Some claim that the use of more natural resources today, or in the short run, will both hurt the environment and use up existing natural resource stocks. Both claims appear to be pointing at a tradeoff between quality of life for people today, and quality of life for people tomorrow. The usual position implies that expanding use of natural resources today is bad because it hurts people tomorrow.
My question is: what is the appropriate price of lives tomorrow in terms of lives today?
Whoa! that’s an ugly question! We don’t like to think about trading of these lives for those. But this is what many controversial policy questions boil down to. Healthcare, environmentalism, war, crime, abortion, immigration, development, and many other issues have at the root of them some unspoken tradeoff of some lives for others.
How could we model such a thing? Not just mathematically, but ethically, how can it be right to attempt to build a mathematical model to answer such a question! The truth is, in whatever decisions we make, we are answering the question indirectly. When we take out a second mortgage on our house to keep grandma alive for another three years, we forego the opportunity to spend that money on prep school for Jane and Johnny. When we set immigration quotas we say “these people’s lives are worth improving, but those people’s lives are not, because they would wind up costing me something (which may not be true).” Life might be one of the most fundamental units of measure, but we don’t like to think about having to exchange some of one life for another, apart from altruistic action.
In terms of lives today vs. lives tomorrow, the most extreme position is that which suggests there is some number of human lives which the planet is capable of sustaining. If more humans than this come to inhabit the earth, it is at the cost of future lives, or possible the length of the future. Perhaps if there 100 billion people alive on the earth it would impose such a burden on the planet that all life would die off in two or three generations. Extremists might say that the earth can really only sustain 4 or 5 billion people. Some number fewer than what we currently have.
Suppose they are right. Then they need to quantify their results, if we are going to set policy. Suppose for every person above the 5 billion sustainable mark the earth has one hour less to exist. Suppose the earth at 5 billion people can exist forever. Then what is forever minus one hour? Can we know? Let’s toss out a number. 100 years. Let’s go all doom-and-gloom.
In this case the 5 billion and first person’s first hour of life costs 5 billion people 100 years from now 1 hour of each of their lives. That’s expensive. So suppose we can do some Coasian bargaining. How much would those 5 billion people be willing to pay to prevent that extra person from coming into existence? At least one hour of their lives.
How much is one hour, 100 years from now, worth to us today?
How much is 5 billion hours, 100 years from now, worth to us today?
Let’s assume an interest rate of 10% annually. Then one hour next year is worth 1/1.1 = .909090… hours today. Raise that to the 100th power, and 1 hour, 100 years from now is worth 0.00007257 hours today. Times 5 billion = 362,828.6 hours. Huh. One might imagine that a time machine has been invented 100 years from now and some character out of the movies jumps out and kills the 5 billion and 1st baby, saving the earth and the lives of all 5 billion future inhabitants.
That’s 15,117 days, or 42.5 years. A little less than the average lifespan for most Americans, but maybe a good average lifespan globally. Now, this number is just a happy accident of the 5 billion, 10%, and 100 years figures I chose arbitrarily. If the real threat is actually 235 years, then the 362,828 number turns into 0.936 hours. That is, the hour of life today for one person is more valuable than one hour of life for 5 billion people 235 years from now. Holy moley! Can I say that?!? With a lower interest rate the time is extended, or future lives become more valuable relative to present lives. The higher the number of lives the earth is capable of sustaining, the more valuable present lives become relative to future lives.
What some are claiming is that the interest rate should be really low, and that the number of lives the earth is capable of sustaining is also very low, and finally, that the threat is very imminent. This results in a value of present lives which is very low relative to that of future lives.
It seems a little religious to me.
Among the claims, however, which can be tested for consistency within these arguments is the interest rate. If environmentalists really do have a low interest rate we also ought to see them seldom going into debt. In fact, if they think the interest rate is 5%, then they should never borrow at a rate above 5%. If ever they violate this rule they are signalling that they don’t really believe their rhetoric. The rest of us then should discount their other arguments regarding the imminency of the earth’s demise and the number of lives the earth can sustain.
Maybe some of these figures can be discovered scientifically. I’m skeptical. Frankly, I think the earth can safely sustain a great many more people than are alive today. There’s a lot of empty space in the world. A lot more food can be grown, and a great deal more efficiently. Among the houses sitting empty most of the day in Northern Virginia I perceive there’s plenty of room for more people, particularly when the cost of building up is much less than building out. National Georgaphic reported last year that all 7 billion of us standing shoulder to shoulder could fit within the city of Los Angeles.
We’ve had oil reserve scares before. 100 years ago we started running out of whales, or at least easy to catch whales. If we were to run low on oil today we’d find something else. If 5 billion people 100 years from now were facing imminent demise, maybe they’d each consume fewer resources. There are many margins on which this tradeoff can take place.
So, the extremists make me chuckle. Mostly because they haven’t thought through their arguments very carefully. Applying a more optimistic (reasonable?) long run outlook takes away a great deal of their bite.