"Wherefore We must interrupt a silence which it would be criminal to prolong, that We may point out...as they really are, men who are badly disguised." Pope St. Pius X, September 8, 1907, Pascendi Dominici Gregis

Monday, February 28, 2011

Remember the Peak Land Crisis?

From time to time I will post articles that were originally published elsewhere, but that are still relevant to the theme of Actual Anarchy. These I will call Actual Anarchy Classics. The posting of this classic is inspired by the following video:

Remember the Peak Land Crisis?
(Or: Why the Crisis-mongers aren’t as smart as they think they are.)

As we await the imminent peak oil crisis (Never mind those new discoveries of oil in Kansas! - http://cache.search.yahoo.net/search/cache?ei=UTF-8&p=%22houston+chronicle%22+EOG+bakken&fr=yfp-t-501&u=www.commonvoice.com/process.asp%3Ftype%3Dh%26id%3D37792&w=%22houston+chronicle%22+eog+bakken&d=P5FI4Rg5RM2J&icp=1&.intl=us - and Brazil! - http://www.bloomberg.com/apps/news?pid=newsarchive&sid=aQXB9FxXLKHw – and the fact that hydrocarbons are likely a renewable source of energy! - http://www.esa.int/esaSC/SEMCSUUHJCF_index_0.html), it seems quite appropriate that we ought to recall our experience the last time we ceased finding more of some valuable input to the world’s economy. I want to talk about the Peak Land Crisis.

Sometime, oh, around 1492, the last major land discovery was made by Christopher Columbus.  Well, I am being a tad Eurocentric and sarcastic. Continuing with my Eurocentrism, Australia was discovered later on. I couldn’t find any information on Antarctica’s discovery. And for those of you who are really picky, advanced satellites around about the 1980s finally discovered every last small, ocean island.  Anyway, since that time, the world has had to suffice with what remains of all known land reserves. The advent of Peak Land was a tumultuous time: land prices skyrocketed to unheard of highs, mass starvation occurred everywhere, population growth permanently halted, and the marketplace was unable to shift to alternative terrain sources.

Except, we all know this is exactly NOT what happened. Land is still affordable – so affordable that during the Great Depression and even now it can be harder to find a job than it is to find land: http://en.wikipedia.org/wiki/Shanty_town. The world’s population is today greater than it’s ever been.  And the marketplace successfully turned its attention towards making “known land reserves” yield more produce per acre. So why are we scared now?

The answer to that question is that there are groups with particular interests, such as the media, politicians, and environmentalists – I referred to them as “crisis-mongers” – who have discovered that they can parlay our fear into an increase in power for themselves. The media – considering the relative stability of modern life thanks to the advances of capitalism – have an interest in creating crises where there are none to attract viewers. (Hence the enormous coverage of, e.g., kidnapped children or shark attacks, even when the average incidence of such events on a year-by-year basis has decreased - http://www.sharksavers.org/content/view/23/59/ )  Politicians need so-called “market-failures” to justify their infringement upon our economic freedom, but since the market cannot fail, we must be made to believe that it can. We are told that high oil prices now are a direct result of too much oil consumption in the past, i.e., the 1990s, the era of the gas-guzzler. We are told we should’ve begun our conservation of oil long ago, and that we are not moving away quickly enough from oil today. But this is where the media, the politicians, and the environmentalists among them, are exactly wrong.

The fact of the matter is that the market is extremely efficient at properly allocating resources throughout time.  Considering the fact that new oil deposits have been found (see above concerning Kansas, Brazil), the opposite, i.e., we consumed too little oil during the 1990s, may be true.  There were owners of oil reserves that did not produce oil in the 1990s, speculating that prices would rise in the future. Considering the recent downward pressure (whatever its extent) put on the price of oil due to new discoveries, at the margin, a few of those owners, i.e., the one’s speculating on the highest price rise, now wish that they had produced earlier. 

