Wednesday, February 16, 2011

Another reason for commodities to get expensive

From Matthew Yglesias who is discussing Tyler Cowen
Think of a world in which there are two kinds of growth. One is leap-ahead growth in which technologically advanced societies dream up even more advanced technology. The other is catch-up growth in which technologically backwards societies learn to use the advanced technology that already exists in the advanced countries.

In the twentieth century we saw some instances of catch-up growth, but leap-ahead growth accounted for the majority of global growth in output. One result of that is that we got much much better at extracting natural resources (energy, food, metal) from the fixed supply of land, and commodity prices generally went down. But over the past ten years, catch-up growth in India, Brazil, and (especially) China has been the majority of world growth. Consequently, the rate of stuff-utilization is going up higher than the rate of stuff-production, meaning we’ll see rising commodity prices rather than falling ones.

For rich countries, that’s inconvenient but we’ll deal. For China, it’s fine—the whole point is that incomes will be rising faster than prices. But for poor countries that aren’t growing rapidly, it’s potentially a disaster. This kind of trend is what’s driving the current instability in North Africa and will probably be a major story for years to come.
I think the point is a good one for a number of resources where there is a lot of supply, but current limits to extraction.  However, with some other resources, oil being the obvious but not only place to start, there is an issue that there simply is not sufficient amount of it to extract.  When the resource is a power source versus necessary material (think calories versus vitamins) the nature of the resource use is also much more different.  With some energy sources (gravity) there is no cost to continually reuse the resource, it is all about maximizing extraction.  Most of these resources, including gravity, eventually come back as some form of solar energy.  So the first race is the race to extract solar power in its many forms before we run out, or over heat ourselves, on the other sources.

Tyler Cowen and Matthew Yglesias had a friendly discussion on Blogginheads.  There is a little bit of econo-speak, but most of it is simply speaking of adult subject matter at the adult level.


Waldow said...

According to long valuation wave theory the business cycle will be in doldrums normal for the recent epoch until about 2017. It will be interesting to see what happens when the business cycle naturally wants to ramp up but runs into limited natural resources.

There was a stock market panic associated with this business cycle in 1907, and The Great War started in 1914. So taking the bottom of the last stock crash in 2009, add 7, you get war in 2016. How's that for making half-assed guesses about the biggest matters? Ha! We'd better get some people living in space permanently soon, our our line's done for.

Waldow said...

It is amazing Mr. Cowen can attack the low-hanging fruit idea so deftly, yet completely miss the obvious corollary that infinite growth on a finite planet is impossible.

Mr. Yglesias has 10,000 Clones here in the Portland area (smarmy voice, sweater, glasses, and all) He is eager to offer up the "advances" in anti-depressant drugs in the last 30 years against the stagnation hypothesis... 30 years ago the suicide rate was about the same, so what progress?

Of course they make good arguments lending further weight to the argument from a previous post here that denser metropolises are necessary for growth.

Will the technology system devise a new -ism to make infinite growth unnecessary? Or will it eat some low hanging monkey fruit? Think Mr. Yglesias would put up much of a fight? Hahaha. Good things machines can't think, (except for beating our very best at Chess and Jeopardy ;)

russell1200 said...

Their urban density argument to my mind concedes the issue of limited resources without having to take that unpopular stand. Given that the urban density argument, as they acknowledge is itself a political non-starter, I can understand their reticence to take on two unpopular ideas at one time.

By itself, I think the low-hanging fruit idea is a good one. I cannot remember where, but I recall reading somewhere that the U.S. product ivy edge (or something like that) had been decreasing by a tiny amount since the 1870s. The low-hanging fruit meme is simply one way to address it.

Our planet as a whole is an open system with regard to energy. Sunlight will be pouring down on our planet for a very long time. We live in a (somewhat) closed system only because that is how we have chosen to live. I don’t want to be overly critical of the 19th century, they pulled off some amazing accomplishments. But we could have started to move past the casual use of fossil fuels if we chose to: shoot the 1970s made a pretty good start. But it was difficult. It was not low hanging fruit if-you-will.

