PERPETUALLY DECLINING COMMODITY PRICES AND INCREASING PRODUCTIVITY? NO WORRIES ABOUT POPULATION EXPLOSION? ------------------Warren D. Smith 2001----------------------------- Certain economists such as Julian Simon (a Univ.Maryland Business professor, 1932-1998) have the idea in their heads that commodity prices have (aside from fluctuations) always declined and always will; worries about the population explosion causing resource shortages are really no worry at all, since, e.g. population increase will just cause food production, quality of life, and lifespan, to increase even faster. So have a nice day, and enjoy the prospect of perpetual growth. Population growth in Simon's view is actually good. Simon authored the books "The Ultimate Resource", "The Economics of Population Growth", "The State of Humanity", "Population Matters" and the posthumous "Hoodwinking the Nation." Not coincidentally Simon was the father of, I think, 8 children, and successfully advocated that the Reagan administration cut off funding for "planned parenthood". On the other side, there are biologist/ecologists such as Paul R. Ehrlich, (Professor at Stanford) author of such books as "The population bomb" and "The population explosion", in which Ehrlich extensively documents the growth of human population and how it is pushing on fundamental ecological limits. Not coincidentally Ehrlich had only 1 child. Ehrlich then lost a highly publicized 10-year bet with Simon by betting that 5 commodities (Nickel, Tin, Chromium, Copper, Tungsten) would increase in price over 1980-1990; they all decreased in price, on average 42%. Ehrlich's books also contained numerous specific sentences forecasting various kinds of disasters by specific years, which in fact have not happened. But Ehrlich's thesis that exponential growth in a finite world cannot continue forever, seems un-arguable. So, what is the resolution of this conflict? CORRECT VIEW: It is indeed true that most commodity prices have historically declined and most resources have historically not run out. (And in the event they DID get scarce or run out, the trackers of commodity prices conveniently omitted those commodities from their records of "common commodities", thus perpetuating the myth that all commodities always decline in price and never get scarce.) And indeed for some commodities, such as silicon (2nd most common element in the Earth) it seems safe to say we'll never run out - although since the production of silicon is energy-intensive, if we run out of energy we could get that effect. Indeed my study below suggests that only a few kinds of commodities are in danger of running out - mainly those with tremendous consumption rates (oil, freshwater, wood) or ones which are rare (Helium-3, zirconium). And more generally ones with much bigger extraction rates than natural replenishment rates (whales, dodos, etc). The SUBTLETY is as follows. As humans get exponentially more numerous and develop more and more efficient ways of raping the world to garner non-renewable resources, OBVIOUSLY, those resources become exponentially cheaper and effectively more available. This process will continue until one of them begins actually to run out. Even then this will not matter until this happens to a resource which cannot be substituted for, and which plays such a key role in the economy and civilization that its shortage will bring everything crashing down. Note that in this process, MOST commodities WILL continue to decrease in price and increase in availability, almost right up to the final collapse. I.e. there might be 200 commodities, only a small fraction of which ever become scarce, and only ONE of which becomes scarce and cannot be substituted for, and is key enough to cause the collapse. Thus right up to the collapse the Followers of Simon would continue idiotically to insist that "look, of 200 commodities, almost all still are declining in price! We are in great shape!" Of course, you may say at this point "this is hardly a `subtlety.' It seems rather obvious." You are right - but both Simon, AND Ehrlich, managed to miss this subtlety and, in Ehrlich's case, get trapped by it into eating crow big time. Both Simon and Ehrlich continued to have the wrong view even after their bet had been completed. To make a famous analogy, consider lilies in a pond. The lilies double in numbers every day, starting with just one. On the 29th day, they have covered half the pond. At that point, the lilies say: "During the entirety of lily history, we have always