Author: Brian Carnell

Lately the nation’s media seem overflowing
with news on the worldwide glut of oil. The best article was Business
Week’s cover story on oil economics, “The New Economics
of Oil” in its November 3, 1997 issue.

The Business Week story makes a strong case
that oil prices will continue to remain stable or even decline over the
next decade or so. Much of the history of oil production over the last
couple decades completely defies the notion that oil will become more
scarce, and thus more expensive over time.

Perhaps the best indicator of this that really
jumps out at the reader is the current cost of finding an additional barrel
of oil. Using increasing scarcity as a model, doomsayers of all stripes
have concluded the cost of finding each additional barrel would gradually
increase. Instead the cost has declined 60 percent in real terms over
the past decade. As a result there is a huge glut of oil.

Advances in exploration technology, for example,
have cut Exxon’s exploration costs by 85% in 10 years. Many areas
such as in the deep ocean once considered inaccessible are now being drilled
for oil.

Current proven oil reserve are 60 percent higher
than in 1985, and Smith Rea Energy Associates Ltd., a London-based researcher,
claims an additional 350 billion barrels of oil is now recoverable due
to technological advances that isn’t included in the proven oil reserve
estimates.

Over at Microsoft’s Slate,
James Surowiecki looks at the effects technological changes have had on
the Oil Producing and Exporting Countries. To put it bluntly, OPEC has
all but fallen apart. Where once OPEC cause worldwide economic shifts,
today it has met with little success in restricting its output. At a recent
OPEC meeting, for example, the cartel raised daily production quotas to
27.5 million barrels, but Surowiecki claims most estimates suggest OPEC
nations are already pumping 28 million barrels a day.

In fact, shades of Julian Simon, Surowiecki
quotes the chief economist of Venezuela’s state oil company saying,
“our reserves are — for all intents and purposes — infinite.”

Surowiecki identifies a factor in oil prices
which Business Week doesn’t mention — the importance of the futures
market in oil. The oil futures market is relatively new — it didn’t
exist prior to the 1980s. With the futures market it is easier to stabilize
prices over the long term by locking in future prices today and encouraging
price competition.

Finally veteran Associated
Press reporter Walter Mears notes that the low cost of oil has meant
the death of an idea that was so prominent in the 1970s — energy independence.
Today the United States imports 50 percent of its oil; in the 1970s that
level was considered perilously high. The 55 mph speed limit, designed
to conserve oil after the Arab oil embargo, was finally repealed in 1995.

A few weeks ago the Associated Press swallowed
hook, line and sinker a claim made by the Chinese government that had
it not been for that nation’s one-child policy, there would be an
additional 300 million Chinese alive today. As proof the Chinese government
pointed to the decline in birth rates from 1972 to today.

The only problem with this fairy tale is that
the decline in Chinese population growth took place for the most part
before the creation of the one-child policy. Specifically, Chinese
population growth declined dramatically from 1972 to 1979 where it stabilized
and experienced only minor fluctuations in the years since. Of course
the one-child policy took effect in 1979, after the decline in the population
growth rate had already taken place.

Although it has contributed to the extremely
high level of abortion and the wholesale abandonment of children in some
regions, China’s one-child policy doesn’t appear to have significantly
affected its rate of population growth.

While the world’s political and religious
leaders were aghast at the announcement last year of new and easier techniques
for cloning mammals, scientists were busy finding ways to apply the discovery
to an important need — conserving the genetic diversity of some animal
species.

According to a report by the Food
and Agricultural Organization, about 1,500 different livestock breeds
are endangered or at a critical state, most of them in developing nations.
Since new cloning techniques allow clones to be made from skin and other
tissue, sampling and storage of genetic samples is far more feasible and
economical.

In an article for Political
Economy Research Center Reports, Michael Sanera highlights one of
the main problems facing rational discussions about population — textbooks
used in the United States don’t provide a fair and accurate treatment
of population issues.

Sanera surveyed 23 textbooks used in science,
geography and environmental science which included sections on population
growth. Of those only three included any mention of common objections
to the neo-Malthusian view of population. Only three of the textbooks,
for example, bother to inform readers that world population growth has
been declining since the 1970s. Only one presents any criticism of the
notion of “carrying capacity” as applied to human populations,
even though such criticisms are leveled by even mainstream writers such
as Joel Cohen.

As Sanera notes, the North American Association
for Environmental Education published guidelines in 1996 for balanced
discussion of environmental issues in textbooks. Needless to say, such
balance is still lacking.

One of the many critics of this site emailed me about a news story he thought contradicted my claims but actually bolsters them. The story, Water outlook revised, from the Las Vegas Review-Journal describes how the Southern Nevada Water Authority announced it could run out of water by 2003 rather than 2026 as it had previously forecast. The forecast changed after Arizona took some water under a water banking plan that Nevada had apparently planned on using.

The gentleman who emailed me the story is convinced it proves that uncontrolled population growth causes all sorts of problems — in fact the story demonstrates that inadequate markets for water lead to inefficient use of water resources. The problem in Nevada, and in much of the American West, is that consumers don’t pay the full market price of the water they use. Rather than create a system whereby consumers would pay the market price, politicians insist on subsidizing wasteful water usage.

Consider, for example, that the same story says the water authority is going to raise $750 million in bonds to partially fund a $1.8 billion water delivery system. How are they going to pay for it? Not by passing the costs on to water consumers based on usage, but rather by raising the state sales tax by a quarter of a cent.