The problem with Economists

We have an incomprehensible, to most, outside-in view of the world. David Friedman says something correct but incomprehensible:

Climate aside, we do not live in a static world—consider the changes that have occurred over the past century. The shifts we can expect to occur due to technological progress alone, even without allowing for political and demograpic shifts, are much larger than the shifts required to deal with climate change on the scale I am discussing.

A few months back I was debating a petroleum engineer about peak oil. It occurred to me that if petroleum engineers didn’t get excited about hard problems in energy production, maybe those hard problems wouldn’t get solved. This, I think, is the problem with the assumption of exogenous technology and this is the problem with economists giving policy advice.

5 thoughts on “The problem with Economists”

  1. him: peak oil is coming and we’re all doomed!
    me: no. increasing scarcity will translate to higher prices giving incentive to invent alternatives… technological innovation happens.

  2. Seems like there should be an optimal rate of technological change that minimizes the conversion cost and maximizes the return on old infrastructure with a consideration for environmental footprint.

    There’s also the risk that the price of one joule of energy won’t be as low as it was in 1975 (or thereabouts) for a long, long time. Markets are good at probing physics to find efficient solutions to problems, but physics doesn’t give a damn about markets.

  3. Another problem is the question of whether the market can invent alternatives infinitely fast. When oil prices spiked in the 70s, it caused painful recessions. “The market” wasn’t quick enough on its feet. And one reason oil prices were low thereafter is that not only did the market react, but governments outside of the US reacted, to limit their societies dependence on foreign oil.

    And how is the market gonna stop global warming?

  4. An oil alternative isn’t necessarily a direct 1:1 replacement for oil. Some alternatives are already available, but cultural momentum or initial cost of deployment have made them unpalatable. Improved lighting, green architecture, proper insulation, more efficient transmission grids, etc.

    The hope has been that once the price of energy hits a certain point, these alternatives will become economically appealing enough to overcome those barriers.

    (I’d like to see a federal law that overrides any local bans on clotheslines or solar panels, not that it has much chance of passing…)

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