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Is this the start of a back to the physiocrats movement - ie a model of the economy as first founded on the essentials (food, fuel etc) and then elaborated from there?

Peter - "Is this the start of a back to the physiocrats movement"

it's just what's on my mind right now, and something I've been puzzling over. Of all the things that our economy is producing right now, what will still have value in 50 years? 100 years? 200 years?

Of course, you are also explicitly asking when and at what price the oil should be produced. The current push to extract, sell and build pipelines seems to be driven by the view that developers should get the money when they can and when there is limited appetite for government to focus on long-term rent distribution and environmental costs as compared to short-term jobs.

Jciconsult - yup, it's not clear that extracting oil as quickly as possible is the optimal strategy.

Pipelines are a bit of a special case; in Canada we don't have an integrated pipeline network coast-to-coast. We don't have an all-Canadian route for oil because there is no oil pipeline across Northern Ontario, though we do have one for Natural Gas. The Maritimes get their oil from Venezuela, refined in Saint John.

The push for pipelines stems from the fact that Alberta does not have easy saltwater access for oil exports. It has to take the price for West Texas Intermediate, set in Cushing and reflecting the US market. In addition to the Northern Gateway, there is another push to reverse an Ontario pipeline so that it could carry oil to Montreal for tanker export.

"Of all the things that our economy is producing right now, what will still have value in 50 years? 100 years? 200 years?"

Reverse the question. Of all the things that the economy produced 50, 100, 200 years ago, what do we still have of value now?

What would be the answer to the first question in 1812? Wooden ships with cannon would be an answer, but there isn't much value in that any more (HMS Victory aside). Want to make a naval gazing gag here as well but probably shouldn't.

If most wealth is in the form of human capital and if people don't live for 200 years, how much does it matter?

"Of all the things that our economy is producing right now, what will still have value in 50 years? 100 years? 200 years?"

How much does the average Canadian spend on necessities (food, water, housing, heating, transportation)? You could then subtract that to his income and we can basically assume that everything else is spent on non-essentials, status based goods valued for their scarcity (gold!, lakeside cottage, etc).

I'm not an economist, but I'm guessing whether or not these things will be valuable in the future might depend on 2 things: technological change (supply side) and cultural change (demand side). Technological change will affect necessities, so oil might have a much lower value if we develop workable solar power. But won't culture and perceived value affect everything that is a non-necessity? My father in northern NB always tells me that when he was growing up poor kids ate lobster sandwiches and the rich kids would eat baloney. Obviously it's changed.

"Of all the things that our economy is producing right now, what will still have value in 50 years? 100 years? 200 years?"

Art, ironically. And science of course. But it is an important question. It made me realize that my problem with the tar sands and similar projects might be more to do with the speed of development than the fact that they are being developed at all. Most of the environmental problems would be much more manageable if we took a few centuries rather than a few decades to dig everything up and burn it.

Art?
What is art,craft or junk varies wildly with the times.

Science?
Leeches were great then superstition now state-of-the-art.

Vanitas vanitatis omnium vanitas...sic transit gloria mundi etc,etc...

I wouldn't be so nonchalant as Mike. Babies aren't born with PhDs or NHL contracts. The infrastructure and institutions bequeathed to them by their predecessors matter a lot.

To answer the question in the OP: if I take "oil wealth" to mean the things people can do that they otherwise couldn't if it weren't for cheap and abundant oil (and gas), then the answer I come up with is: the enduring legacy of oil wealth is probably going to be suburban sprawl.

Brad: "Art, ironically."

But do we recognize the great works of art our age is producing? Think, e.g., of all of those storyboards etc for early video games that were just thrown away because nobody realized these were significant works of art. Ditto early movies.

Steve: "Of all the things that the economy produced 50, 100, 200 years ago, what do we still have of value now?:

Here's something neat: Ottawa gets its drinking water from the Ottawa River. The water is pumped through the system through a hydro-powered pump station (if that's the right name) that was built over 100 years ago. At one point there was talk of replacing the hydro-powered pump station with a coal-fired electric one, but fortunately that never happened. So - with regular maintenance - it just keeps on pumping water.

So that pump station still has value 100 years on. Unlike, say, all of those plastic bottles that are used for bottled water...

Mike: "If most wealth is in the form of human capital and if people don't live for 200 years, how much does it matter?"

Suppose we have two options: one is to take oil out of the ground now and convert into human capital, the other is to leave the oil in the ground for 200 years. Your argument suggests that our great great great etc grandchildren would thank us for leaving them the oil, rather than converting it to human capital.

