The Economist’s Solution

The typical economist’s solution to the problems facing us is to do nothing. At first this seems to be an awfully silly response to such a serious problem. We are about to run out of the natural resources we rely on for our basic needs and our luxuries. And the considered response to this problem is “do nothing”? But they are quite serious, and by standard economic theory they are even correct in offering this solution.

Their answer is based on the idea of supply and demand. The theory is more complicated than is commonly believed, but the general understanding is essentially correct. Assuming a competitive market free of artificial obstructions (i.e. taxes, tariffs, etc.) supply and demand will equal each other. If either one changes for any reason, the other will shift to meet it as quickly as possible.

This may seem like magic or wishful thinking. Economist Adam Smith even went so far to refer to it as an “invisible hand,” because it almost seemed like the economy was being controlled by some outside force. But it actually has very physical reasons behind it. Specifically, no one wants to waste their money. So, if you have an excess of supply you want to get rid of it as soon as possible, otherwise its just sitting there draining your money. So, you reduce the price of your commodity in order to encourage demand to increase, until it meets your supply. Once they equal each other you increase the price back to a stable level. This is why companies have after Christmas sales.

Economists say we should rely on this mechanism to fix our unsustainable consumption of energy and other natural resources. The theory is that as the supply of these natural resources reduces, the economy will require we reduce our demand on them. There is a problem here though. We are facing an energy peak, not an excess supply of chairs. We use energy in everything, most particularly chemical energy in the form of food. Unfortunately, there are only so many ways to reduce the demand for food.

-Benjamin Shender

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