Both Yglesias and Cowen are more open minded then most within their cohort (group, clan, etc.). I don’t expect them to be extreme alarmists. But I am surprised at their reluctance to address at the very least issues of population and energy in something other than as niche categories.

I obviously have no problem with cyclic-theories. But most of the long-cycle (versus wave) theories always seem to really on very carefully picking and choosing your peaks and valleys. I am somewhat comfortable with the 18 year property cycle, but once you leave the 1890s there are so many major externalities it is hard to take their precision all that seriously.

Waldow said...

The fellows at post lots of free data-based essays that have helped me time investments pretty well for finance-ignorant carpenter. I state this to point out their hypothesis is not just pretty graphs, but have made useful predictions for me. Their version of long wave theory is 17/34 year long (versus 18/36?), but what's interesting is that this pattern (which assumes limitless resources) lines up so well with the time frame in which peak oil came onto the policy agenda of TPTB (2001). Also this pattern syncs up with the demographic shift. Now layer on the innovation slow down.

You know what would ramp up the rate of innovation? War. A big war (the medium sized wars in Iraq and Afghanistan have dramatically ramped up drone technology for example).

I don't think you have to be an extreme alarmist (like me) to acknowledge the idea that infinite growth on a finite planet is impossible, but perhaps by giving into the instinct to play Chicken Little I can fit into a recognized role (as these academic fellows fit themselves into their prescribed role). This all reminds me of Jared Diamond's observations about how people go on playacting their roles right into the grave.

I fully expect a large scale war before I am elderly. Probably relying heavily on drones in space. I'm not just being silly, but it is funny to me that we will be forced to give robots the high ground in order to fight each other for a planet that has been turned into a greasy machine shop floor. (Good thing I love the smell of grease and metal shavings. Hail Hephaestus!)

Waldow said...
This comment has been removed by the author.
russell1200 said...

The little black cat that I use on my picture I used to cal T.A.Kitty: short for Technical Analysis Kitty. I would tease the T.A. people by making future predictions (usually on oil because of the black thing) based on her random movements up and down the stairs. Based on pure randomness (or at least zero correlation) she actually did a very good job. TA people are usually super into what they do, and can spin a good story, but they have had a hard time proving that it works beyond a very very low percentage number. A number that would not help your typically unleveraged small investor.

The key to long term savings is saving as much money as you can.

The current meme in the "real world" is that our population will max out around 10.5 billion or so. I have seen some questions about that: apparently not everyone is slowing up. 10.5 billion is insane, but it is not infinity either.

Hephaestus is apparently referred to as god of carpenters. I suspect that the Greeks lumped their tradesmen all together. However, Athena is also sited as being a patron to carpenters.

I would take Hermes as god of messengers to be the god of electricians.

The correlation between war and technology is low. Most of the developments that came about in WW2 actually were in some prototype stage before the war. What war will do is get them funded.

There are exceptions: GPS for instance. But again if we had no military spending we would have an awful lot more money to spend on research into productive areas. Or we could just drink a lot more beer.

Waldow said...

Mercury is also closest to the sun...

War does tend to take esoteric science and turn it into engineered realities.

I went to university for Computer Science and became fascinated with the intersection of sociololgy, technology, and mathy philosophy like Von Neumann, Godel, Wittgenstein, & Wiener. Happily I pulled back from the rabbit hole by being a carpenter for a decade. I have no problem with a military per se, and really would be happy if I thought I could trust our government's leadership. What fun it would be to take my tradesman brain back to school and become a good engineer and work for a good-natured "War Department". (We'd have to change the name back from "Defense" to be honest.) Hell, I could even afford a to have a family of my own.

Ain't gonna happen. So I will stick to whiskey and kickboxing while the world goes in for pot and Ipads.

Waldow said...