Possibly, though I doubt the oil will be worth anything then.

"But is building an economy on oil any better? Once the oil is extracted and sold, it's gone. If the profits generated by the sale of oil go towards the 2012 equivalent of silver plate, what will we have to show for all of our oil wealth in 50 or 100 years time?"

Really, Prof. Woolley??

What we get from oil (or any other natural resource) is more than mere point-of-sale profit. Profit is almost beside the point. Refined oil gives us heat and transportation. More importantly, it gives us plastics, which are such a vital aspect of modern life that - simply stated - few of us would be alive today had they not existed. They are crucial in medical technologies and pretty much every other aspect of life... including art!

I am a little shocked that an economist would ask this question. 100 years from now, I will have lived a long, happy life, thanks in no small part to oil and natural resources, and I don't work in any of those industries. They have been a major boon to civilization, and anyone alive today has oil to thank for their quality of life.

If that's not much to "show for" the oil industry, then I wonder what more to life a person is looking for. Life-sustaining technologies is all anyone could ever hope to ask from economics. What more do you want?

Frances: we have no means of knowing whether our descendants prefer us to bequeath them oil or capital,whatever the form. And anyway, oil is mostly wasted on trips to the mall or something. How will future mankind benefit from me using one ton of jet fuel to visit Arizona last week? A thousand photographs that will bore everyone to tears?

Mike: "Possibly, though I doubt the oil will be worth anything then." Is your thinking that we're doing so well from solar and wind power that we'll have given up on fossil fuels by then? Or do you figure we might as well use up the oil before global warming makes the planet inhospitable to human life?

Ryan - if what you say is true, what do you tell future generations, who will not have the blessing of cheap oil? "We discovered this amazing stuff, and instead of leaving some for you, we decided to blow it all on SUVs and suburban sprawl? B.t.w., sorry about the environmental mess."

Jacques Rene - I think our descendants would prefer either oil or capital to neither. I'm guilty on the jet fuel front too, though. You could buy a carbon offset.

Ah I am pretty sure our decendants would like us to keep the oil in the ground and not burn it as much as possible. Don't worry about running out of oil worry about running out of a planet.

Sure, so they can use it!

Not sure why oil is getting a bad rap here. Burning oil is far better than burning wood or coal.

In terms of what future ancestors will think, if history is a guide they wont bother to think about us at all, but if they do, they are much more likely to laugh at our desire to purchase indulgences and self-flagellate over using the best forms of energy available.

I certainly dont blame England for clearing most of its ancestral forests in the middle ages or for using coal in the 19th century, but I enjoy a good laugh at all the doomsayers warning of Satan's release upon the earth in AD 1000 or and "running out of planet" in AD 2000.

In a number of societies people spend 15 hrs. per week or so making a living, and spend a lot of the rest of the time on what we call arts and crafts. Art seems like a pretty basic human value. :)

As for sustainable complex economies not based on resource depletion, what examples do we have? Ancient Egypt and Tokugawa Japan? IIUC, despite isolation and conservation, Tokugawa Japan did experience economic growth, largely through what we would call cottage industry. People made lacquerware to last 1500 years, for example. Some still do. :)

Frances: carbon offset pay for damage to the atmosphere. It doesn't put oil back on the ground. And I still produced amazing photos of interest only to myself.

Frances: There are about 100 different reasons why we might not want to use the oil sands 200 years from now. I put a small prob on each. Combined, though, there will likely be *some* reason. 200 years is a long time.

If the profits generated by the sale of oil go towards the 2012 equivalent of silver plate, what will we have to show for all of our oil wealth in 50 or 100 years time?

Depends on how well that wealth is managed. Asset management is essentially a matter of transforming one sort of wealth into another so that it's ready to be transformed into consumption goods when we want them.

e.g. Go to predictions from, say, 1900 about what the year 2000 would look like.

In the year 2000 ( cue music from The Conan Show)

http://www.amazon.com/In-Year-2000-Conan-OBrien/dp/1573227714

we would eat pills. In the year 2012, supermarkets compete on how frsh their biological produce is.

in the year 2000, we would all fly helicopters. In the year 2012, we ride our bike to a car that is more fuel-efficient than the competition...
Nobody predicted the home computer, the digital camera or the elecric car ( it was supposed to be nuclear...)
The future is never what it used to be.

