Risky Business

I ran across this great Helen Keller quote:

"Security does not exist in nature nor do the children of men as a whole experience it. Avoiding danger in the long run is no safer than exposure."

Recently, I have found myself in two rather lengthy discussions (translation: I started two arguments) about how people’s inability to gauge risk leads to irrational behavior—or, at least, irrational justification for their decisions.

My basic argument is this: Ultimately, good decisions will be based on preferences over outcomes and objective, precise measurements of the probability of those outcomes. People tend to be quite risk averse, but they are also very bad at measuring both absolute and relative risk. If mistakes are random, then this just leads to random error in decisions…no big deal so long as the error is reduced to a minimum. But if the measurement of risk is driven by a personal bias such as fear, then the error will be systematic. In other words, you will be making bad decisions.

Now, one reply is that fear is subjective, but it is a real emotion and therefore a meaningful barometer for risk. This, I think, is either sloppy reasoning or sloppy language and both lead to bad decisions. Ex ante risk and probability are known—or at least knowable—so disagreements should be minor. (At a bare minimum, two people should be able to agree on relative risks.) When someone expresses "fear" as justification against something, what they are really revealing are preferences, not probabilities. Consider the following:

• Suppose someone opposes traveling to foreign country X because they might become a victim of crime or terrorism when, in fact, the likelihood of something bad happening to them is probably greater in parts of some U.S. city they have been to (or some remote part of the U.S. wilderness). What this person is really saying is that travel to country X just isn’t that appealing to them for whatever balance of reasons including, but not especially, danger.
• Suppose someone opposes adventure activity Z (skydiving, rock climbing, etc.) because they might get hurt. True, they might get hurt, but that same person engages in a number of routine activities with a larger probability of injury (e.g. driving). What they really mean, is activity Z just doesn’t sound like very much fun even when the risk is small.

One possible explanation is that if you have a strong taste for the known, then you may be willing to literally risk your life for peace of mind. I think this is what we observe in human nature. But it seems really perverse to let fear be such a dominate force in your decision making that you are willing to accept greater real risk to reduce falsely perceived risk.

Admittedly, feeling afraid sucks, but if we get in the habit of couching decisions and measuring probabilities in terms of fear then we risk making systematically biased and bad decisions. That, is a risk I suggest eliminating.

Update: If interested, check out this brilliant podcast with Cass Sunstein on worst case scenarios. (And by "brilliant" I mean he supports my argument.) Among other things, he discusses climate change, terrorism, healthcare and shark attacks.

Malcolm Gladwell's book "Blink" also talks about this idea, but more in the context of instinct. He basically presents several exceptions to the idea that well-informed, well-reasoned decisions lead to the best outcome. He concludes that we should trust instinct and decisions made in the blink of an eye more often--a conclusion I reject. Finding exceptions in this case does not disprove the rule. Rather, it proves that the outcomes were just probabilistic. Showing that one person always ends up winning the lottery does not make playing the lottery less of a gamble. Pointing to one calamitous event does not make that event more likely to happen.

Seperated at Birth

Revelations from Sunday morning political news.

Hillarys and Huckabees

Boaz of Cato takes a Lakoff view of the "Hillarys" and the "Huckabees" in American polictics...and rejects both.

Protecting the Masses #4723

From R. Balko:

...in Nevada it is illegal to move a large piece of furniture for someone else under the title of "interior designer"? In fact, 21 states and the District of Columbia have enacted "titling" regulations or registration requirements for people who want to arrange other people's furniture for a fee.

I'm glad I don't run the risk of hiring an unregistered interior designer. Oh, the horrors.

Cheap Meats, Part II

So, I went for a run this afternoon and started thinking some more about the last post. I revisit it because I think it is a simple illustration of what is a dominate thread in political discourse and the implicit agenda of liberal-Democrats.

