September 18, 2005 to September 25, 2005
Sustainable Development
On Sustainable Development-BECKER
The very large increase in oil and natural gas prices in the past couple of years has led to renewed concern about whether world economic development is "sustainable". This term is typically not defined carefully, but sustainability requires that improvements in the living standards of the present generation should also be attainable by future generations. The concern is usually that because fossil fuels and other non-renewable resources are used to produce current economic development, future generations will have much greater difficulty in achieving equally high living standards. A related concern is that environmental damage due to global warming and other types of pollution will create major economic and some health problems for future generations.
In a simple arithmetical sense, the use of some non-renewable resources in current production clearly reduces the stock remaining for future generations. But the relevant concept for development purposes is not the physical supply of fossil fuels and other non-renewable resources, but the economic cost of gaining access to them. Over most of the past 100 years, fossil fuel prices relative to other prices declined rather than increased, even though significant amounts of these fuels were used to help develop many nations. The reason for the decline in relative prices is that new discoveries and better methods of getting at known sources of oil, gas, and coal led to growing rather than falling stocks of economically accessible reserves.
Exactly 140 years ago a great British economist, W. Stanley Jevons, argued (see The Coal Question, 1865) that the world was running out of coal, which he claimed in a few decades would make further economic progress impossible for England and other nations. The book is a high quality statistical study, but even Jevons failed to anticipate the use of oil, natural gas, and nuclear power, the discovery of additional sources of coal, and the extent of improvements in methods of extracting coal and other fuels from the ground.
Of course, what happened in the past is no certain guide to the future. But a 2005 study by Cambridge Economic Research Associates, a prestigious consulting company in the energy field, estimates that known reserves of liquid fuels (oil and gas) will continue to increase at least in the near term future, especially if the high prices of these fuels during the past year continue. Their report discusses the growing importance of drilling for oil in deep rather than shallow water, and other technological advances in extracting more cheaply the world's stock of oil and natural gas both under land and under water.
Even if one discounts this and other studies, and believes that the relevant reserves of fossil fuels will decline in the future, the supply of energy sources would greatly increase if nuclear power were more extensively used. That power too is based on a limited resource, uranium, but the supply of uranium is vast relative to its use in generating nuclear power. Nuclear power cannot only generate electricity, but it can also be used instead of oil or gas to produce the hydrogen used in hydrogen fuel cells. Although it is too early to tell, hydrogen cells could replace the internal combustion engine in cars, trucks, and busses sometime in the next few decades. Nuclear power would also help reduce greenhouse gases, such as CO2, and other types of pollution since it is a "clean" fuel (see the May 2005 discussion of nuclear power in our blog).
However, I believe that the most serious deficiency in the usually discussions of "sustainability" is that it should refer to total wellbeing, not simply to what is measured by national income statistics. Even if fossil fuels become increasingly scarce and expensive, and even with further declines in the environment, improvements in health will continue to advance overall measures of wellbeing. Life expectancy has grown enormously during the past half century in virtually all countries, including the poorest ones. Indeed, the typical length of life has generally grown faster in poorer than richer countries as they benefited from medical and other advances in health knowledge produced by the rich nations. The Aids epidemic has set back several African nations, but the increase in life expectancy has been impressive even in most of Africa.
A recent study (see Becker, Philipson, and Soares, "The Quantity and Quality of Life and the Evolution of World Inequality"" American Economic Review, March 2005) shows how to combine improvement in life expectancy with traditional measures of the growth in GDP to measure what we call the growth in "full" income. We demonstrate that the growth in full income since 1965 has been much faster than the growth in material income in essentially all countries, but especially in less developed nations. A better measure of full income that adjusts not only for the growth in life expectancy, but also for changes in the environment, and for the great advance in the mental and physical health of those living, especially of the elderly, almost surely grew at an even faster rate.
It is highly unlikely that the pace of medical progress will slow down in the coming decades. Indeed, I believe just the opposite is true, that medical progress is likely to accelerate. My belief is based on the magnificent advances in knowledge of the genetic structure of humans and other mammals, and the development of biomarkers, such as the PSA test for prostate cancer, and the blood test for BRAC 1 and BRAC2 gene mutations that greatly raise the risk of breast cancer. Experts on mortality are predicting huge increases during the next 50 years in the number of people who live beyond seventy, eighty, and even ninety in reasonably good health.
