Book 1: Capitalism at Work: Business, Government, and Energy

Chapter 11 Internet Appendix

11.1 Julian Simon as Paradigm Builder
11.2 Margaret Thatcher and Global Warming
11.3 Broader Energy Alarmism
11.4 Contemporary Hubbert Analysis
Bibliography: Chapter 11 Appendices

11.1 Julian Simon as Paradigm Builder

Julian Simon’s The Economics of Population Growth (1977) was hailed as a “path-breaking work” that offered “a new paradigm in the Kuhnian sense” (Joseph Spengler, quoted in Simon, 2002: 256). The overused term “paradigm” must be applied with caution, however, because few new ideas really create paradigms, and paradigms can be wrong. Also, contra Kuhn, there are examples of science cumulatively approaching the truth short of revolution (Weinberg). Still, Simon put together the parts of an alternative worldview that continues to penetrate its way into the scientific orthodoxy, particularly in economics (Bradley, 2000: 19–20).

Simon’s extraordinary science (in Kuhnian terms) reached two major conclusions: (1) a growing population can improve virtually all environmental welfare indicators; and (2) scarcity measures of mineral (“depletable”) resources are not qualitatively different from that of other economic goods. Thus human welfare indicators can be expected to trend positively over time, although problems will develop requiring corrective action and solutions.

Simon’s theory of improvement centered on human ingenuity, or what he called the ultimate resource (Simon, 1981, 1996: book titles). The threat to progress was not people but a lack of free-market institutions providing the necessary incentives. In his words, “The world’s problem is not too many people, but lack of political and economic freedom” (1996: 11). The improvement process also results from the very fact of problems, which lead to improvements that leave people better off than if the problem had never occurred (Simon, 1996: 580, 587–88).

Simon’s conclusions, spelled out in popular form in his 1981 The Ultimate Resource, were presented again 15 years later in The Ultimate Resource 2. But Simon gave more emphasis on the institutional and cultural requirements enabling human ingenuity in the second edition. “One of the main themes of this book, which this edition emphasizes even more than the first edition because there is now a greater weight of evidence behind it,” Simon explained,

is the proper role of government; to set market rules that are as impersonal and as general as possible, allowing individuals to decide for themselves how and what to produce and what to consume, in a manner that infringes as little as possible on the rights of others to do the same, and where each pays the full price to others of the costs to others of one’s own activities. Support for this principle appears in chapter after chapter as we view the history and the statistical data on such issues as food production, supply of natural resources, and the like (1996: 584).

Elsewhere in the latter book he states:

•	“It is not only the human mind and the human spirit that are crucial, but also the framework of society. The political-economic organization of a country has the most influence upon its economic progress” (1996: 584).
•	“The greatest asset of the United States and of other economically advanced countries is the political and legal and economic organization” (1996: 585).

Still, these revisions are deep in the book and not mentioned in the preface in the revised version. “What’s New in the Second Edition” did not mention the above change, in part because Simon did not dedicate a theoretical section to it. He was data driven more than theory driven, believing that theory would fall out of the facts. But given the new facts about mineral prices in the early twenty-first century, which would have likely inspired an Ultimate Resource 3, he might well have provided statistics on, for example, the estimated loss in resource availability from political restrictions on access in the United States, as well as estimates of lost production from politically unstable mineral-rich countries around the world. To this end, he would have become more of an institutionalist, while avoiding the excess of this school of thought.

11.2 Margaret Thatcher and Global Warming

Prime Minister Margaret Thatcher’s interest in anthropogenic climate change was crucial at a time when the issue was first gaining traction. She was the first and most important international figure to champion the cause of climate alarmism.

Thatcher recalled how she “broke quite new political ground” (1993: 640) by sounding the climate alarm in 1988. She gave early direction to international study of the issue. She held a press conference upon the release of the first IPCC assessment (1990) and warned that “greenhouse gases … will warm the Earth’s surface with serious consequences for us all” (quoted in Leggett, 4). This report was called “the first crack in the foundation of the carbon era” by the director of science at Greenpeace U.K., Jeremy Leggett (2).

