Saturday, November 5, 2011

Scare Economics from Henry Blodget

Here we go again. Central planner Henry Blodget, owner of Business Insider, is out with more scare economics, which show a remarkable lack of understanding of basic economics. Blodget writes:

Earlier this week, the (estimated) total number of people in the world blew past 7 billion...

. To put that number in context, for the first 70,000-odd years of human history, the total human population was around 1 million. Then, over the course of the next ~10,000 years through 1800, the population gradually grew to 1 billion. And now the population has increased 7X in the past 200 years.Many of the resources used to sustain this population, meanwhile, have not grown.On the contrary, they've shrunk. Because we've used them up.Oil, for example. And metals. And potassium, which is used to make fertilizer, which is used to grow the food we eat.

Notice the statement "...we've used them up?" Say what?

Last I looked, and I just looked, and there are people driving around in cars. presumably using oil. Across the street from me, a restaurant is open, people are walking in and out, presumably they are still serving food. In other words, Blodget is full of it.

Let's even assume for a minute that there will be no technological progress in the production of food and oil. What will this mean? Will it mean that we will wake up one morning and find no food or oil on the planet? Of course not. If a good gets more scarce, basic economics teaches us that the price goes up, which means people will use less.

Perhaps if the price of gasoline goes way up. People will walk more, they may move into cities where a car is not required. etc. To think that the use rate of oil will stay the same if oil gets truly scare is simply nutty. It's the same with food. If food becomes more scarce the price will go up, people will be much more careful with wasting food, and what is more important, more land will be devoted to growing food.

Blodget is known for scare headlines, but this is over the top. with nice dose of economic cluelessness thrown in. How bad does it get? At one point he writes:

From a societal standpoint, the news is far worse. Grantham believes that the planet can only sustainably support about 1.5 billion humans, versus the 7 billion on Earth right now (heading to 10-12 billion). For all of history except the last 200 years, the human population has been controlled via the limits of the food supply. Grantham thinks that, eventually, the same force will come into play again.

This question, whether we're headed for a resource and environmental crisis, is obviously a critical question, not just for investors, but for humanity at large. We'll be looking into the question in detail here over the next few months.

Oh puhleez Henry, this faulty line of thinking is not new, it goes back centuries. Here's Murray Rothbard on Thomas Malthus making a fool of himself using the same arguments you are using, back in the late 1700s, when the population was only 900 million.

The Marquis de Condorcet, sensibly enough, was also not worried about excessive population growth wrecking the future libertarian and free market "utopia" that he envisaged for the future of man. He was not worried because he believed that on the one hand science, technology, and free markets would greatly expand the subsistence available, while reason would persuade people to limit population to numbers that could be readily sustained. William Godwin, however, was not content with this intelligent treatment of the problem....On the contrary, in the first place, Godwin worried, in proto-Malthusian fashion, that population did always tend to press on resources so as to keep living standards down to subsistence level...William Godwin was too ready to accept Wallace's mechanistic worry about population growth, but thought rather bizarrely that the withering away of sex would provide the cure for Wallace's problem and ensure that egalitarian anarchocommunism would prevail...

The publication in 1798 of the first edition of Malthus's[was] immensely popular and controversial Essay on the Principle of Population as It Affects the Future Improvement of Society. The Essay went through five more editions in Malthus's lifetime, gained him the nickname of "Population Malthus," and gave rise to literally millions of words of heated controversy.

There was virtually nothing in Malthus's Essay that had not been in Giovanni Botero two centuries earlier — or, for that matter, in Robert Wallace. As in Botero, all improvements in living standards are in vain, giving rise to an immediate and deadly pressure of population growth upon the means of subsistence. Once again, such mechanistic burgeoning of population can only be limited by the "positive check" of war, famine, and pestilence; supplemented by the rather weak "preventive" check of fewer births spurred by continuing starvation ("preventive or negative" check). There is only one thing that Malthus added to the Botero model: the spurious mathematical precision of his famous statement that population tends to "go on doubling itself every twenty-five years, or increases in a geometrical ratio," while "the means of subsistence increase in an arithmetical ratio."...
Malthus had the good fortune of being in tune with the latest twist of the Zeitgeist. But a third element explained his instant renown: the spurious air of the "scientific" that his alleged ratios gave to a doctrine in an age that was increasingly looking for models of human behavior and its study in mathematics and the "hard" physical sciences.
For spurious Malthus's ratios undoubtedly were. There was no proof whatever for either of these alleged ratios. The absurdly mechanistic view that people, unchecked, would breed like fruit flies cannot be demonstrated by simply spelling out the implications of the alleged "doubling itself every twenty-five years."

Joseph Schumpeter also piled on top of Malthus. He wrote that Malthus believed::

that population was actually and inevitably increasing faster than subsistence and that this was the reason for the misery observed. The geometrical and arithmetical ratios of these increases, to which Malthus … seems to have attached considerable importance, as well as his other attempts at mathematical precision, are nothing but faulty expressions of this view which can be passed by here with the remark that there is of course no point whatever in trying to formulate independent "laws" for the behavior of two interdependent quantities. The performance as a whole is deplorable in technique and little short of foolish in substance

Henry, unless you include the views of economists such as Rothbard and Schumpeter, who slice apart the faulty logic of population fear mongers, your study over "the next few months" is going to be a fraud.


  1. Malthus also proposed a solution to the "problem" he wrote about:

    "In our towns we should make the streets narrower, crowd more people into the houses and court the return of the plague."

  2. How could anyone possibly know the human population in 1800? These population morons are really just human-haters and their next step is to justify mass-murder. If you places everyone in the world in texas, texas would have the population density of paris...The planet is hardly over populated.

  3. Business Insider's "findings" will surely produce yet something else for the government to manage. It's already being put in charge of managing the various types of climate change...Surely managing the population is not out of their jurisdiction.

    We can safely bet that Business Insider will not call for resources to be freed to the marketplace so that they're allocated efficiently for any type of population change. Nor will we see a call for sound money, which is the engine behind the commodity price rises.

  4. In this lecture (which I attended) Lord Eatwell spent 45 minutes trying to explain that the price system doesn't push markets to equilibrium, which is why today's [keynesian] macro modelers have been so wrong. During the question and answer segment after the lecture a young lady asked about sustainability/green economy. Lord Eatwell responded by using the coal industry in Britain as an example. He said, (I paraphrase) 'we all thought we were going to run out of coal in Britain because of how much we were using and its limited supply. Turns out when it became more scarce the price went up and new sources of energy were invented and innovated. So it came about that we never actually ran out of coal.'

    I'm quite sure I was the only person in the ~500 person audience (of supposedly brilliant future economists) that noticed his answer disproved his entire 45 minute spiel about disequilibrium in the supply/demand equation.

    The extent of these people's confusion does not cease to amaze even me (a simple political science undergraduate).

  5. Another point here - isn't this the same Henry Blodget who lost his securities license and was investigated because of knowingly promoting crappy stocks during the dotcom boom?! If I am wrong, someone please correct me, but I seem to recall he was central in helping create that whole bubble to begin with, so why would anyone listen to him now?