Ezra Klein thinks meat is too cheap: "A situation in which meat were a bit costlier and we were thus forced to eat more grains and vegetables would not exactly be a tragedy." Poor Ezra, someone must be holding a gun to his head an forcing him to eat inexpensive meat.

For starters, this is not an externality problem. No one besides the livestock is harmed when I chose to eat meat. Perhaps you think slaughtering animals is detestable under any circumstances. But if that’s the case, you should be arguing for it to be illegal to eat meat, not that it should be more expensive. (There is, no doubt, a group who would argue for a ban on meat. I’ll have that debate as soon as you find one reasonable person who would support an outright ban on all carnivorous activity. Good luck.)

Once we’ve dispensed with the externality issue, Ezra’s argument is effectively that people should be poorer. He’ll be happy to know that there was a time when meat exhausted a much larger percentage of income and, indeed, the average individual in Western society consumed much less meat. I believe the age is referred to as Medieval. If anyone would like to revisit that time period, I suggest he move to some remote village in Eastern Europe…perhaps an ex-Soviet bloc would suit him. Better yet, he could found an isolated, self-sufficient commune in Montana where he and his brethren are free to eat meat in any quantity and quality they agree upon. This would be a perfectly legal and inoffensive endeavor. True, the standard of living and life expectancy in his commune will be lower, but they will have succeeded at getting rid of cheap meat.

Alas, I suspect this is not what Ezra wants. No, what he really wants is to share in the freedom and prosperity our society provides while imposing his preferences and values on others. Not a single person is protesting his trip to Whole Foods, but he is comforted by his narcissistic moralizing when he proposes that others should be refused the right to consume as they see fit.

But Kevin, you say, aren’t you overreacting. I don’t think so; it’s this same attitude that underlies the paternalistic social-fascism that’s inherent in any number of other policies. These policies have the advantage of being deceptively paraded as protecting animal welfare or second-hand smokers or the elderly or home-schooled children or the innocent poor. But sadly, what they are really meant to protect is you, from yourself. And, even sadder, there is very little protection achieved at a great cost to freedom.

You might be surprised by my experience at the dirt-cheap, mouth-watering Tortilla Café for dinner tonight. I had a pork tamale. My girlfriend had a vegetarian burrito. And I’m sure there were trans-fats used somewhere in the process. Shockingly, everyone involved (except the pig) approved of the transaction and not a single person was offended. We didn’t even require that some central authority verify the café was fit to serve us food; we could tell by its reputation. Oh…and I jay-walked to get there.

I challenge liberal-Democrats of the nanny-persuasion to accept the following offer. I will grant you a large measure of redistribution of wealth if you are willing to stop meddling in people’s lives and pretending you know what is best for them.

If you’re feeling real bold, let’s increase the stakes. Once your welfare state fails to achieve the equality you seek and, instead, stymies growth and innovation and diversity and choice, we get to go entirely to a system which respects the sovereignty and responsibility of individuals.

Cheap Meats

Ezra Klein says meat is too cheap. Megan McArdle says it's humans who are the cheap ones.

More expensive meat would mean less to spend on, oh I don’t know, healthcare—something Ezra thinks is too expensive. Sounds to me like we just need some wise and infallible politicians to set all our prices.

With limited resources and a free market it is a safe bet that price tells you EXACTLY what something is worth.

Friendly $kys

WP has an article on the Clear Card program for frequent travelers. For an annual fee of $128 and after passing a background check, Clear Card holders will then be eligible for shorter and faster security lines at airports. Note though, that flyers will still have to pass through the requisite TSA security—the lines will just be faster.

See here and here for not-so-favorable reactions to this policy. I was shocked by the response to this as being “un-American.”

First, flying is a voluntary transaction between individuals and private airlines. There is no reason why someone should not expect to forfeit some of their rights when flying in an airplane. I suspect the current security measures are extreme and largely ineffective. But if you are at all uncomfortable with the intrusiveness or inconvenience of security, you are free to find other means of transportation.