I am certainly not going to be the one to say stop burning oil completely or that the world is going to end, but I would not compare a theological theory from 1000 AD or ideologies about technology in the 1900s to modern climate research… we are not responding in kind to the severity of the warnings here. You may giggle at the past all you want, but global warming is not a joke.

Prof. Woolley -

You said: "if what you say is true, what do you tell future generations, who will not have the blessing of cheap oil? "We discovered this amazing stuff, and instead of leaving some for you, we decided to blow it all on SUVs and suburban sprawl? B.t.w., sorry about the environmental mess."

First, there is a contradiction here. Either spending on oil is as useless as silver-plated eating utensils, or it is incredibly valuable. In the first case, I wouldn't have to tell future generations anything, because they would simply recognize that the spending is useless.

It's only in the second case that future generations will wish they had cheap oil, too. If you think future generations need to be told something about not having oil, then you are agreeing with me that oil consumption is a major boon to society. In that case, much of what you originally said is false.

As to your question, if I feed a starving child with a loaf of bread today, I cannot feed a starving child with the same loaf of bread tomorrow. Must I answer to tomorrow's starving child after I have fed today's?

Human beings have urgent needs, today. If I can help satisfy some of society's needs today, then I have done a very good, positive thing for the world. It is impossible enough to eradicate human suffering within the scope of my lifetime. I do not lose sleep over my failure to solve all of the problems faced by future generations, too.

If you feel that our present oil consumption is bad for future generations, then I may as well pose the question to you: What do you tell current generations about the real, pressing needs they face after telling them that their oil consumption is too high and ought to be reduced?

Min: "In a number of societies people spend 15 hrs. per week or so making a living, and spend a lot of the rest of the time on what we call arts and crafts. Art seems like a pretty basic human value. :)"

I agree, but what is art? The high art of rotating oil drums, or cute cat videos on youtube? Given a choice, people seem to prefer cat videos.

Ryan: "What do you tell current generations about the real, pressing needs they face after telling them that their oil consumption is too high and ought to be reduced?"

Go ride a bike.

Stephen; "Depends on how well that wealth is managed."

Very true, and that's really my underlying pre-occupation is here.

Prof. Woolley - that is very cavalier of you. My insulin pump is made of plastic. Now what?

[As per this biography, "Damián Ortega ...has exhibited [in] London (2010), the Institute of Contemporary Art, Boston (2009), the Centre Pompidou, Paris (2008), the Ikon Gallery, Birmingham (2007) ...the Museum of Contemporary Art, Los Angeles (2005), Tate Modern, London (2005), Museu da Arte Pampulha, Belo Horizonte, Brazil (2005), Kunsthalle Basel (2004) and Institute of Contemporary Art, Philadelphia (2002)." He is burning up a lot of oil to denounce capitalism. But I like his sculptures.]

Has there ever been a time when human beings were highly efficient resource users? We and our ancestors have had to make do with a world hemmed in by all kinds of past depradations whose costs (and perhaps benefits) are unknown to us, and yet our progress is impressive. Were the forests of Europe cut down too quickly? Too slowly? Was building rococo opera houses all over Europe frivolous or a boon to future humans?

My great-great uncle in China was once the senior official in charge of the 2700-year old salt monopoly. When he took it over, salt was like oil today--costly to obtain, a constant cause of war between governments, rent-seeking by special interests, and vital to technological progress. By the time he retired, oil had taken its place, and sodium chloride was just plain old, cheap, disposable salt. Today we believe that we are unusually well-positioned to forecast the future; I think that is folly, though less of a folly than it would have been in 1900. There are definitely serious environmental concerns related to fossil fuels, but those are issues for today and the very near future, not 100 years hence.

Shangwen: add to the list Guggenheim, Bilbao, 2012. Interesting about the salt monopoly in China.

On efficiency in resource use: I think humans through time have used resources much like Ryan is suggesting: "100 years from now, I will have lived a long, happy life,...." -in other words, I'm o.k., my kids are o.k., and that's all that I care about it. From an evolutionary point of view, that's a highly efficient strategy.

That, as opposed to believing that you can bike your way to energy efficiency. Nobody can pump insulin with a bike. Nobody can deliver grocery supplies to supermarkets with a bike. Nobody can use a bike to write a blog post or electronically submit academic articles.

And bike helmets, spandex clothing, bike shoes, bicycle paint... what are all these things made of, again? Oh, yeah. Petroleum products. Somehow, the anti-oil crowd never manages to admonish people who waste petroleum on clothing or bicycles. It's only if we waste it on transportation and consumer goods that it incurs the wrath of environmentalism. I find this puzzling.