Slowing down and reversing global warming may require reductions in the world's use of fossil fuels, and economically relevant reserves of non-renewable resources could decline in the future rather than increase. These forces combined might lower GDP per capita in many countries-although I doubt it- but progress in medical knowledge will produce substantial advances in the world's full income. So just as the per capita wellbeing of present generations is much higher than that of our parents and grandparents, so the wellbeing of the generations of our children and grandchildren are very likely to be much higher than ours (setting aside the damage from possible highly destructive wars and terrorism).
This is why I believe that while the sustainable development literature asks important questions, the analysis has been inadequate and overly alarmist. Most of the discussion takes a mechanical view of changes in the stock of the stock of non-renewable resources, pays insufficient attention to technological advances in the economy, and gives much too little weight to the enormous advances in health that are highly likely to continue in the future, and possibly even accelerate.
Posner's Comment on Sustainable Growth
I am more pessimistic than Becker that the world in general or the United States in particular can sustain its current rate of economic growth even when economic welfare is defined to include, as I agree it should be, utility or well-being. My pessimism is not rooted in any concern about running out of fossil fuels, however. As the quantity of reserves of such fuels (mainly coal, oil, and natural gas) fall or the cost of extraction rises (or, more likely, both), prices of the fuels will rise and the rise will both moderate demand and accelerate the search for substitutes. There will be effects on the distribution of income (the owners of the reserves will be enriched at the expense of many consumers), but this will not affect average per capita income worldwide. Indeed, I think average income ("full" income, including nonpecuniary components, consistent with my earlier remark about the definition of economic welfare) will rise as a result of increased prices of fossil fuels, because of the negative externalities associated with the use of fossil (i.e., carbon-based) resources for generating energy. These externalities include traffic congestion and, what is much more serious, increased atmospheric concentration of carbon dioxide, a major factor in global warming--which I take very seriously. (The New Orleans flood may be the first disaster to which global warming has contributed; it is unlikely to be the last.) The higher the price of coal, oil, and natural gas, the better, as far I am concerned.
However, a distinction should be made between long-run and short-run effects. A very large unforeseen change in the price of an important input such as energy could precipitate a national or global recession because the economy could not adapt instantaneously to such a change.
My reason for pessimism about the future is connected to Becker's reason for being optimistic! I fear population growth. The combination of increased longevity as a result of medical advances and healthier life styles, reduced infant mortality, and a continued high demand for large families in much of the world seems likely to overcome the "demographic transition," that is, the well-documented negative effect on birth rates of increases in average income to middle-class levels. World population, currently somewhat more than 6 billion, may well rise to 10 billion by 2050. If average output rises as well, the total amount of economic activity several decades from now may be a significant multiple of the present level. That higher level portends a big increase in carbon dioxide emissions even if fossil-fuel prices rise sharply, and an ominous reduction in biodiversity (with potentially very harmful effects on agriculture) as a result of more land being cleared for human habitation. It may well be possible to offset these effects by investments in various ameliorative technologies, but investments that merely offset the bad effects of population growth do not increase net well-being.
Supporters of population growth point out correctly that given a more or less fixed percentage of geniuses, the greater the aggregate population the more geniuses there are, and geniuses can confer benefits on society as a whole that greatly exceed what they take out of society in their own consumption. A related point is that the larger the market for a good, the lower its price is likely to be because the fixed costs of producing it are spread over a larger output. But this effect may be offset by the higher prices of scarce inputs as demand increases. More important, if there is a fixed percentage of geniuses, there may also be a fixed percentage of evil geniuses, including potential terrorists. In the age of weapons of mass destruction--which are becoming ever cheaper, more accessible, and (in the case of bioweaponry) more lethal--the harm that a terrorist can do may outweigh the good that a benign genius can do.
I am also concerned about negative externalities that result from an increased percentage of elderly people in a nation's population. Judging by Medicare, the elderly are already able to use their voting power to extract vast subsidies for their medical care that would be more productive in other uses. This misallocation is likely to grow as the elderly become a larger and larger fraction of the voting population.