Second, entirely privatizing the function of TSA would make flying cheaper, easier and likely safer. If you track the incompetence of TSA at all, it won’t take long for you to be convinced the private market would provide a much more efficient and effective degree of security. By associating a price with the security process, the Clear Card policy takes a teensy step in this direction.

An improvement on the policy would be to create tiers of security charged on per-flight basis. Budget travelers pay no fee and stand in the typical long lines. Those willing to pay for shorter lines could pony up a few bucks to save some time and inconvenience. Business traveler or those who are really in a hurry could pay an even higher premium. The price could even be adjusted based on peak travel times. This creates a very efficient system of price discrimination without sacrificing any security whatsoever. (Of course, a bureaucracy like TSA is very unlikely to implement such a policy with any success.)

I suspect most opponents of Clear Cards are just expressing a general revulsion to the use of the price mechanism in something like security. This common human bias very often leads to costly and wasteful outcomes. Why deny someone the ability to pay for (or sell) something that is of value to them?

Is Healthcare a Right?

The merits of nationalized healthcare has made its way to the Tombs Night agenda a time or two. Check out this excellent discussion, via Cafe Hayek, on the subject. In the Barish corner we have Physicians for a National Health System. In the Richards corner we have Russ Roberts of GMU. ...Let's get it on.

Makes me want to vote Huckabee

I have been doing my very best to avoid all the press surrounding the comments made by Sen. Obama's minister (Wright). I am particularly bothered by statements indicating that they would be the cause of Obama's downfall.
It seems to me that if the sentiments are mis-attributed to Obama, that's a complete failure of thougth and understanding in the public. As if that would be a big surprise.

Luckily, from the murmerings I can't avoid (as I try to ignore the news in the middle of a "surge" on my thesis), it sounds like Sen. Obama made a pretty compelling speech about race the other day. Hopefully that will convince people to look beyond the assumed surrogate.

If not, I hope people will read and consider what Mike Huckabee has to say about Mr. Wright's comments:

[Obama] made the point, and I think it's a valid one, that you can't hold the candidate responsible for everything that people around him may say or do. You just can't. Whether it's me, whether it's Obama...anybody else...
And one other thing I think we've gotta remember. As easy as it is for those of us who are white, to look back and say "That's a terrible statement!"...I grew up in a very segregated south. And I think that you have to cut some slack -- and I'm gonna be probably the only Conservative in America who's gonna say something like this, but I'm just tellin' you -- we've gotta cut some slack to people who grew up being called names, being told "you have to sit in the balcony when you go to the movie. You have to go to the back door to go into the restaurant. And you can't sit out there with everyone else. There's a separate waiting room in the doctor's office. Here's where you sit on the bus..." And you know what? Sometimes people do have a chip on their shoulder and resentment. And you have to just say, I probably would too. I probably would too. In fact, I may have had more of a chip on my shoulder had it been me.

I don't think he's only speaking this way because he is no longer in the race. Whatever my misgivings about him as a Presidential candidate, I have always felt like he calls it the way he sees it, not the way his pollsters do. And I respect that. A lot.

HT: Alex Massie

Now Gov't Can Even Save Your Marriage

A proposal by MP Tommy Tabermann (SDP) to grant all employees a paid 7-day "love vacation" once a year led to an exceptionally colourful debate in Parliament on Thursday evening.

According to Tabermann, the purpose of such vacations would be to prevent relations from disintegrating and the spouses from drifting apart. During the seven days, couples could devote themselves to each other ”both at an erotic and emotional level” and ”find their way back to the path of love in order to find the wellspring of love again”.

E.J. is Angry!

My academic advisor (who, incidentally, doesn't know who I am) tries desperately to make a political issue out of the credit crisis and Bear Stearns bailout:

Never do I want to hear again from my conservative friends about how brilliant capitalists are, how much they deserve their seven-figure salaries and how government should keep its hands off the private economy.