I am in favor of using scarse resources for the satisfaction of the most urgent human needs. It is an economic fact that value in the present is always greater than value in the future. I don't know why Prof. Woolley finds this fact so unsettling when it comes to a major resource like petroleum. We need the stuff, desperately, for virtually all aspects of life.

I mean, there's only so much you can do with a bike.

The definitive book on Salt is Mark Kurlansky's. The parallel to oil is fascinating, but far from perfect. For most of its history, salt was not difficult to find, even in huge and pure quantities (e.g., Windsor ON and Avery Island LA). What was scarce for a long time was the technology to extract it cheaply. Historical accounts of people boiling salt pork, then carefully saving and boiling down the water to recover the salt, sound bizarre to us today.

One issue with salt is that there is no real alternative to it. In the case of fossil fuels, plenty of people will tell you there is some innovation just around the corner that will give us fuel out of seaweed, corn, algae, etc. All we need to do then is scale it up. It's far from obvious that such efforts would have fewer externalities and environmental costs than the extraction of oil.

Ryan: "It is an economic fact that value in the present is always greater than value in the future."

Read Stern on discounting.

Ryan: The fact that a bike isn't much use in most of North America is a direct consequence of the price of oil. If transportation costs were higher (i.e. if oil markets were efficient), your bike (and feet) would be more useful.

Patrick - both you and Prof. Woolley are responding only to the minutia here. Yes, you are right on a technicality that a higher price of oil would lead to more biking, just as Prof. Woolley is right on a technicality that some economic research can point to surprising "future discounting" situations.

[Note: I use the quotation marks because it is logically impossible to favor future consumption over present consumption unless we are talking about economic bads instead of economic goods; any research that seeks to conclude otherwise probably has major theoretical flaws.]

But my point is not about how much people bike. I only discussed it in light of Prof. Woolley's "Let them eat cake" comment when I turned her ethical question back around.

The fact is that if we owe a debt to future generations with respect to the subjective costs of our oil consumption, we must logically also owe a debt to present generations with respect to oil consumption they, too, must forego. Future generations also owe present generations such a debt for not consuming every last drop of oil contained within the Earth for themselves.

The point is that the "debt" works both ways, and there are people who are currently alive who would benefit from oil, not merely in the rather trivial form of an automobile, but also from - as I have repeatedly stated - medical technologies, clothing, building materials, and other such necessary-for-human-life type of products.

The discussion of oil invariably gets sucked into the quagmire of "People drive too much and we owe future generations for what we're doing to the environment." What I am trying to point out is that our oil consumption is not just the act of a careless playboy. We are meeting real human needs, often times saving lives, by using our oil. We owe it to ourselves to make life better today for people who are dying without medical devices made of plastic, CAT scan machines made of plastic, heating ducts made of plastic, heat generated from oil consumpiton, and so forth.

We are meeting real, urgen human demand today. Why feel guilty about it? Those who are currently alive are certainly not worth less than the hypothetical members of a hypothetical future generation who only hypothetically are up the creek thanks to the hypothetical trajectory of our current oil consumption.

Know what I mean?

Ryan, I think you're missing the point. I acknowledge that oil is fantastically useful stuff. No argument. My point was about prices being important. Prices communicate important information for shaping behaviour, and terrible things can and do happen when prices don't tell the whole story. There is a cogent argument to be made that oil prices aren't telling us the whole story. Not even close, and I greatly fear that terrible things will happen as a result: environmental destruction, horrific urban environments, tragically wasted non-renewable resources that may have no substitute... I can't help but wonder: if oil is so vital and is non-renewable, does it *really* make sense to burn it in cars for $1.20 a litre? Or are markets failing to set set prices to\hat tell us something we really need to hear?

Ryan: what exactly are you defending oil against? Plastic is fine, hell it can even be recycled. Using oil as a fuel happens to respond to essential needs. I have no problem with these assertions, but I fail to see how you can claim that we have no moral responsibility (in the wake of global warming) to collectively curve our consumption of petrol. Either you don’t believe in anthropogenic global warming (in which case you are going against a battery of experts on the subject) or you are simply looking for a twisted form of extreme individualism that will give you some sort of moral ground on which to justify your desire to keep consuming like there is no tomorrow. Who cares if fringe groups go to extremes in condemning oil (its normal that they do not understand the entire picture - I sure dont and neither do you evidently), what is necessary is to take real concrete steps to prevent global warming and its damages which means slowing or stopping the growth of our carbon output.