Thatcher, who left office in 1990, lobbied George H. W. Bush to sign the United Nations Framework Convention of Climate Change (1992), the parent document of future climate treatises. As much as she might have regretted it, the process she set into motion resulted in the ill-fated Kyoto Protocol of December 1997.

What was behind Thatcher’s “conversion experience” to climate alarmism in 1988, a view that she would later regret? Part of the answer was the pressure she received from her advisors John Houghton and Sir Crispin Tickell, who were in step with the emerging environmental movement. Also, global warming was an issue that provided her with enhanced international prestige. But perhaps most important was her vigorous battle against the nationalized, unionized coal-mining sector, the leadership of which was socialistic at heart and determined to break her reform agenda. The memories of Arthur Scargill of the National Union of Mineworkers using thuggery against strike breakers in the long months of 1984–85, and her preference for nuclear power to generate electricity, undoubtedly made her welcome an environmental issue that would help cut coal down to size. Natural gas from the North Sea, too, was poised to replace coal and significantly reduce CO2 emission rates in electricity generation. It would have been undoubtedly different if carbon-emission reductions were not an affordable option for the U.K.

11.3 Broader Energy Alarmism

The gloomy depletionist views from some leading energy voices carried over to other energy-related areas beginning in the 1970s, and then again from the 1980s until today.

Air pollution was seen more as an inherent feature of carbon-energy usage than a transient challenge solvable by human ingenuity. John Holdren and Paul Ehrlich stated: “Our limited knowledge of the details of air pollution permits little hope for early relief” (1971: 66). The trend was portrayed as negative with no end in sight: “Virtually every major metropolis in the world has an air pollution problem, and the rate of expansion of urban complexes everywhere is rapidly making the brown pall and smarting eyes ubiquitous symbols of ‘progress’” (ibid.).

Holdren and Ehrlich feared both anthropogenic global cooling and anthropogenicglobal warming because, presumably, the natural climate was optimal. “If man survives the comparatively short-term threat of making the planet too cold,” they stated, “there is every indication he is quite capable of making it too warm not long thereafter” (1971: 77). Holdren and Paul and Anne Ehrlich seemed to be against simultaneous warming and cooling—only because it was due to a perceived human influence on climate. In their words:

There can be scant consolation in the idea that a man-made warming trend might cancel out a natural cooling trend. Since the different factors producing the two trends do so by influencing different parts of Earth’s complicated climatic machinery, it is most unlikely that the associated effects on circulation patterns would cancel each other (1977: 687).

The Ehrlichs and Holdren expressed a need for “much tighter control of the energy industry” (1977: 680) to avoid a perceived coming energy apocalypse. The depth of economic control was troubling even to them. They quoted Harrison Brown:

It seems clear that the first major penalty man will have to pay for his rapid consumption of the earth’s nonrenewable resources will be that of having to live in a world where his thoughts and actions are ever more strongly limited, where social organization has become all pervasive, complex, and inflexible, and where the state completely dominates the actions of the individual (ibid, 388).

Holdren elsewhere acknowledged a potential “loss of civil liberties” (1977: 59) from energy planning.

Holdren and Ehrlich also saw grave problems with river systems caused by power plant activities: “By far the worst prospects, however, are those for the world’s river systems. It is estimated that by 1985 fully one quarter of the total annual runoff by the United States will be for cooling power plants” (1971: 69).

Robert Stobaugh and Daniel Yergin warned, “The nuclear industry faces widespread shutdowns of operating plants starting as early as 1983 unless the problem of handling spent fuel can be resolved” (1979: 221). This prediction, like many others in their book, have been falsified by history—or rather, by changes brought about by human ingenuity in the face of challenges.