Border Bouncers

Coyote Blog on immigration in a post-progressive world:

It was as if for 150 years we had been running a very successful party, attracting more and more guests each year. The party had a cash bar, so everyone had to pay their own way, and some people had to go home thirsty but most had a good time. Then, suddenly, for whatever reasons, the long-time party guests decided they didn't like the cash bar and banned it, making all drinks free. But they quickly learned that they had to lock the front doors, because they couldn't afford to give free drinks to everyone who showed up. After a while, with the door locked and all the same people at the party, the whole thing suddenly got kind of dull.

An open bar is rarely optimal.

Hail to the Chief!

Don Boudreaux on responding to an economic downturn:

It's astonishing how prevalent is the view that economies are "run" by people pulling levers -- or should be, or could be, run by people pulling levers. This misconception is the economics equivalent of the belief that the earth is flat, or that volcanoes won't erupt if they are fed a sufficient number of virgins.

I especially like the metaphor for political rhetoric as pacifying the tribe with a few virgin sacrifices. Its amazing what skills democracy rewards.

The Thin Veil of Insurance

The Charlotte Observer might take the cake for displaying the most economic and policy illiteracy on the topic of health insurance:

For at least 450 people in the Charlotte region, though, faith-based charities are the only things standing between them and their doctor bills.

Sweet said she earns $150,000 to $200,000 a year. But her husband is a stay-at-home father and she said an insurance bill of more than $13,000 a year is tough to absorb. Sweet recently took her 6-year-old daughter, Emma, to the dermatologist. Emma was diagnosed with ringworm, an infection common in small children.

The visit resulted in a $110 bill and prescriptions totaling another $111. If Sweet were insured, she would have likely paid a $20 co-pay for the visit, and probably half of the total cost of Emma's medicine. But as members of Medi-Share, the Sweets had to pay out of pocket for both.

What the *&$%?

Just to clarify, this family IS insured and participation in Medi-Share is entirely voluntary.

If your insurance covers routine medical expenses, it doesn’t mean you don’t pay for them. You just don’t see the bill directly. Instead, you pay for it as an insurance premium. Expanding their coverage and lowering their deductible will not lower this family’s medical costs; it will only reduce the variance. Considering most costs like dental, optometry, prescriptions, routine doctor visits, etcetera are expected expenditures, it won’t even reduce variance.

I expect what this family really wants (or what the reporter told them they should want) is government to pay for their medical costs. That’s fine, but with $150K income this family won’t be getting free medicine. More realistically, they will be paying more than they do now. Part of the extra cost will be spent on an inefficient healthcare system that doesn’t respond to prices and part will be transferred to families who are much poorer and more deserving. A $13K medical bill is hard to swallow with $150K of income?!? Give me a *%&ing break!

What these faith-based insurance plans provide are EXACTLY what people should be purchasing: coverage for catastrophic medical expenses. All other medical costs SHOULD be paid out of pocket. Individuals who think insurance that covers routine expenses is cost effective are either (1) really frightened by the thought of medicine having a price or (2) not smart. By definition, that is not insurance; it’s just a thin veil to hide costs.

If people below a certain income/wealth can’t afford what is considered “adequate” healthcare, fine, give them money. But don’t pretend politicians have the recipe for a free lunch.

My Favorite Spitzer Line

…it shouldn't cost that much to get a little action in America. It's like one of those $500 Pentagon hammers. Downright wasteful. And why order a hammer from New Jersey and pay the shipping? There are perfectly good hammers in Washington -- it's a damned city of hammers when you think about it. Where on earth did Eliot get the idea that New Jersey hammers were superior? All he wanted to do was nail something, right?

Money Well Spent

Environmental groups sought endangered species protection for 32 species of Pacific Northwest snails and slugs Thursday.

