Wednesday

 Mostly summarized from Gregory Mankiw’s Principles of Economics, 5th Ed.

PART 9 The Real Economy in the Long Run

Chapter 25 of 36 Production and Growth

Section 8 of 23

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Are natural resources a limit to economic growth?

Today, the world's population is over 6 billion, four times what it was a hundred years ago.

Many people are enjoying a much higher standard of living than at that time.

There is an on-going concern of many whether this growth in both population and living standards can continue.

Many have argued natural resources will eventually limit the growth of the world's economies.

They ask, if the world has a finite supply of non-renewable natural resources and amount of land how can population and living standards continue to grow?

Won't supplies of oil and minerals start to run out?

When these shortages begin, won't they stop economic growth and force living standards to fall?

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Most economists are not concerned about the possibility of such growth limits.

They argue technological progress creates ways to avoid these resource shortages and growth limits.

When we compare today’s economy today to the past’s we find many ways natural resources use has improved

· cars have better gas mileage

· houses have better insulation

· more efficient oil rigs waste less oil during extraction

· alternative energy sources are becoming less expensive and more efficient

· recycling allows reuse of some non-renewable resources

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Fifty years ago some were concerned the use of tin and copper was excessive.

At the time these were crucial commodities.

Tin was used to make food containers, copper was used for telephone wire.

Some advocated mandatory recycling and rationing of tin and copper.

However, because of technological progress today plastic has replaced tin as a material for making many food containers, and phone calls go over fiber-optic cables made from sand.

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Will technological progress be enough to avoid natural resources shortages and permit continued economic growth?

One way to answer is to look at natural resources prices, scarcity is reflected in market prices.

If the world was running out of natural resources the prices of those resources would be rising.

Actually, more often the opposite is true.

Natural resource prices have substantial short-run fluctuations, but over long periods of time inflation-adjusted prices of most natural resources are stable or falling.

This natural resources price stability and decrease indicates our ability to conserve and substitute for these resources is growing more rapidly than supplies are decreasing.

Market prices give us the best position for concluding there is no reason to believe natural resources are a limit to economic growth.

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What about the finite amount of land?

The global trend has been as we become richer we have fewer children.

It’s likely as everyone around the world becomes richer the population will stop increasing or even decrease.

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there is no scarcity of natural resources

ten'nen shigen no kishousei wa nai