doubled every day. And we've developed ways to keep pumping water and nutrients our way faster and cheaper, throughout history. And furthermore we see ahead of us a vista of unoccupied pond as large as has been occupied throughout history so far." But: on the very next day, the pond is full and all the lilies die. I would argue that humanity is now at about the 33rd "day" in its 30-day span of allowed doublings. This is because I think humanity has ALREADY exceeded in numbers, what can be supported with renewable resources, but we have not yet paid the price because we continue to exploit a wealth of NON-renewable resources, especially crude oil and freshwater. When these run out we literally could find ourselves with 10 ponds worth of lilies, but only 1 pond. The price declines are because of improvements in technology making it cheaper and cheaper to extract resources. Unfortunately, if the resources simply are not there to be extracted, no amount of technology is going to help. And if human population keeps increasing exponentially (40 years = current doubling time?), or if humans keep extracting resources far in excess of their natural replenishment rates, then that fate is inevitable. So far, there HAVE been catastrophic human population explosions causing the using-up of essential resources and the consequent collapse of civilization and a huge population crash, but so far this has NOT happened on a WORLDWIDE scale. EXAMPLES OF HUMAN POPULATION EXPLOSIONS and their not-so-pretty aftermaths: 1. The Sahara desert and the Iraq/Iran area were once productive agricultural areas (the "breadbasket of the Roman empire and the "fertile crescent") but were converted into their present desert state by human overgrazing and destructive practices... Ruins of abandoned cities and traces of buried and vanished rivers and riverside towns are found throughout the Sahara including with aid of thru-sand "deep radar" scans... [and e.g. see book James Welland: "The Great Sahara", Hutchinson 1964] 2. The Anasazi people of the American southwest (who mysteriously vanished leaving ghost cities and ancient road networks behind) are also thought to have used up their resources and converted their forested areas into treeless deserts... they now [Scient. Amer. 11 sept. 2000] are known to have resorted to cannibalism... 3. Easter Island was once richly forested (revealed by pollen studies) but when British Explorer James Cook arrived in 1774 there was only a single tree left on the whole island (and it soon died) due to the inhabitants chopping them all down and using them extravagantly; the population of Easter islanders is far smaller than the peak population. The Islanders were unable to build boats to leave once they had used up their wood. Archaeologists have found signs of genocidal battles among the former Easter Islanders... [e.g. see book Thor Heyerdahl: Kon-Tiki] EXAMPLES of commodities which have become (or will become) scarce: 1. Whales. Whaling became far cheaper from 1890 onward due to technical innovations such as harpoon guns, factory ships, air inflation of corpses, helicopters, powered ships, sonar tracking, etc. This caused great increases in productivity, e.g. while in the year 1900 only 2000 whales were taken, in 1911 it grew to 20,000. Peak productivity occurred in the 1930s or 1940s, with forecasts of the demise of the whales being regularly made - but mainly ignored - from 1930 onward. As a result blue whales were decimated during the 1940s, Fin and Humpback during 1955-1970, etc. Various treaties were made, e.g. a 1946 treaty limited the annual Antarctic kill to 15000 "blue whale equivalents"... but these quotas were too large and the commercial whaling industry was essentially dead (tiny annual catches) by 1980. Treaties were finally ratified in 1986 outlawing commercial whaling - far too late! - but several nations (including Japan, USSR) refused to sign and continue to hunt whales for "scientific purposes." However, despite their efforts, only 1 blue whale and 0 sperm whales were caught during the 1990s decade [Fish. & Agric. Yearbook UN 1998, Fishery Statistics]. 