Unexpected Beauty

One of the things that I find amazing is how badly we are at predicting the future. Here's an example, in 1970 the total oil inventory of non-opec oil producers was roughly 200 billion barrels. With a consumption rate of roughly 11 billion barrels per year, you would have expected the non-opec oil producers to have run out of oil in 1988 (200 / 11 = 18). But here's the surprising reality of what happened. Since then, those same countries produced 400 billion barrels of oil, and now have a remaining inventory of 209 billion barrels. (Reference)

How is this possible? By adding 409 billion barrels of new inventory to the 200 billion barrels. Take away 400 billion barrels that were consumed and that leaves 209 billion in inventory. But where did those 409 billion additional barrels come from? One answer is the earth. But that oil was already in the earth in 1970. A better answer is that it came from people.

It was people figuring out new ways to discover new oil. Or people figuring out new extraction techniques for getting at oil they couldn't previously get to. It was people exercising their minds that produced the additional inventory. The results match fairly well with what Julian Simon predicted: natural resources act like they're infinite.

Of course, oil is not infinite. There is a finite supply of it in the world. Reconciling this fact with Julian Simon's prediction riles environmentalists and conservationists. How can Julian Simon predict that resources are infinite? The first answer is that he's not actually predicting that they're infinite. He's predicting that we'll never run out. Which is a very different prediction.

Russ Roberts describes it like a room full of pistachio nuts. Imagine that you're a huge fan of pistachio nuts, and that you suddenly find your self the beneficiary of a large room, filled with pistachios. You can have as many as you want, but there's one rule: you have to leave the shells in the room. At first, all is grand. You go in the room, grab some nuts and you always get shells with nuts in them. And it goes on for a while like this. But eventually, you start finding empty shells. Over time, you find more and more empty shells. Eventually, all you ever find is empty shells. Now you know that there are other nuts still in the room, you just can't find them. The amount of effort that you have to expend is so great that it's just not worth it to you. So, you leave the last nuts in the room, and go on to some other less costly substitute. In that room, even though you are addicted to pistachio nuts, you will never run out of them.

But maybe Julian Simon wasn't just predicting that natural resources act like they're infinite. Maybe he was saying they are actually infinite. How could oil be infinite? Only if we can figure out a way to make more. And it turns out that entrepreneurs are doing just that (HT: Growthology). Not only are they making more oil, but the oil that they're making is carbon neutral: it extracts more carbon from the environment to produce, than it releases as oil. In 1970, who could have predicted this? Who could have predicted that we'd consume twice as much as our supply, and have increased our supply by 5%? Who could have predicted that we'd be this close to synthesizing crude oil?

I find this all incredible and beautiful and utterly amazing. Should this actually work out, we should be careful of getting too proud of ourselves. No single person can take credit for anything other than a small contribution. Perhaps Greg Pal has a bigger claim than anyone else, but it's still insignificant compared to all that he depends on. Mr Pal is dependent on countless other people. Take any of them away and this can't be accomplished. Certainly he's on a team of people that are doing this. Some of them are doing other parts of the science. Some of them are maintaining the books. Some of them are maintaining the facilities. But he also relies on a stable food supply, and reliable transportation, and a housing sector that ensures he can get sufficient rest. He relies on computers to do his calculations, and electricity to power those computers. Heck, he relies on a market that signals the fact that this kind of work would be valuable. There are a myriad of things that he relies on, that if taken away would prevent this from coming to fruition. In deed, no single person can even take credit for the creation of a pencil, much less this.

No one designed this system. No one orchestrated it. This result emerged from individuals following their own incentives, without anyone directing any of it. When Adam Smith looked at this kind of thing, he saw what he called "the invisible hand". When I look at it, I see the hand of God. I think God built us this way. That despite all of our best efforts to try control creativity by putting a person at the top of an org chart, the most effective way is to involve all of us a little bit in something bigger than the sum of the parts. I think God's plan for creation is emergent. And our plan is not. "For my thoughts are not your thoughts, neither are your ways my ways". And when I see emergent phenomena like markets or evolution, I find myself amazed at how beautiful it is.