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The market finds a way

Summary:
Experts often warn that we are soon going to run out of a natural resource.  If so, then we might expect an increase in price, which encourages conservation. In many cases, however, that price increase unleashes a new and unforeseen alternative supply. Consider the fishing industry, which used to rely on fish caught in the ocean: Notice that ocean caught fish peaked in the mid-1990s, and all the new supply has been coming from aquaculture. Here’s the global oil industry: Notice that conventional oil production peaked around 2011, and all the new growth in demand is being filled by unconventional oil sources (mostly fracking.)  Further back in history, whale oil was the “conventional oil” and underground petroleum was “unconventional”.

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Experts often warn that we are soon going to run out of a natural resource.  If so, then we might expect an increase in price, which encourages conservation. In many cases, however, that price increase unleashes a new and unforeseen alternative supply. Consider the fishing industry, which used to rely on fish caught in the ocean:

The market finds a wayNotice that ocean caught fish peaked in the mid-1990s, and all the new supply has been coming from aquaculture.

Here’s the global oil industry:

The market finds a way

Notice that conventional oil production peaked around 2011, and all the new growth in demand is being filled by unconventional oil sources (mostly fracking.)  Further back in history, whale oil was the “conventional oil” and underground petroleum was “unconventional”.

The market finds a way

Scott Sumner
Scott B. Sumner is Research Fellow at the Independent Institute, the Director of the Program on Monetary Policy at the Mercatus Center at George Mason University and an economist who teaches at Bentley University in Waltham, Massachusetts. His economics blog, The Money Illusion, popularized the idea of nominal GDP targeting, which says that the Fed should target nominal GDP—i.e., real GDP growth plus the rate of inflation—to better "induce the correct level of business investment". In May 2012, Chicago Fed President Charles L. Evans became the first sitting member of the Federal Open Market Committee (FOMC) to endorse the idea.

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