2. Ivory. Ivory trading was finally banned by international treaty in 1990, after it had decimated elephant stocks. The trade however continues illicitly. Elephant hunting had become far cheaper due to the advent of cheap automatic weapons such as AK-47s, with consequent huge peaking of ivory production. However, elephant stocks were then decimated... Most experts believe that elephants are now doomed to extinction because it is felt that their genetic diversity has been so reduced that the species cannot survive in the long term. It is also believed that elephants are/were a "keystone species" with many plants dependent on them for reproduction and many species depending on elephant-caused effects, such as elephant-dug caves seeking salt used by many animal species, elephant-caused plant turnover, etc. Thus a considerable ecosystem and many species are likely to become extinct, ultimately due to the desire for billiard balls, pistol handles, and the like... 3. Passenger pigeons - now extinct due to overhunting and overforesting, though once the most common bird in North America with flocks known to cover the sky from horizon to horizon. 4. Buffalo. Beaver pelts. Beaver were once important parts of the US ecosystem and economy and the foundation of the fortune of John Jacob Astor (1763-1848). However in the 1830's the fur trade began to die and Astor cleverly sold all his fur interests. By 1860 the trade in the 48-state area had essentially died out. Despite the scarcity of beavers, the price continued to decline due to lessening of demand - in the early 1830's, beaver was worth almost $6; by 1843 the price was not even $3. Eventually, however, the price increased. Nowadays you still can buy a beaver hat, but it costs hundreds of dollars. The Astors later moved their fur money into NY real estate ("Astoria") after the demise of the industry - achieving even greater wealth. Indeed Astor was probably the richest man in the world. But the world trade in beaver fur has virtually ceased. Similarly Buffalo were once the foundation of the economy, ecology, and lifestyle of the plains Indians. They were killed in vast numbers by bounty hunters ("Buffalo Bill Cody") hired by railroads, etc. Now about 200,000 exist (mostly on private ranches) and no longer are in danger of extinction, as they were in 1900. Today you can buy buffalo meat for about 5-15 times the price of beef. It contains 3-5 times less fat and 5-20% less cholesterol than beef, pork, or chicken lean meat, according to USDA. 5. Auks, Dodos and related flightless birds in New Zealand, Iceland, etc. (might have been excellent domestic birds, better than chickens and turkeys, but we are not going to find out since humans rendered all these easily-hunted birds extinct). 6. Coniferous Sawn Wood (e.g. planks, etc.) The UN industrial commodity statistics yearbook has tracked world production from 1962 onward: 1962: 296 million meter^3 1971: 356 1980: 334 1988: 378 (peak production year, ever) 1989: 367 1998: 309 7. The situation is analogous for Broadleaf Sawn Wood: 1962: 45 1971: 57 or 102 (two sets of figures conflict?!) 1980: 110 1989: 124 1991: 127 (peak production year, ever) 1998: 106 All of the above examples were in fact renewable resources, at least in principle, although the way they are/were being used makes them look more like a non-renewable resource. In cases 1-5 these commodities were replaceable with substitutes (although some argue that sperm whale waxes, ambergris, and oils - and ivory - are superior to all their replacements). One rather doubts wood (6 & 7) will be very replaceable with substitutes... but the declines in wood production may not really be final, it is hard to tell with certainty purely from these production numbers alone. Certainly atomic ELEMENTS cannot be replaced with "substitutes" in at least some applications... and most would regard them as non-renewable... but it is not totally clear any of them are running out. Some examples follow: 8. Tin. [CRB commodity yearbook 1939-2000 annual]; [USGS]. year mine production worldwide 1970 232,167 tonnes 1971 235,959 1972 244,183 1973 237,847 1974 232,880 1975 222,283 1976 218,412 1977 230,694 1978 241,108 1979 245,294 all time peak 1980 244,726 1981 238,008 1982 219,463 1983 196,942 1984 188,183 1985 180,725 1986 172,400 1987 180,271 1988 212,905 1989 233,777 this is another smaller peak 1990 219,412 CRB commodity yearbook claims production declined 1990-1998 1998 206,000 It is estimated (1998) that world reserves are 12 Mtons, i.e. 59 years at current consumption rates. Prices of tin continually exhibit wild fluctuations not particularly correlated to the above production numbers (which did NOT fluctuate nearly as wildly)... Here is a chart showing tin prices from New York and Metals Week. Annual Average U.S. Tin Price (Dollars per pound) Year Price Year Price Year Price Year Price 1880 0.208 1910 0.341 1940 0.498 1970 1.741 1881 