The species include organisms such as the evening field slug, basalt juga and keeled jumping slug -- the last known for its habit of flipping its tail to jump off vegetation or logs as a way of escaping predators. The basalt juga is a river snail that exists only in low-elevation springs in and around the Columbia River Gorge.

The Case for Trade

Many economists have recently been banging their heads against the wall as they attempt to explain why trade does not destroy jobs. Russ Roberts of GMU put together an informal paper that includes the following remarkably simple and illuminating example.

The U.S. has exported more dollars worth of food than it has imported, a trade surplus in food, every year since 1963.

If you argue that deficits cause job loss, you have to argue that a surplus should create jobs. But there are fewer than half the number of workers in the agricultural sector than there were in 1963, despite increases in population and increases in labor force participation that have doubled the overall labor force.

The decline in the importance of agriculture as a source of employment is caused by the same thing reducing manufacturing employment: productivity.

In fact, a trade deficit is merely an accounting anomaly. The balance of payments account is an identity, so it must, by definition, sum to zero. A trade deficit is synonymous to a surplus in foreign direct investment. In this light, a trade deficit (in the way it is reported, at least) is a meaningless statistic.

I have a HUGE trade deficit with Banana Republic and Barnes and Noble (in fact, I don't manufacture ANYTHING).

• Question: Would I somehow be better off if I had to print all of my own books and sew all of my own clothes?
• Answer: If I would be better off, I would already be doing it.
  

This WILL be on the exam

JDB points to this article from the Economist on endagered species, trade and conservation. It reads like Public Finance 101.

Bans may cut out legal wildlife trade, but some economists say they undermine efforts to conserve animals and plants in the wild and may even create incentives to get rid of them. If people have no economic interest in maintaining wild animals or their habitat, the attraction of converting the land to some other use, such as agriculture, increases.

The obvious economic explanation is that the over-exploitation of animals and plants is an example of the “tragedy of the commons”. If no one owns the wildlife or the land on which it lives, the behaviour that is individually rational—poaching, clearing land and so forth—may be collective folly. Trade ban or no trade ban, without enforceable property rights, the underlying tragedy remains.

Timothy Swanson, a professor in resource economics at University College, London, argues that the tragedy lies not in the commons itself but in governments' failure to control access to wildlife and the land it occupies. The reason lies in their “opportunity costs, alternative development priorities, governance problems and resources”.

Admittedly, markets may not solve every problem… Nevertheless, [price] mechanisms are likely to be useful means to moral ends.

Lesson: markets GOOD, command and control BAD. Give that rhino some property rights!

Deport Dobbs

Here is an excellent article explaining why anti-immigration rhetoric and policy are a complete moral and logical drought.

If we must choose—and indeed we must—between the world’s most powerful and aggressive state, on the one hand, and a man who wishes to move to Yakima to support his family by picking apples, on the other hand, which side does human decency dictate that we choose? Unfortunately, in this situation, it is all too plain that many Americans are choosing to worship the state and to make a fetish of the borders it has established by patently unjust means. As for this wandering Okie, I’d sooner prostrate myself before a golden calf.

If you still oppose immigration after reading the article, well, you are probably just a bad person.

If, after reading the article, you have changed your mind and now favor more liberal immigration policy, then I expect past and present (even future) immigrants will gladly accept an apology for your previously offensive views. I, on the other hand, would suggest they hold out for the resignations of Lou Dobbs and Pat Buchanan from public life.

Update: If you’re interested in a reminder of the general lunacy and evilness of (although occasionally competent) Mr. Buchanan, here is a good (bad?) one.

$2 Rolex as Development

Faux-leather wallets and cheap watches are likely doing as much or more to improve the standard of living in Subsaharan Africa than many aid efforts. Meanwhile, Chinese workers aren't complaining either.

Quote of the Day

"Am I to admire a man who injures me in an awkward and mistaken attempt to protect me, and to despise a man who to earn a good income performs for me some great and lasting service?"

--George J. Stigler

What's in a Name?

