In everyday conversation, the word “scarce” usually means “hard to find”; more precisely, we might say “priced above an expected level due to limited supply.” Economists use the word in a much simpler and more action-oriented way: that is, to mean that something is costly enough to be worth the effort of trading its use against the use of some other resource.
Economists’ scarcity is not a static situation, though – and George Gilder argued, in 1996, that economic eras are defined by shifting degrees of what is abundant and what is scarce. Designing against an outdated, rear-view-mirror notion of scarcity produces results that are optimized for a world that we’re leaving behind. It commits the sin of doing the wrong thing more efficiently, which is often an effort to avoid in companies that have drunk too deeply the Kool-Aid of “kaizen” management doctrine (emphasizing continuous, incremental improvement).
The difference between a merely clever observation and a truly valuable insight is that the latter has predictive power – which Gilder demonstrated more than twenty years ago, when he made a decade-ahead forecast of transformative change based on trends of relative scarcity in our diginomic world. “The new paradigm will be based on the runaway expansion of bandwidth, outpacing Moore’s Law by at least a factor of 10,” Gilder said, which by my figures turned out to be hugely conservative: some of you may have seen my comparison of the best-selling PCs of 1981 and 2015, with desktop CPU speed growing during that time by a factor of less than 800 while the network bandwidth to the typical desktop PC grew by a factor of more than 170,000.
When supply goes up, price generally goes down. Designing for free and infinite bandwidth is an approximation that gets less wrong every year – and “If bandwidth is free,” Gilder continued, “you get a completely different computer architecture and information economy… The most common computer of the new era will be a digital cellular phone with an IP address.” For 1996, that was rather a good piece of prediction.
The other side of the push-pull dynamic, though, is still scarcity – and if bandwidth is the “key abundance” (in Gilder’s phrase) of the era we’re now in, what is the “key scarcity” of the next era to come?
Looking at fundamental measures of how some people live today, and many people wish they could live tomorrow, I don’t think I’m going out on a limb if I suggest that the key scarcity is energy – both the means of producing it and, probably far more crucial, the means of limiting the icecap-melting, ocean-raising effects of using it.
When I talk about the side effects of an energy-intensive lifestyle, I’m looking in the mirror. Thanks to a continued preference, in the world of global business, for in-person presence as a measure of engagement and commitment, I will rack up enough airline trips this year (close to 180,000 miles) that my personal CO2 footprint will be close to forty metric tons. In simple terms, we would need ten planet Earths to support a world population that lives the way I do. I only count one Earth readily at hand.
The energy density of liquid hydrocarbon fuels makes them pretty compelling for aviation uses, so continued shift of my work from physical to tele-presence is probably my own longest lever – but other traditionally fossil-fueled (therefore CO2-intensive) energy uses are seeing surprisingly rapid adoption of wind- and solar-sourced watt-hours. That’s much more good than bad, but it requires some levels of look-ahead that often seem neglected in mainstream discussions.
People often seem to equate “renewable” energy with a fantasy notion of a zero-consequence cornucopia – and that’s a growing problem of sustainability, and even of geopolitics, as wind and solar grow in importance from a garnish to a main course on our energy menu.
“A solar panel does not produce energy,” noted my freshman-year professor in solid-state chemistry, and he was not just talking about a panel’s need to see sunlight joules from which to liberate volt-ampere-hours. A solar panel takes energy to produce, he pointed out, and it has a finite lifetime (typically losing at least 20% of its effectiveness over 25 years) – so in effect, the energy to mine the materials and manufacture the panel and transport and install it are pre-invested in the object, and must be compared against a reasonable and bounded estimate of its lifetime output. Only in the past few years has that balance shifted toward a net positive number, and large-scale facilities’ life-cycle economics are still a moving target. Wind power was not discussed in that class (although they were probably hand-winding generator coils over in the Electrical Engineering department), but there are similar calculations to be made in that domain as well.
Ever since that lecture, I’ve found myself looking at almost everything in terms of its supply chain, and of its cradle-to-grave impacts if it succeeds in replacing a legacy technology at scale instead of merely decorating at the edges. When an electric car is an expensive personal statement (and/or a lot of fun to drive) for people with money to spare, the impact on the world’s lithium and cobalt markets is incidental; if electrical batteries start to take on a much larger fraction of our workloads, that changes.
It’s not the case, despite widespread claims, that the reality is the opposite of the fantasy: in particular, articles from several years ago are still being circulated to argue that the life-cycle environmental footprint of an electric car is greater than that of a fossil-fueled vehicle. Based on questionable assumptions in the base case, those polemics also make the fundamental error of ignoring diverging cost curves: eventually, the marginal barrel of oil becomes harder to find and extract from the earth, while the marginal unit of battery capacity is becoming cheaper to produce (and to recycle into new batteries) as technology improves and market scale grows.
We’re challenged to think in terms of a far smarter network, with far more dynamic pricing capabilities, than we’ve ever had before. The everyday meaning of “abundant” is usually “easy to find at an attractive price” – but an economist would also extend it to mean “so overproduced that people will pay you to take it.” We struggle to grasp the idea of a negative price for electricity (like a negative interest rate on bank deposits): both can occur, and have been seen in recent years, driven by sophisticated algorithms and enabled by means of agile re-pricing. We’ll need this kind of general-case scope for policy as we work closer to the bounds of possibility.
For every innovation, I’m suggesting, we need today to include in our assessment some questions of the form: “What if this catches on?” Not merely the Dragons’ Den question of “Can this business scale?” – but the Global Footprint Network question of, “Can the planet tolerate this business’s success?” If there is one permanent scarcity, it’s probably the severely limited number of conveniently reachable Earth-like planets. As already noted, right now I only see one.
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