0.208 1911 0.423 1941 0.520 1971 1.673 1882 0.234 1912 0.461 1942 0.520 1972 1.775 1883 0.208 1913 0.443 1943 0.520 1973 2.276 1884 0.181 1914 0.343 1944 0.520 1974 3.963 1885 0.195 1915 0.386 1945 0.520 1975 3.398 1886 0.216 1916 0.435 1946 0.545 1976 3.798 1887 0.249 1917 0.618 1947 0.779 1977 5.346 1888 0.262 1918 0.888 1948 0.993 1978 6.296 1889 0.209 1919 0.633 1949 0.993 1979 7.539 1890 0.214 1920 0.483 1950 0.955 1980 8.460 1891 0.208 1921 0.299 1951 1.271 1981 7.331 1892 0.206 1922 0.326 1952 1.205 1982 6.539 1893 0.201 1923 0.427 1953 0.958 1983 6.548 1894 0.181 1924 0.502 1954 0.918 1984 6.238 1895 0.141 1925 0.579 1955 0.947 1985 5.960 1896 0.132 1926 0.653 1956 1.014 1986 3.832 1897 0.136 1927 0.644 1957 0.963 1987 4.188 1898 0.157 1928 0.504 1958 0.951 1988 4.414 1899 0.251 1929 0.452 1959 1.021 1989 5.202 1900 0.299 1930 0.317 1960 1.014 1990 3.863 1901 0.167 1931 0.245 1961 1.133 1991 3.628 1902 0.268 1932 0.220 1962 1.146 1992 4.024 1903 0.281 1933 0.391 1963 1.166 1993 3.498 1904 0.280 1934 0.522 1964 1.577 1994 3.691 1905 0.314 1935 0.504 1965 1.782 1995 4.156 1906 0.398 1936 0.464 1966 1.640 1996 4.124 1907 0.382 1937 0.543 1967 1.534 1997 3.815 1908 0.295 1938 0.423 1968 1.481 1998 3.733 1909 0.297 1939 0.503 1969 1.644 Extremely thin (submicron) layers of tin are used on "tin cans". Tin oxide is a transparent conductor. Tin is used in electical solder. Tin is used in the "float process" to produce sheet glass. 9. Cobalt. Production was fairly flat 1935-1951. Then increases: 1951: 9.3 metric kilo tons. 1960: 15.7. 1971: 27.3. Reached all-time-peak 50.2 in 1986. Declines then followed: 42.9 in 1989, 26.3 in 1998. But then in 2000 production went up to 32.3. Prices seem to fluctuate wildly. Maybe about $15/lb now. It has been predicted that prices will decrease over 2000-2010 due to planned production increasing faster than demand. Cobalt is used in magnets and in high performance "superalloys" for, e.g., turbine blades. Cobalt prices declined during the 1950s from 2.25 $/lb in 1951 to 1.50 $/lb in 1960 but then went on a monotonic upward trend; they have increased by a factor >4 since the 1986 production peak (7.49 $/lb in 1986; 21.43 in 1998; 31.64 in Feb 2001). Estimated world "reserve base" 9900 kilo tons, equiv to 197 years of consumption at the 1986 peak rate, but world "reserves" 4700, i.e. 94 years. Not sure what that means. 10. Fluorine. UN statistics on world fluorspar (CaF2) production have unfortunately only been kept since about 1980. I do not know what estimated world reserves are, but F is thought to be, or at least was once thought to be, scarce and the supply insufficient to meet the demand. That may have changed though, because of declining demand due to banning CFC-refrigerants and devising ways to use less F-based minerals in the aluminum and steel industries. I am unable to infer anything from fluorspar prices since they seem to fluctuate a lot more than they trend over the years I have access to price data (They are about $125/tonne now). There has been hope expressed that Mongolia will soon produce a lot. World reserves were estimated in year 2000 as 220 mega tonnes, enough for about 49 years at year-2000 consumption levels. 1941: USA production was 298 short tons + 7.6 imports, so estimate world production as maybe 1200 metric tons? This is essentially zero compared to what follows: 1980: 4849 metric kilo tons 1983: 4272 1989: 5636 (all time peak in production) 1993: 4422 1998: 5286 2000: 4480 [USGS minerals yearbook] F is used in teflon materials (unique antifriction, capacitor, and chemical inertness properties) insecticides, HF etchants, blood substitutes for medical purposes, refrigerants (CFCs hopefully being phased out, but HFCs still ok), dental anti-cavity uses, uranium isotope separation, SF6 insulators, it is a necessary chemical for aluminum production, etc. Cryolite was formerly used for aluminum production but now is synthesized from Fluorspar since cryolite mines were too rare or played out. In all 10 of the above cases, production has exhibited a characteristic rising shape (exponential?) versus time, then reaching a peak, then declining. M.King Hubbert, famous oil geologist [obituary NY Times 17 Oct 1989], proposed a mathematical model involving a bell-curve shape, should be exhibited by all such production curves of commodities with finite supply (although he applied this all only to fossil fuels, and Hubbert's work seems ignored by economists, although it is well known in the oil industry). The initial