Thursday, July 9, 2009

Tragedy of the Commons, Part 2: Over-Extraction of Resources

One manifestation of the “tragedy of the commons” is that human beings tend to over extract resources. Resource depletion can often be blamed on the fact that we often have imperfect information, as to the exact quantities of available resources at our disposal and the natural capacity for replenishment. How many salmon can be extracted before the species is no longer able to sustain itself? I wish imperfect information was the only source of unsustainable resource depletion. Unfortunately, we all over-extract in order to reap known short-term benefits at the expense of the unknown long-term costs. As evidenced by the universality of this kind of behavior, I’m afraid that human beings (individually and collectively) are naturally predisposed to unsustainable over-extraction.

In a free market, one would expect that the extraction of increasingly scarce resources would become prohibitively expensive and, therefore, extractors would be incentivized to pursue less-expensive substitutes. However, technology extends the ability of extractors to find increasingly scarce resources, while other technologies make it possible to efficiently over-extract those remaining resources. Hence, technology also plays a role in over-extraction. Governments encourage investment in these technologies by offering tax write-offs and other less visible incentives.

But then again, we might question whether the long-term extinction of any one resource is necessarily tragic. Although the over-extraction of oil would be tragic to the oil industry and its stockholders, over the long-run, it would be a godsend to the coal industry and other alternative energy industries. If those alternatives turn out to be onerously expensive, we can always alter out consumption patterns. Unfortunately, this natural process is often short-circuited by governmental tax policies, subsidies, and licensing that provide perverse incentives that lower the cost of continuing to extract increasingly scarce resources at the expense of other potentially viable substitutes. Libertarians argue that viable substitutes must be discovered via free market competition. But welfare liberals cling to the false belief that government experts possess perfect information, and therefore can choose the best substitutes. When governments choose the wrong substitutes, we invariably end up with resource shortages, higher prices, and/ or higher taxes. F.A. Hayek called this governmental tendency to over-estimate its ability to manage markets,
“The Fatal Conceit.”

In the United States, the over-extraction of natural resources is also fueled by public ownership of resources, coupled with the government charging favored extractors ridiculously low license fees to extract publically-owned oil, coal, and timber. Sometimes these “sweetheart deals” can be attributed to outright corruption of public officials, but most often it’s a matter of legislators trying to protect extraction jobs in their districts by artificially lowering the cost of extraction and thereby fighting off viable competing substitutes offered by other districts. Hence, onerously expensive off-shore drilling for increasingly scarce oil is incentivized by government by lowering extraction fees, water pollution standards, and taxes etc. Despite years of tragic over-extraction, environmentalists continue to express unbridled faith in governmental stewardship over resource extraction, while in reality they are more likely to end up with “corporate welfare,” which is how governments make the “tragedy of the commons” even more tragic.

1 comment:

mahesh said...

How awesome! I never thought of doing something like this, though I have HATED the mess that always exists in Extractors Great post!!!