Patrick -

Is there really such a cogent argument to be made for that? I'm not so sure. I read a lot of doomsday scenarios, but I don't hear too many cogent arguments. Oil consumption is taxed beyond all belief and over 80% of the world's oil reserves are owned by cartelized governments. If there is something keeping the price down artificially, I'm not seeing it. Even if you assume that oil companies are corrupt, sinister government-bribers, you are still only talking about less than one-fifth of the world's supply. So, what is the cogent argument that the price is too low?

Or, are you suggesting that the future costs of consumption are so high that no modern person can price them correctly? If so, I would like to be convinced why your assessment of those costs is more accurate than the ones governing the marketplace.

Either way, we are both arguing against Prof. Woolley's core original assertion that building an economy on oil is akin to investing in silver-plated lead. If oil is undervalued, then we have every reason to invest heavily in it, since its value will increase in the future.

The real point is that a one-trick pony economy is more vulnerable to shocks than a diversified economy. If Canada's consisted entirely of steel mills, the same point would apply.

Even looking at the present state of steel mills in Canada, it is clear that the point is further made. Stelco* is a basic blast-furnace hot-rolled steel producer, indeed Nanticoke is the most modern hot-rolled basic steel production facility in North America. But hot-rolled steel is a low value commodity and so Stelco's operations are idle due to low prices. But Dofasco is still actively worked. Its Hamilton plant can produce steel both from basic inputs or from recycled materials refined in an electric-arc furnace. The choice is made on the spot based on which option is cheaper. Further Dofasco eschews hot-rolled steel and focuses on higher-value grades: tin-plate, cold-rolling and others.

The result is that Dofasco is still a going concern while Stelco is not. Both Stelco's Hamilton and Naticoke Works are idle.

Diversification is better.

*The Dofasco and Stelco Canadian Operations are what I wish to discuss, not their present corporate names and ownership, which are irrelevant.

Mike, we teach eachother if we don't live to 200. I suggest living to 200 as a goal for a non-AB/SK/voted-mudslide interior-BC (so is ironically funny) future PM. I went to NP for some comic relief last week and got it: TC's column about LIBOR not being manipulated. Admitted LIBOR bankers were purposefully undervaluing their LIBOR estimate....but I also got a good tech desk column about Canada's small and yet-unprofitable medical equipment companies using a video-game to make medical equipment/services: http://business.financialpost.com/2012/07/18/how-microsoft-kinect-has-inspired-the-surgeons-gps/
B.Gates is the one who also found a potential petro replacement in the form of a tri-layer metal battery. There is no reason hantavirus-ridden Mulcair, or Garneau, or J.Trudeau, couldn't tax tar more, and fund the other 489/500 applicants that didn't make the Microsoft short list. Another 100 at least. Time saving is another issue Canadians want (for instance, HSR). The art would be on OLED walls or on holograms....these are presently unprofitable technologies we are capable of winning. AB says, doesn't yet pay $3B (I know of three major funding announcements they cancelled for a lack of petro taxes), that they get crop R+D. You still don't get it: AGW will kill the food we already have. The corn failures south are a 1/1000 on the 21st century scale of climate change. The Q-of-L definition I'm going with is the ability to self-select your time minus addictive (at least poor I'm not hooked on Red Alert this summer). I'd like to be able to be at the laundry mat; everyone is sneezing around me. In Saudi Arabia or Ukraine, I'd have laundry money. We can dream better than American or Asians. We chose petro instead...

...Ryan, I like most of those oil uses. Am for most products. Not transportation or heating.
I'd like healthy food, nutrition R+D. I'm set to die of a heart attack or diabetes given my present poor cdn consumption habits. I stole two chocolate bars yesterday and the guy behind me bought my bulk food oatmeal and brown sugar for me. Rich people in AB will want custom genome medicine but they aren't saving the oil to get it. We will all lose just like early adaptors of cell phones in the 1980s lead to most poor people being able to afford...
This question boils down to whether we want technical colleges (MIT) or whether we want lesser industries. I suggest the latter given our ingrained idiocy since 2004. BTW NP, we are running almost EU debt levels and Martin went with corporate tax-cuts to avoid an election.

Frances Woolley: "I agree, but what is art? The high art of rotating oil drums, or cute cat videos on youtube? Given a choice, people seem to prefer cat videos."

Bentham's mummy smiles. :)

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