ECONOMICS OF SUSTAINABILITY

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There are many strong arguments for sustainability of progress from economics and economic history. Julian Simon (See the references.) provides many of them.

Contents

1. Reserves and Resources
2. Why do some countries remain poor?

Reserves and Resources

In discussions of possible scarcities of minerals, it is common to point out that the world has only 10 or 20 years reserves of some mineral. This is normal. Reserves are known supplies that can be extracted and marketed at present prices. Reserves are expensive to discover, and companies only spend enough money to be able to plan their operations some years ahead.

Resources are potential supplies that can be extracted and marketed at prices that the users of the mineral can afford to pay. They are much less well known, because no company will spend a lot of money to map out deposits that it won't be able to mine profitably if someone else finds additional supplies at present prices. For most minerals, the tolerable prices that would have little overall effect on the economy are far above present prices. Mining accounted for only 3.1 percent of the U.S. gross domestic product of $4.088 trillion in 1989. It was 4.0 percent in 1980 and thus is declining. Thus, extracting minerals, relative to other economic activities, is becoming cheaper.

Mining amounted to $92 billion in 1985. Mineral imports were $20 billion, and mineral exports including coal were 12 billion. The common belief that the U.S. gets its minerals mainly from the Third World is not supported. This belief is part of a more general false belief that the prosperity of the advanced countries is based on the poverty of the backward countries.

It has been argued that the second law of thermodynamics implies that using more and more dilute mineral ores requires increaed use of energy. This is correct. It is further argued that this will limit human use of minerals in the forseeable future. This is wrong. Such arguments are quoted and cited in the discussion section of ECONOMICS OF SUSTAINABILITY: NEO-CLASSICAL VIEWPOINT by Jyrki Salmi. The arguments cited are purely qualitative, i.e. less concentrated ores require more energy for extraction. However, a quantitative estimate of how much more energy the second law dictates shows that even if society were reduced to using random "country rock", the energy costs would be entirely affordable at present per capita uses of minerals. See The Second Law and Mineral Extraction for the relevant thermodynamic and economic calculations.

Indeed the second law of thermodynamics does limit human survival, but both solar and nuclear energy are adequate for 5 billion years of civilization on earth. I leave to our distant descendants the problem of what to do after that.

Why do some countries remain poor?

Several reasons are given to explain why some countries are persistently poor. Here are some that have been offered, but I want to propose another.

• Not enough natural resources. For many centuries this was a popular reason, and maybe it applied when transportation was so expensive that trade could not supply what a country (or region of a country) lacked.
• Overpopulation. The most populous country in Europe is the Netherlands, and the most populous state in the US is New Jersey. Both are among the most prosperous.
• Lack of skills. This is popular today. However, India has many skilled people who cannot find jobs.
• Traditional modes of production and traditional organization of society. This has been very important, and traditional producers often have the political power prevent competition. The most spectacular example of this is the ability of Japanese farmers to prevent competitive imports, given that Japan is an otherwise very progressive nation.

A country will fail to progress economically if there is an insatiable unproductive income sink. Whatever extra income the country gets will go into this sink. Here are some of the sinks that have dominated different countries.

1. An oppressive and unproductive nobility that conquered the country and regards its people as part of the machinery.
2. Ambitious kings or dictators who always have a need to conquer others.
3. An absentee landlord class whose members never have enough money.
4. A religion that never has enough priests, monks and nuns.
5. A military establishment that can never be strong enough relative to the neigbors.
6. A bureaucratic class whose members never have enough jobs for deserving nephews.
7. Ordinary bureaucratization arising from ever increasing regulation, lawsuits and fear of lawsuits. There is a lot of complaint about this, but we'll have to see what it amounts to.
8. A welfare system that finds ever more victims who need to be relieved.
9. One could imagine an insatiable scientific research establishment with the political power to absorb all society's surplus, but this hasn't happened.
10. A capitalist class that consumes all the surplus product.

    The fraction of income going to the capitalists remained essentially constant in the U.S. in the 20th century. It seems likely that the fraction of the national product going into consumption by the capitalists has gone down. One doesn't notice the great estates and large numbers of servants that one reads about in books dealing with earlier times. Few purely capitalist families, i.e. whose income comes mainly from investments, manage to preserve extreme wealth over several generations. The Fords and Rockefellers are rich but not in the spectacular manner of their grandfathers and great grandfathers.

    At other times and in other countries, capitalists may have been able to hold down economic progress by virtue of their consumption. The question requires objective investigation and not just Marxist tradition.

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Send comments to mccarthy@stanford.edu. I sometimes make changes suggested in them. - John McCarthy