More broadly, the main authors of Limits to Growth (1973) reemerged with another computer run of the world in a new book, Beyond the Limits (1992). The new conclusion was different, vague, but still alarming. “The world system does not run out of land or food or resources or pollution absorption capacity, it runs out of the ability to cope“(179). The study spoke of “layers of limits … in a complex, finite world” (ibid.). The new study’s “conditional warning, not a dire prediction” (xvi) was a retreat from the falsified alarms of 20 years before, and thus was missing its call-to-arms of 1972.

11.4 Contemporary Hubbert Analysis

The bell-shaped production curve has never been far from the Malthusians mindset. In 1991, John Holdren stated: “As the geophysicist M. King Hubbert had argued already in the 1950s, the rate of [oil] consumption will peak and begin to decline when cumulative consumption reaches about half the initial endowment—an event that can be expected between 2010 and 2020” (244, 246). (Hubbert’s estimated peak for world oil was actually closer to 2000 than 2010 or 2020.) More recently, Holdren has added:

Concerns about declining availability and rising prices have long been more salient for oil than for the other fossil fuels. There is, accordingly, a serious technical literature (produced mainly by geologists and economists) exploring the questions of when world oil production will peak and decline and what the price of oil might be in 2010, 2030, and 2050” (Holdren, 2002: 65–66).

Back in 1989, geologist Colin Campbell warned: “Shortages seem to be inevitable by the late 1990s, but knowledge of an impending supply shortfall may trigger an earlier price response” (1989: 38). After this prediction was falsified, Campbell predicted, “Within the next decade, the supply of conventional oil will be unable to keep up with demand” (Campbell and Laherrère, 1998: 78). He warned elsewhere that “a permanent doubling or more in the price of oil, followed by growing physical shortages, must lead to a major economic and political discontinuity in the way the world lives” (1997: 177).

Such predictions led a critic of Hubbert-style depletionism to complain:

What is remarkable is the similarity between Campbell’s 1989, 1991, and 1997–1998 forecasts [of oil scarcity]. Always, the peak is imminent. But this precisely conforms to my argument of 1996 that this method almost always produces a near-term peak, no matter when or where it is applied, and thus constantly needs to be revised upward. . . . [Campbell’s] Hubbert method fails because it takes recoverable—not total—resources as fixed and assumes that to be the area under the curve of total production. When the estimate of the area under the curve is increased, the entire increase must be applied to future production (Lynch, 1998: 9).

The geological constructs of Hubbert became particularly popular when oil prices began to surge in the late 1990s. Hubbert student and geophysicist Kenneth Deffeyes, who joined the Princeton University faculty in 1967, published two books, Hubbert’s Peak: The Impending World Oil Shortage (2001) and Beyond Oil: The View form Hubbert’s Peak (2005).

Deffeyes (2001, 7) warned, “A global oil shortage may be only a few years away” when OPEC “can market their remaining oil at mind-boggling prices.” He recommended that society accelerate conservation and alternate-fuel development to prepare for the “unprecedented crisis [that] is just over the horizon” (10–11).

In his next book, Deffeyes argued that the peak had passed:

After you drive a car off the cliff, it’s too late to hit the brakes. In effect, we have gone over the edge of the cliff. In addition to M. King Hubbert’s generalized warning, over the last twenty years a dozen different authors predicted that world oil production would peak and start a permanent decline during the 2000–10 decade” (2005: 179).

Deffeyes is confident that the peak has come:

It looks as if the Hubbert peak is upon us. Whether the maximum year is 2003 or 2005 doesn’t matter much. It’s real and it’s here” (180).

He ended his book with a call for public policy activism:

Whether we like it or not, there will be major rearrangements in the world economy. It would be more orderly if we were to generate a blueprint for a society constrained by the availability of resources. Then we need a noncatastrophic pathway that takes us from here to that blueprint. Welcome to the post-Hubbert world, the world beyond oil (188).

Another Hubbert proponent, Matthew Simmons, an investment banker and consultant, concluded after making a case for a coming fall in Saudi Arabian oil production:

When the desert twilight arrives, the world faces an energy future, and in turn an economic future, far different from the one that all current forecasts and human expectations assume. The need to begin creating an energy blueprint for a world that has passed peak oil output is so urgent that the citizens of all nations, in unison, need to demand energy data reform (2005: 339).