In his latest column the always sage Krugman (sarcasm dripping) essentially argues that the top issue in the general election will be economic anxiety, not the war in Iraq. He then goes on to make a not so subtle case for Hillary being the candidate to return the country to the prosperity of the 90's.

And, as the Democrats ponder their choices, they might want to consider which candidate can most convincingly ask: “Are you better off now than you were eight years ago?”

I have been struggling to grasp this logic for quite awhile now. Will someone please explain to me what evidence there is for the expectation that Hillary would govern more like Bill than Obama? There seems to be a belief that another Clinton administration would be exactly like the first--that Hillary is just Bill sans the pesky sex addiction. Maybe I missed a turn, but how did we come to this conclusion. Even if Bill and Hillary were ideological soulmates--which they certainly are not--it seems that Bill's greatest virtue was his political charisma. Unfortunately, when they were passing out charm, Hillary was nowhere to be found.

Addendum:
Another bewildering thing about Hillary: isn’t it a bit ironic that her campaign is trumpeted as progress for women? No doubt she would have had an illustrious career on her own merits had she not married Bill. But would she have suddenly moved to NYC and become that state’s Senator, then mounted a competitive Presidential campaign?

Message to teenage girls everywhere: even you can grow up to be elected President of the United States….provided you marry well. If anything, shouldn’t women’s advocates be lukewarm about her campaign?

McGovern '08

My God! Based on this WSJ op-ed, I would consider voting for George McGovern. He attacks paternalism by highlighting the unintended consequences in regulation of healthcare, mortgages, and pay-day lending.

Since leaving office I've written about public policy from a new perspective: outside looking in. I've come to realize that protecting freedom of choice in our everyday lives is essential to maintaining a healthy civil society.

Why do we think we are helping adult consumers by taking away their options? We don't take away cars because we don't like some people speeding. We allow state lotteries despite knowing some people are betting their grocery money. Everyone is exposed to economic risks of some kind. But we don't operate mindlessly in trying to smooth out every theoretical wrinkle in life.

The nature of freedom of choice is that some people will misuse their responsibility and hurt themselves in the process. We should do our best to educate them, but without diminishing choice for everyone else.

HT: EconLog

Thanks for Nothin'

Over the weekend a friend and I were discussing childcare and the need (or lack thereof) for government regulation to protect children. Today the friend sent me this article from the BBC. The anecdotal evidence indicates that childcare regulation in the UK is entirely ineffective. I suspect the conditions are the same or worse in the US.

Completely eliminating regulations would lower costs, eliminate parents' overconfidence in meaningless certifications, and eliminate the insulation providers have once they are certified. As a result, childcare would be more affordable and accessible—greatly increasing income opportunities for poor couples and single parents, parents would have much more incentive to take responsibility and pay attention to the quality of service they are receiving, and providers would be more responsive to parent and child needs.

If you still like the idea of oversight, there is every reason to believe that once government is completely eliminated, private "certifiers" would emerge through the market that were far more efficient and meaningful. When you purchase a car do you trust the government or Consumer Reports for safety advice?

Our original conversation evolved from a discussion on the ridiculousness of government regulated certifications and licensures. For example, in many states it is illegal to cut a person’s hair without an authorized license. Can anyone intelligently defend this? The policy, of course, is a result of interest group politics. Limit the supply of people who can cut hair and the business becomes quite lucrative. Our political system is very good at handing out goodies that benefit small groups at the expense of the majority. Childcare is no exception. It’s my understanding that childcare regulation and subsidies are primarily designed to benefit religious groups—a very powerful voting bloc. You could criticize this from many directions. I’ll pick one. Why are we discriminating against individuals who prefer secular childcare?

Energy Prophecies

Related somewhat to the previous post, Arnold Kling has some interesting thoughts on alternative energies. He essentially makes predictions on where energy technology will steer itself over the next several decades. The key micropoints are: (1)in the immediate-term conservation will play a bigger role than technology, (2)technology will make the climate change debate obsolete before it becomes a major concern (this is an opinion I enthusiastically share) and (3)energy will become incredibly more diversified in the future (i.e. there is not one “solution”).