  As Economist Robert Murphy explains:

 “If oil traders really believe…that [for example] up to a million extra barrels will be hitting the market in a decade, then this will obviously reduce the expected world price of oil starting at that time. Consequently, any oil producers who had previously settled on a production rate with ‘excess capacity’ [now] — i.e., where they could have produced and sold more barrels today, but decided not to for reasons of profit — will re-evaluate their decision.”

Over at the LewRockwell.com Blog – which I highly recommend - they advise taking anything the government tells you and assuming the opposite is true.  Their theory is proven correct again.

Now there are those who may concede that what I have just said is true, but they will nonetheless question why we should let the market decide the proper rate of oil consumption in the first place. Most of you have probably really never thought about the market price system. It is one of the most miraculous creations of mankind. EVERYONE – you, me, Bill Gates, Mr. Obama, the homeless guy on the bench down the street – contributes to the creation of a price on the free market. Both our willingness to pay particular prices for particular goods and our abstention from payment and thus purchase, helps to determine the proper price for everything on Earth.  As Ludwig von Mises says, 

A price is expressive of the position which acting men attach to a thing under the present state of their efforts to remove uneasiness….In [the] collection of things considered valuable by the value judgments of acting men, each [thing]’s place is interrelated with those of all other [thing]s. What is called a price is always a relationship within an integrated system which is the composite effect of human relations.”

In the case of the oil market, the oil producers decide to sell a certain amount of oil, given their expectations about what price for oil EVERYONE else will be willing to pay (or not pay) in the future and what price EVERYONE else is willing to pay (or not pay) now.  EVERYONE else, in turn, seeing how much oil the producers are willing to sell, increase or decrease the price we are willing to pay now, if we deem that they are selling too much now or too little. This interaction goes back and forth, eventually determining the optimal amount of oil consumption.

So, who are you gonna trust? Everyone or some know-it-all environmentalist? Moreover, if the environmentalist crisis-mongers are actually correct in their assertion that too much oil was consumed during the 1990s, they should have bought up all the oil in excess of the amount they deemed appropriate for then current consumption, in order to sell it later at a profit. They either did not do this because, alas, they were as shortsighted as the rest of us, or they are actually wrong about the optimal rate of oil consumption, as determined via the price system by all people, and thus would not be turning a profit of late. If the first is the case, they are as guilty as everyone else. If the later is the case, their current disparagement of past oil consumption indicates merely a desire to substitute their own wishes for the wishes of all consumers everywhere – a dictatorial desire if ever there was one.

So, if we have been consuming the optimal amount of oil as determined by EVERYONE, are we consuming the right amount of oil now? Of course. As we have seen, the price system guaranteed that, given our then current knowledge about the amount of total oil reserves, the optimal amount of oil to consume was consumed. The same is true today. Prices are first now saying, “Hey guys, it’s time to start conserving!”  Now is the time to begin looking for ways to make our use of oil more efficient. High prices now do not mean we should have conserved in the past; they mean we should conserve now! The crisis-mongers have put the cart before the horse, so to speak. In their attempt to make up for our supposed lack of conservation in the past, the politicians now consider hindering the very mechanism that otherwise guarantees the proper rate of conservation, as determined by everyone: the price system.  

It would seem unnecessary to point out that there are things besides oil that need to be conserved at an optimal rate. Let us consider corn fields, for example. Prior to ethanol subsidies, there was a price for corn as determined by EVERYONE that guaranteed the optimal amount of land conservation. However, government has since stepped in with money taken coercively, i.e., taken from people who did not choose to purchase corn or ethanol, and through purchases of ethanol that – and this is the key - would not have otherwise taken place, they have upset this optimal rate of corn field conservation. In addition to the notable tortilla inflation that is starving poor folks in Mexico, the overuse of our cornfields (and the complimentary under use of our oil reserves) will come back to haunt us in other, unforeseen ways. The government’s attempt in this instance to make oil MORE available in the future than it otherwise would’ve been will actually hinder our move towards greater oil efficiency, as this decreases expected future oil prices.

Just as with the “Peak Land Crisis,” the best thing to do during the crisis of “Peak Oil” is to sit back, relax, continue to participate in the marketplace in the way you see fit, and ignore the pleadings of those who only think they are smarter than everyone else.

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