exponential rise would be due to exponential improvements in extraction and prospecting technologies. Then the peak and decline are due to supplies running out. By means of fitting such curves to data, it is possible to PREDICT the location of the peak, the date when 80% supplies exhausted, etc. ahead of time. Hubbert indeed in 1948 did this and predicted the USA production peak for crude oil would occur in 1969. (He noted his model had already explained the fate of Pennsylvania oil - and it later did Texas oil - these states were in their day the biggest producers but now both are oil importers.) Hubbert nearly was fired from his job for making such predictions, but in fact the peak did happen in 1970 and USA production has declined thereafter, and still is following the Hubbert curve. Hubbert's model has thus been extremely successful. Note this methodology ACCOUNTS FOR future technological improvements. Thus technology has now enabled oil fields from which 30% of the oil seemed extractible in the 1940s, to now be 50% extractible, has enabled oil to be got from offshore and arctic locations where it was previously un-economical, etc, but the Hubbert predictions still remained valid. 11. Zirconium. According to USGS minerals yearbook & American Metals Market, [table] Zr SPONGE prices have increased in 1959-1998 from $13.78/kg to $23.15/kg. Zr POWDER prices also have increased 1959-1999 from $8.82/kg to $248.02/kg. The record low price was $8.82/kg in 1957. In terms of fixed-year non-inflating dollars, supposedly sponge prices decreased (by factor 3.2) but powder prices increased (by factor of 4) during these years. Shortages are soon expected. Reserves are equivalent to about 30-60 years at current world consumption levels (900 metric tons consumed in 1995). Used in nuclear reactors and in ceramics. Zr may be irreplaceable in nuclear uses? 12. Helium. Has continued to decline in price and increase in production. However, helium is extracted from natural gas and mainly is regarded as a waste product to be discarded by atmospheric release (the Helium is then permanently lost to outer space). Thus when natural gas runs out it is suspected there will be a permanent helium shortage. There is no substitute for helium in cryogenic and lighter than air applications. Helium-3 is far rarer and essentially does not occur naturally on earth. It seems irreplaceable for cryogenic millikelvin applications. This isotope is so rare it currently is produced by atomic transmutation. All 12 of the above examples, except perhaps wood, do NOT seem to be utterly crucial to human civilization and hence we could probably survive them running out. Indeed in cases 1-5 we already have survived them running out. But #13 looks to be more crucial: 13. Crude Oil. World oil production continues to increase, although USA production has continued to decrease since its all-time high in 1970 - it's now about 60% of 1970 level. So far 65% of US oil resources are thought to have been consumed. The USA is now the world's largest oil importer - importing more oil than any other nation USES! - despite originally having more natural oil resources than any other country (before humans came along) aside from Saudi Arabia. Application of the Hubbert model globally predicts world production will peak in 2010-2020 (and no analyst thinks the peak will be before 2005 nor after 2025). [C.J.Campbell & J.H.Laherrere: "The end of cheap oil" Scient. Amer. (March 1998) pp.78-83] explain the intricacies of why various nations lie about their reserves, etc. and point out that oil discoveries have been exceeded by extraction in every year for the past 20 consecutive years, so in a sense the decline has already begun. Every day the world uses 74 million barrels and finds 15. More than half the world's extractible oil will be consumed during a single human lifespan. Oil is consumed at a tremendous rate by the US economy; per capita US consumption is equivalent to your weight in oil every week! Oil is currently very cheap - only 1% of US GNP is spent on it. Hubbert's model does not predict oil actually "running out"; it will merely become more and more expensive and produced at a slower and slower rate. For example Pennsylvania oil production during the 1900s peaked in the mid-1930s but still continues at a tiny rate - now about 6900 barrels per day. About 35% of world oil has been consumed as of 2000 AD. Oil has always been key to air transportation. It presently is key to automobiles, construction, asphalt production for