This seems especially promising for those individuals invested in and geared toward a career in energy and considerably less so for those concentrating on environmentalism per se. Kling's forecast is encouraging on its own merits, but discouraging (and even a little scary) if viewed in the context of reactionary politics--there is plenty of opportunity to hinder progress and screw things up (queue ethanol policy).

Granted, of course, that this is all highly speculative.

Starting now: conservation measures; upgrades of the power grid to make it more efficient and more intelligent (Cue Lynne Kiesling); new coal and nuclear power plants.

Starting in five years: cars that run on batteries, re-charged from the grid (often called plug-in hybrids). But we'd better have construction underway by then of those new coal and nuclear power plants.

Starting in fifteen years: fuels produced by bio-engineered organisms.

Starting in fifteen to twenty-five years: large scale solar power.

My guess is that about a decade from now "wet" nanotechnology (bio-engineered organisms) will have taken a big lead over "dry" nanotechnology, which is what most of the solar folks are thinking about. In fact, my expectation would be that the scalable, efficient solar solution will involve bio-engineered thingies.

Never becoming economical: hydrogen delivered in a way that is analogous to gasoline (we might see hydrogen used as part of the solution for re-chargeable batteries, but I doubt it); conventional biofuels (instead, biofuels will require yet-to-be engineered organisms); wind; coal-with-carbon-sequestration (by the time we figure out how to make sequestration practical, we'll have figured out that CO₂ is not a big factor in climate)

This is just intuition. I am not a scientist. The only people less qualified than I am in this area are the politicians who will be directing our energy policy.

Enough is Enough

Repeat after me: the world will never run out of oil. NEVER.

This has been bothering me for awhile. I apologize to those of you for which this is glaringly obvious. For many, it is not.

There is a common notion that we are fast approaching the day when we will wring the last drop of oil from the planet; and if we don’t prepare, the very next day will be Armageddon. This misconception not only grossly underestimates the availability of oil; it also gets the economics pathetically wrong.

Petroleum is a fungible resource that is traded on a global market based on world supply and demand. For much of the last century the supply has been constrained not by the ability to extract oil from the earth, but rather by refining capacity and, to a limited degree, by politics. In other words, the past and present supply of oil is bounded by capital and technological limitations and by regulatory and political conditions. These factors are pretty tangential to this discussion, but even (especially) if we were to completely remove these constraints there would be exactly enough oil to go around.

The significance of that last statement hinges on our understanding of “enough”.

Oil’s usefulness is based on potential benefit and marginal cost (i.e. the sum of the cost to mine, refine, manufacture and distribute each additional barrel). Benefits are aggregated into world demand. Costs are captured in world supply. It is true that the planet does not contain a limitless amount of oil. However, the cost of oil will gradually (*gradually*) increase as it becomes more scarce. Meanwhile new technology will gradually (*gradually*) decrease the relative value of oil and as a result, global demand will fall. Eventually, but long before we’ve sapped all of the oil from the earth, oil will become an inefficient and useless resource. It is a matter of semantics to interpret it as oil becoming prohibitively costly through scarcity or by being replaced by a more cost efficient resource; in either case, the outcome is exactly the same.

This slow but sure evolution toward the day when oil is essentially useless is cause for optimism. As oil is phased out it will likely be replaced by energy technologies that have less of an environmental impact, contain considerably more energy potential, and require substantially less human labor to manufacture. This is unambiguously good, no?!? We should probably even be making efforts to internalize more of the cost of oil consumption with the effect of speeding this process along.

So, the next time you hear someone whine about our need for oil security or independence, or worse, that we are draining the planet’s oil reserves; tell them to pull their head out of their ass. We have exactly enough black gold!