The Fallacy of Economic Optimism
Kevin Leung
As human population and resource consumption increase rapidly, environmental issues and scarcities emerge, sounding an alarm to the entire world. Its severity and our societies� ability to adapt have caused sterile debate amongst many. Neo-Malthusians argue that finite resource situates the need to curtail population and consumption; if not done so, social breakdown shall occur. Under the same roof, �developmentalists� argue that population itself is an obstacle to development, creating conflict and instability. On the other side of the spectrum, �maldistributionists� and neoclassical economists who are subscribed to economic optimism argue that are no needs to limit population and consumption; well-run economic institutions will suffice in the role of providing incentives to encourage conservation and better distribution of resources. The following essay is built on two key ideas derived from Thomas Homer-Dixon�s Ingenuity theory. First, analysts should focus on a society�s ingenuity supply - quantitatively, sets of instructions that solve problems- to understand the determinants of social adaptation to scarcity; secondly, social instability will take place as the ingenuity gap � or the shortfall between ingenuity needed and supplied � becomes persistent (Homer-Dixon, �Poor�). It is important to understand that the above is an expansion in a relatively new school of thought in economics known as the Endogenous Growth Theory, supposing that ideas are an independent factor of production, ideas can reform institutions and its generation and distribution is endogenous from both social and economic systems (Homer-Dixon, p.225). Because scarcity is closely associated with ingenuity supply, therefore, human population should be controlled and social and economic institutions should be reformed to combat the questionable implications of economic optimism.
The population dilemma dates back to the different views presented by Confucius and Plato, and shapes itself into modern writings by the pessimistic Thomas Malthus and the sanguine Robert Solow. Malthus realized that resource consumption would grow at a higher rate than population, so an economy�s limited resources would jeopardize its productive capacity. He argued that diminishing returns would occur to increasing the then known factors of production, that is, excluding ingenuity (Malthus, �Essay�). For example, a fishery firm may invest more and hire more labour to increase output, but eventually, returns would decline because there would be less to catch. Years after his famous but controversial publication, An Essay on the Principle of Population, Malthusians place great emphasis on limiting population growth. Based on the diminishing returns principle, they reason that we would simply be devoid of basic necessities, energy and materials, and political conflict and instability would take its toll (Wolfgram, �Population�). And they are right. From 1950 to 1998, meat production increased from 44 million tons to 216 million tons, twice as fast as population (Brown, Gardner, Halweil, p.101). From 1950 to 1988, oceanic fish catch increased from 19 million tons to 88 million tons, which again, is faster than population (Brown, Gardner, Halweil, p.49). As well, productive cropland area is growing much slower than population is (Brown, Gardner, Halweil, p.61). However, that is not the sole reason that population should be controlled. Malthus failed to foresee that ideas could repeal the law of diminishing returns as a non-rival factor of production, that is, one that has no competition or limit in what it can do (Homer-Dixon, p.224). Similar to an example Homer-Dixon cited, farmers may escape diminishing returns by employing advanced machinery of great power, planting genetically engineered seeds that grow fast and are disease-resistant and applying powerful pesticides and weed-killers (Homer-Dixon, p.224). Human�s historical record of being able to surmount limited resources with ingenuity has been the leading refutation of economic optimists in this subject matter. In the late 1970�s, it was widely thought that oil would be scarce by the turn of the century and that its prices would soar (Reynolds). But in 1999, oil prices were only slightly higher than it was in 1970�s and its scarcity was not as ominous as it was foreseen to be. Naturally, the predictions are turned out to be ludicrous (Homer-Dixon, �Can�). Indeed, the fusion of technology, resources and ideas effectively and efficiently create new resources to substitute another and may bring seemingly menacing threats and portentous economic laws to an end (Reynolds). But can we depend on markets to increase competition in times of scarcity to provide incentives for disseminating ingenuity for a technological improvement or a resource substitution? This question leads to a more profound reason for limiting population, and that is, to better ingenuity supply. In order to do so, we must have enough resources to create, execute and record the solution to a social problem. The barrier to ingenuity supply is often �the discrete elements in systems that combine and produce unanticipated effects.� (Homer-Dixon, �Can�)
If population is not limited, its effects would not solely jeopardize productive capacity, but also the way ingenuity is supplied. For example, in Africa, child-age population is expected to increase 36% by 2030 (Brown, Gardner, Helweil, p.91). If these children do not receive properly education, how will they help reform institutions and introduce technological invention? Moreover, in the case of renewable resources, non-linear complexity manifests the need to limit population to have adequate ingenuity supply (Homer-Dixon, p.237). Nearly 20% of the world�s population will have to deal with the lack of fresh water supplies, as it continues to decrease in quantity from 1950 to 2050 by 73% (Brown, Gardner, Halweil, p.37). Additionally, from 1950 until 1998, Pakistan, Nigeria and Ethiopia experienced a 38-56% loss in cropland, and are expected to worsen in the future (Brown, Gardner, Halweil, p.62). Again, population stabilization is vital to ensure renewable resources will not become scarce so ingenuity may be supplied to change non-renewable resources like minerals, metals, etc. Ingenuity depends on existing resources. Deforestation, over catching and problems of the like creates unanticipated effects among the complexities in the relationship between elements in our ecosystem. Those are some of the things markets cannot do to prevent nor provide any incentives to replace.