Monday, November 28, 2005


Continuing on the Econ topic I wanted to addresss the issue of Supply. That of course being one part of the Supply/Demand equation but also something else. The amount of a resource that is available.

When looking at the supply of a resource we often think in terms of "how much." As in, there are X barrels of oil left. Well, economically speaking, this is not a good line of thinking. When we say X what we really mean is that is what is economically feasible to harvest. We may be aware that there is a one ton deposit of platinum (worth approx 32 million today) deep in the crust but it may cost so much more to mine it that it wouldnt be counted in the supply. Same with any natural resource.
So X is really X+Y with Y being the stuff that isnt economically feasible to mine.

So is X+Y the sum total of all of the resource to be found in the earth? If one were to say that all the oil in the earth is X+Y one would still be incorrect from an economic standpoint (Tho perhaps not from a technical standpoint). Why? Because of new technologies and new applications. Take copper. It once had to be laid out by the truckload to handle our communications needs and looking at the forecasts of the day one would be led to believe that conservation is a must. But looking at the scene today one sees a very different picture. We now broadcast much of our communications thru fiber optics or even thru the air.

Oil is a common concern perhaps even a primary concern today but it too is not irreplacable. I found today this post on Aldogg's site. It talks of a company making plastics from corn sugars. By and large plastic has been made by the conversion of natural products or by syththesis from primary chemicals coming from oil, natural gas or coal. ( Because of the lower cost of oil this company was only able to get companies who wanted to be more "green" but with the cost of oil going up so steeply this past year this company's sales have gone up over 200%.

So in summary, the true value of X far exceeds that of the sum total of X+Y. If/when the cost of X goes up Z will inevitably come in and pick up the slack. There is always a plan B, we just won't see it until that plan becomes cost effective.