Guiding Hands

Interesting chat with one of our friends this evening. We were batting around the big problems of the day; energy crisis, resource exhaustion, pollution, that kind of thing and looking at the various solutions proposed and possible.

One thing kept coming up, namely the fact that as energy prices soar, alternatives become more affordable comparatively and more time and interest focusses on solving the problem. Which sounds a lot like the magical guiding hand of Adam Smith taking care of us, if only we would be dispassionate voracious consumers interested solely in our own narrow self-interest.

Indeed, a lot of the issues, such as localizing production, encouraging more efficient usage/technologies, and lots of other necessary tasks are all addressed by the increasing cost of oil. So we don't have to do anything, apparently. After all higher prices and decreasing supply of oil (the peak oil theory) might force consumers to really solve the issue of climate change, to address it with hard choices that might actually impact their lifestyles and make a real difference. Things such as driving less (or not at all), buying locally produced produce rather than that flown in from other countries, and using less energy. Once again, lassez faire economics solves a thorny issue in the most efficient and effective way possible, or so it would seem.

What's missing, though, is agreement to prevent alternative, just-as-bad (or worse) technologies from showing up as solutions to the "problem" of high oil prices. That is, the guiding hand may very well discover a solution worse than the original problem. Particularly when we do not have an economic cost associated with pollution, the market does not attempt to optimize out the pollution. Of course, that's what the cap-and-trade proposals are about, making the cost of pollution visible to the market forces. How successful they could be remains to be seen.


  1. skierpage

    skierpage on 06/16/2008 5:06 p.m. #

    Many think a carbon tax (and more generally pollution taxes) is better at "making the cost of pollution more visible to the market forces" than cap-and-trade.

    It would be a happy outcome if the relative cost of solar and wind was such that everyone everywhere could Make Money Fast by installing solar panels and wind turbines!! Even without cap-and-trade or carbon taxes, the recent demand-vs.-Peak Oil price hikes bring this nearer. But AIUI, economics predicts the price of dirty energy would drop to keep renewable energy relatively expensive. You can make it cost-effective in your sunny, windy, taxed country, but China and countries that subsidize oil will just consume more :-(

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