The alarmism-to-central planning approach of Deffeyes and Simmons has been a hallmark of neo-Malthusians for decades. They know the problem and are ready to engineer a solution through the powers of government. They are the smartest guys in the room (to use an Enron-inspired phrase).

Free-market economist and journalist Henry Hazlitt observed over 30 years ago: “Most of the neo-Malthusians, unfortunately, are collectivist in their thinking; they want to solve the problem in the aggregate, and by government coercion” (1973: 29). Hazlitt was talking about population control, but the same applies to energy and other aspects of modern industrial society that neo-Malthusians seek to control in the name of saving mankind from mankind.

Bibliography: Chapter 11 Internet Appendices

Bradley, Robert. Julian Simon and the Triumph of Energy Sustainability. Washington, DC: American Legislative Exchange Council, 2000.

Campbell, Colin. “Oil Price Leap in the Early Nineties.” Noroil, December 1989, 35–38.

Campbell, Colin. The Coming Oil Crisis. Essex, England: Multi-Science Publishing Company & Petroconsultants S.A., 1997.

Campbell, Colin, and Jean Laherrère. “The End of Cheap Oil,” Scientific American, March 1998, 78–83.

Deffeyes, Kenneth. Hubbert’s Peak: the Impending World Oil Shortage. Princeton: Princeton University Press, 2001.

Deffeyes, Kenneth. Beyond Oil: The View from Hubbert’s Peak. New York: Hill and Wang, 2005.

Ehrlich, Paul, Anne Ehrlich, and John Holdren. Ecoscience: Population, Resources, and Environment. San Francisco: W. H. Freeman and Company, 1977.

Ehrlich, Paul, and John Holdren. “Environmental Roulette, Overpopulation and Potential for Ecocide.” In Holdren and Ehrlich, Global Ecology, 64–78. New York: Harcourt Brace Jovanovich, 1971.

Hazlitt, Henry. The Conquest of Poverty. New Rochelle, NY: Arlington House, 1973.

Holdren, John. “Energy Costs as Potential Limits to Growth.” In The Sustainable Society: Implications for Limited Growth, edited by Dennis Pirages, 53–73. New York: Praeger Publishers, 1977.

Holdren, John. “Energy: Asking the Wrong Question.” Scientific American, January 2002, 65–67.

Leggett, Jeremy. The Carbon War: Global Warming at the End of the Oil Era. London: Penguin, 1999.

Lynch, Michael. “Crying Wolf: Warnings about Oil Supply.” Petroleum Intelligence Weekly, April 6, 1998, 9.

Meadows, Donella, et al. Beyond the Limits. Post Mills, VT: Chelsea Green Publishing, 1992.

Simmons, Matthew. Twilight in the Desert: The Coming Saudi Oil Shock and the World Economy. Hoboken, NJ: Wiley, 2005.

Simon, Julian. The Economics of Population Growth. Princeton: Princeton University Press, 1977.

Simon, Julian. The Ultimate Resource. Princteon: Princeton University Press, 1981.

Simon, Julian. The Ultimate Resource 2. Princeton: Princeton University Press, 1996.

Simon, Julian. A Life Against the Grain. New Brunswick, NJ: Transaction Publishers, 2002.

Stobaugh, Robert, and Daniel Yergin. “Conclusion: Towards a Balances Energy Program.” In Energy Future: Report of the Energy Project at the Harvard Business School, edited by Stobaugh and Yergin, 216–33. New York: Random House, 1979.

Thatcher, Margaret. The Downing Street Years. New York: HarperCollins, 1993.

Weinberg, Steven. “The Non-Revolution of Thomas Kuhn.” In Facing Up: Science and Its Cultural Adversaries, by Weinberg, 187–206. Cambridge, MA: Harvard University Press, 2001.