paved roads and roofing, and trucking. Agriculture (threshers, tractors, trucking) depends on oil. The average potato travels 750 miles. Also oil is a key chemical feedstock (plastics, insecticides, adhesives, fabrics, dyes, synthetic rubber, lubricants). Natural gas (which is being depleted at about the same rate as oil, with about the same predicted production peak years and run-out time frame) is a key fuel and used to make hydrogen, a key chemical. For example hydrogen is used to make the ammonia used to make fertilizer and explosives. Thus it seems safe to predict massive industrial changes, probably a collapse, and massive societal changes when oil and gas run out. Already in the 1970s an OPEC oil boycott produced a mini-crisis in the USA, but that was nothing. World War II was partly fought over oil (German invasion of USSR; Japan of Borneo) and the Gulf War obviously was about oil. It seems plausible that OPEC will raise prices tremendously once the non-OPEC countries run out of oil, which evidently has already started to happen. That may lead to (nuclear?) wars. Fortunately oil is arguably a renewable resource, in the sense that Euphorbica plants (including rubber plants, Cassava) produce substances in their sap which may be used as a replacement for oil for most applications including production of gasoline. Only problem is, I would expect oil produced in that way to be much more expensive. Crude natural rubber costs $0.82/kg in 1999 and cost $1.02/kg in 1990, whereas crude oil costs $30/barrel in 1999 (about $0.21 per kg) and cost about $10/barrel in 1990 (about $0.07/kg), i.e. oil 4-15 times cheaper than natural rubber per kg. Furthermore buildup of a natural-plant-based oil industry obviously cannot happen very quickly (from zero!) so major economic shocks seem inevitable. 14. Important commercial fishes. Atlantic salmon production was 15795 million metric tons in 1989, declined to 5178 in 1998. Sardine (European Pilchard) production was 1539157 Mtonnes in 1989, declined to 940727 in 1998. Unfortunately the UN did not provide (or I did not have access to) stats on takes of these animals going back to 1900 or so. So, in conclusion, world population increase HAS led to the demise of certain resources, and other resources are now becoming scarce on a global scale. Most resources continue to decline in price, and will continue, though. Unfortunately it only takes ONE key resource running out to devastate civilization. By far the most important resources that are going to run out in the forseeable future, probably causing massive crises, are (A) crude oil and (B) fresh water in many parts of the world. (For example, the Colorado river is usually completely used up by human extraction and thus usually does not make it to the sea. The American West is extracting water from underlying Ogallala aquifer at thousands of times the natural replenishment rates. E.g. see book [Marc Reisner: Cadillac Desert: The American West and Its Disappearing Water, (New York: Viking, 1986), 564 pp.] The Caspian Sea and Lake Chad are major world water bodies which are currently vanishing (and have dramatically shrunk) due to human consumption of their feed rivers. So let there be no doubt that Humans are encountering Natural Limits on water use.) I believe the situation with respect to these 2 key resources will become critical in about the year 2050. I suspect a massive population crash and ecological/economic/societal devastation will ensue. The only satisfactory solution is planned and controlled drastic human population reduction to levels where humans can persist using only renewable resources. I suspect those levels correspond roughly to world population in the year 1900 (i.e. about 1 billion). I also believe that the period 1900-2050 was in some sense a never-to-be-repeated "golden age" fueled by enormous dependence on, and extraction of and destruction of, irreplaceable resources. You are currently in the middle of this golden age, so I hope you feel happy. But world leaders are completely uninterested in planning and controlling world population, as far as I can see, with only China, seemingly, being the exception. USA leaders seem uninterested in trying to incentivize reductions in oil usage via, e.g., heavy taxes on oil. Both these non-moves seem to me to be utterly insane and both will become more difficult to finally institute, the longer we wait. The publicity surrounding the Simon-Ehrlich bet unfortunately has led to a deceptive impression of safety about these issues.