Thomas Malthus has had an enduring influence on Western thinking even though the human condition has changed greatly since his time. Many environmentalists, for example, believe that modern civilization cannot survive unless we abandon fossil fuels, which have made possible the huge improvements in standards of living since the Industrial Revolution. Malthus and these environmentalists apparently did/do not understand the transformational role played by technological advances and particularly widespread energy use by humans in making possible current standards of living in the developed world and their sustainability for the indefinite future.
The Malthus-inspired doubters have instead long argued that there is a scarcity of resources needed to sustain modern civilization, and that this dooms it. They have prepared a long series of reports to express their gloomy concerns, including Limits to Growth and the UN IPCC reports. In recent decades their concerns have centered on energy use, epitomized by the peak oil hypothesis and the alleged inability of the environment to absorb increased human caused CO2 without catastrophic effects. They could not be more wrong.
Happily, the modern doubters have proved to be consistently wrong. They often want government to intervene to avoid what they claim is a horrible catastrophe for modern civilization in the making–which never seems to happen (consider, for example, how badly their predictions of future global warming have worked out). The problem is that their solutions will almost always do more harm than the latest alleged “catastrophe” that they have identified would actually do. In fact, government almost always does worse than when most economic decisions are left to the marketplace where that is possible. One of the few exceptions is some pollution controls where the economic benefits of control substantially exceed the costs of control.
The Important Lessons from the Fracking Revolution
The latest example of how wrong the Malthusian-influenced doubters have been is provided by fracking, horizontal drilling, and associated technology applied particularly to extracting oil and natural gas from shale formations. While doubters were ringing their hands, predicting doom and catastrophe, and advocating abandonment of using fossil fuels in favor of “renewable” sources, market prices for oil and gas increased several fold. This permitted a number of entrepreneurs to develop and refine their new technology. The result is the current precipitous drop in oil and natural gas prices, which are now in the process of transforming the world and keeping modern civilization well supplied with energy for decades if not centuries.
If it had been left to government, as it has been in many Western European countries, it is likely that this technological transformation would never have occurred. But in the US subsurface minerals are generally owned privately, and there was little government could do to stop the development in the private sector except outright bans despite strong opposition to the new technology from many environmental groups. These bans have proved difficult to enact in part because of the losses that would be incurred by subsurface mineral owners. The result is a textbook example of how free markets unencumbered by unjustified government controls and intrusive intervention by special interest groups can still lead to revolutionary changes in the technology used in important economic sectors and to huge benefits for the public.
The Fracking Revolution Is Having an Enormous Influence on the World Economy
The results of this transformation will very likely prove an economic disaster in many middle eastern oil countries, a number of other OPEC countries, and Russia, and the enhancement of those economies that put the new technology to work. As discussed last week, oil and gas prices have already fallen dramatically and may not rise substantially for decades or even centuries given the widespread availability of shale deposits in the world.
Although there will be market instability as it attempts to find new equilibrium levels, and economic changes in the short term, the resulting changes will provide a huge bonanza for consumers everywhere except in countries with large, inexpensive-to-extract oil reservoirs, whose value has fallen precipitously. It should be of enormous benefit to the US, which originated the new technology, but still imports more oil than it exports.
Allowing the market to rule whenever there is not an overwhelming reason for government intervention in economic decisions pays enormous dividends, as in this case. Centralized government decisions concerning primarily economic issues often result in enormous missed opportunities, which hurt everyone except the special interests so active in trying to influence government decision-making.