Even if net well-being is likely to decrease rather than increase in the years ahead, it can be argued that the effect on total well-being will be offset by population growth. Suppose average utility for 6 billion people is 2, and for 10 billion is 1.5; then total utility is greater in the second stage (15 billion versus 12 billion). But very few people think that total well-being is a proper maximand, as such a view would lead to grotesque results; if population grew enough, total utility might increase even if average utility fell to Third World levels.
Sustainable Growth--Posner's Response to Comments
A few brief responses (Becker and I are planning to discuss population issues further next week) to a characteristically interesting set of comments.
The most frequent comment is that I am worrying too much about population growth because the vast population growth that the world has experienced in past centuries has not resulted in a net diminution of human welfare. But we do not live in history; we live in the present and the future. To suppose that an established trend is bound to continue is to be guilty of naïve extrapolation. I do wish to emphasize, however, in light of one of the comments, that I have never suggested and do not believe that the world is going to run out of food any more than it is going to run out of energy sources.
Refusal to recognize developments that may make the future differ from the past is illustrated by a comment which states that only the United States has the technology necessary to create devastatingly effective bioweaponry. That is a dangerous error. Several years ago, Australian plant scientists, by injecting mousepox virus with commercially available genetic material, increased the lethality of the virus and at the same time made it immune to the mousepox vaccine. Mousepox is biologically similar to smallpox. Those same scientists could if they wanted to, and if they could get hold of smallpox virus, make the virus immune to existing vaccines and even more lethal than it is in nature, where the death rate is 30 percent. Because smallpox is highly contagious even before symptoms appear, and its initial symptoms are ambiguous, hundreds of millions of people could be infected before the epidemic was even discovered, and there would no vaccinated health workers or security personnel to enforce a quarantine. Although all smallpox virus is supposed to be under lock and key in two laboratories, one in the United States and one in Russia, this is not certain and in any event it is expected that the smallpox virus will be synthesized within five years; the polio virus has already been synthesized.
That is our future.
One comment accuses me of putting environmental welfare ahead of human welfare and even of "deifying" the environment. That is not a correct characterization of my view. I am not a Green. Environmental and human welfare are interrelated; otherwise there would be no antipollution policies. Global warming is a profound danger to human welfare. Granted, there is still some scientific debate over global warming, but increasingly it resembles the scientific debate over the health consequences of cigarette smoking. There is never complete certainty in scientific matters, but the efforts of a minority of scientists to debunk global warming are beginning to resemble the efforts of a minority of scientists to debunk evolution.
For further discussion of the matters touched on in this response, see my book Catastrophe: Risk and Response (Oxford University Press, 2004).
Response on Sustainable Development-BECKER
Thanks for correcting two errors: the name of the energy consulting company I referred to is Cambridge Energy Research Associates (my friend, Dan Yergin, the head of this company, will be unhappy I made this mistake). BRCA1 AND BRCA2 are the correct names of the gene mutations that induce breast cancer.
I do not know where the calculations came from about the enormous number of nuclear plants necessary to replace oil, but I believe they are way off. I mentioned nuclear power as replacing oil in the context of hydrogen fuel cells becoming a substitute for the internal combustion engine. No work in this area that I have seen provides any detailed estimates yet of the nuclear power needed, but those given are far below the ones stated in the comment. Nuclear electric power would mainly replace coal and natural gas, and already 20% of the power in US is from nuclear plants, and about 70% in France.
I do not fully exclude catastrophes from my analysis since I mention that nuclear power would reduce emissions of the greenhouse gases that appear to be causing global warming. I exclude terrorism and wars since I admit I do not know how to link their likelihood to economic development and medical advances. Medical advances reduce the consequences of pandemics and probably biological warfare, but economic development probably raises the spread of nuclear and other destructive weaponry.
I certainly do not believe nor did I state that economic development of Africa and other terribly poor regions is unimportant because of medical advances. Of course, economic development is also important, but it remains very possible if poor countries follow India and China and begin to adopt the right economic policies. However, bad health is terrible too, and also a cause of limited economic development, so it is worth emphasizing that the health of the populations of most poor nations has greatly advanced during the past several decades.