Turns out my MMA gym is offering an IPad to whoever checks in the most over the next month (Found out right after this post and though, gee, I'd like an IPad)... and I don't drink whiskey only once a month or so. So I call myself The Lying Lion for a reason ;)

It was great to have those hard numbers on Exxon's reliance on gas for reserves exceeding oil. Quite a turning point. Seems a there's a lot of those lately. My fighter friends, my sheep, & my cats aren't big on discussing these things. Ha!

russell1200 said...

I did not know what MMA stood for-had to Google it. Seems like you could use the Ipad while you were in bed recuperating.

I like the ideas of MMA, but am more inclined to whiskey.

I used to spend a lot of time reading SEC documents. If you read them closesly you can learn an awful lot.

Our other cat stays outside, it was left behind by some neighbors that moved. It has mid-length tabby hair and build, but coal-grey coloration. It is a bit of a character as well.

Waldow said...

Way off topic, and this is pretty subjective, but MMA is one of the few examples of Western Civilzation making some real improvements in culture in the last 15 years (I would list only a slight decline in racism as our culture's only other achievement in that time period).

It used to be that most everybody thought Kempo Karate and Kung Fu were the most effective hand-to-hand fighting systems.

What MMA has shown instead is that a combination of Western Wrestling and Boxing, Thai kicks, and Brazilian/Japanese Jujitsu is in fact the most effective. (And Jujitsu/Judo borrowed heavily from American Wrestling after its greatest practictioners were stopped cold by American pro wrestlers in the 20s before the sport became a farce).

It has calmed down from the mid 90s. No more eyepokes and groin kicks,but pretty much everything else goes.

The Greeks had this sport as the centerpiece to their games and called it Pankration. When the aristocratic Brits revived the games in the late 1800s, they knowingly left out Pankration, because most rich guys like to keep their white shorts white and jog to victory without direct confrontation.

And men and women who participate in this sport are mostly humbled and made overall more peaceful through consenting to getting beat up in training. It is a very egalitarian environment, where you can find yourself training with an Olympian who listens to what you have to say, and tells you it isn't natural gifts but rather hard work and focus that let you excell all the way to the top of the sport. My buddy Todd who posted before about the Indian story book was an instructor in the USMC Agoge, and told me the same exact thing.

I have drifted to a more conservative view of the world in part because of my association with the sport. I used to think CHOMSKY/RIANE EISLER/STAN GOFF/KROPOTKIN were gospel, I still value some of their ideas and definitely their methods, but when you fight, you learn to protect yourself at all times. Not a very hippy dippy idea that.

russell1200 said...

We are not on the front end topic, so OT is not a big issue.

People have speculated that it was the Greeks through Alexander the Greats conquests in India that martial arts (mix of religion-philosophy with hand-to-hand fighting) was brought to the east. Apparently some of the earlier forms were in India or somewhere around there. However, the Greeks idea of combat training was pretty dubious based on the bits of evidence/comments of the time handed down. So obviously were ever the idea started, the east went a lot further with it. That someone takes a development started somewhere and pushes way past its normal boundaries is almost normative: look at pizza. Look at this link (4th paragraph from bottom)

Sabot (the shoe) starting in Marseilles I thought was also pretty deadly. Maybe not so much an "art" as a joisting style.

I have swung back and fourth on the right/left continuum. I have come to the conclusion that there is no particularly well thought out political philosophy to suit our current conditions. We are so locked in to our previous path-dependant choices, I doubt we have many good choices left to us. I mean we probably have 3 billion more people (?) than we can comfortably handle. But I am not volunteering to bow out, and I would not expect someone else either. The Chinese got drastic with their one-child policy and everyone hates them for it. But what on earth were they going to do with 2 billion more Chinese? If they are up to what I think they are, they are not being very nice, but they are at least making a gamble where at least one of the outcomes lead to success.

Waldow said...

That article on Pankration by Dr. Nurse (Dr. Nurse!) is the best of its kind I've seen online. Saved to the hard drive for TEOTWAWKI. Ha!