I’ve been mulling a name change for the blog for some time. The name the “The Rational Pessimist” was a riposte to Matt Ridley’s book “The Rational Optimist“. Ridley’s book is a paean to global free markets and human innovation–and in parts is correct. Since the industrial revolution commenced, technology coupled with capitalism has lifted the bulk of the world’s population out of a Hobbesian life that was “nasty, brutish and short”. But where I differ from Ridley is in believing that a 200-year data set of economic growth can fully capture all future risk.
Ridley’s book is Panglossian. He believes that every problem we face–from climate change to resource depletion–is relatively minor, just waiting to be solved by a technological fix. For him, price always trumps scarcity. Whenever something looks like it is running out, the magic of markets will always lead to new discoveries or acceptable substitutes.
As an economist by training, I accept that the everlasting dance between supply, demand and price is something of beauty. But I also believe that it has its limitations. A backward-looking empirical observation that things haven’t run out is different from a forward-looking theoretical prediction that things won’t ever run out. North Sea oil is running out regardless of price, and a global supply of oil is not qualitatively different from a local one.
Of course, technology may provide a perfect, or dare I say it better, substitute for fossil fuels. But then again it may not. That is uncertainty, and the consequences of that uncertainty is the concept of risk.