Tuesday, August 23, 2005

Betting on the prices of natural resources

Date: Tue, 23 Aug 2005 06:32:40 -0700 (PDT)
From: "Richard Wolfe" <richardrwolfe@yahoo.com>
Subject: Betting on the prices of natural resources
To: John Tierney, NY Times columnist (tierney@nytimes.com)

Dear Mr. Tierney:

Thank you for your offer regarding "... bets from anyone ... convinced that our way of life is 'unsustainable'" and citing a "natural resource [that] is going to soar."

(Today's The $10,000 Question, in which you debunk the oil price bulls.) http://www.nytimes.com/2005/08/23/opinion/23tierney.html

I have chosen a natural resource: forests.

A renewable resource?" you are probably asking, incredulous at the prospect of what is surely a slam-dunk in your favor. My answer: there are resources, and then there are resources. I do not have in mind forests as a renewable source of wood products. I have in mind forests as places. As you read these words, thousands more acres of forests-as-places are being done away with in favor of cocoa plantations (to name a non-US example) and/or McMansions (to name a US example). Can you, as a Cornucopian, find a technology that will replace the places? So that I (or you) may visit them again? So that the ivory-billed woodpecker can live in them again? So that their biodiversity can be combed for compounds to combat avian flu? Will you take my bet, as with Mr. Simmons? I realize that you only said you would "consider" bets. Perhaps you will cite a technicality: the issue of price. What price to put on forests as places? How to measure whether it's gone up or down in five years? Could it be that things that do not have prices are not subject to Professor Simon's thesis?

Richard Wolfe
Cumberland Center, Maine


Blogger Jim H said...

Rick, you pose an extraordinarily difficult economic question that has been the subject of much academic thought. The question is closely related to that presented by my July 26 post regarding the gun industry. In both cases, the crucial valuation problem is that the costs (or benefits) of the "product" are largely (or almost entirely in the case of your forest example) externalities—i.e., outside the product’s direct market and, as a result, unaccounted for in making economic decisions.

In the case of guns, some of the cost is fairly easy to quantify: health care for those killed and wounded, lost wages, etc. But much is not. What is the cost to a child of losing her mother in a drive-by shooting?

For a forest, what is its value? To whom? Who does the valuing? What is the cost to society of its loss? These are far more difficult questions.

Although I have not been able to review the original to review its methodology, an article in Nature 387, 253 - 260 (May 15, 1997) valued the “entire biosphere” at a minimum of $33 trillion per year (for comparison, at that time global GNP totaled $18 trillion per year). Nature Valuation of Biosphere

According to an ABC radio broadcast—the transcript can be found at Putting the Right Price on Nature—Gretchen Daily of Stanford University is one of the leaders in evaluating the price to be put on nature. You might find some of the transcript of interest. For example, she states:

"Some ecosystem services are quite well understood now in the scientific community. We do understand very well that forests play an important role in retaining carbon, keeping a lot of the atmosphere, and maintaining climate stability. We also understand very well the role that forests play in purifying water, but then there are other ecosystem services, things that are much less appreciated like pollination, that we’re just beginning to scratch the surface on without the transfer of pollen from one plant to another by little insects, we wouldn’t have much of our agricultural production that we have today."

I have no doubt that we are making inappropriate decisions with respect to nature because of the failure of the “free market” to internalize the benefits and costs involved, as well as the inability of today’s market actors to analyze these questions over anything other than the extreme short term. Some other information you may wish to review:

Millenium Ecosystem Assessment

The Economist: Animal, farm

I leave detailed research to you.

These analyses do not focus only on the value of forests (or other features of nature) as places, but also on value in terms of climate effect, impact on farming, new medical treatments, etc. But then, your post refers to at least one of these “concrete” (ironic term to use here) considerations (“compounds to combat avian flu”). However, scientists and economists are also attempting to value “nature as nature.”

Having just completed a vacation that involved visits to the Grand Canyon, Painted Desert and Petrified Forest, Death Valley, and Yosemite, as well as other places not protected by national park status (volcanoes, meteor craters, Native American pueblos, etc.), I agree with you completely that there exists value to “places."

But I suspect the complexity and current impossibility of agreeing on how to value such items will preclude Mr. Tierney from accepting your bet. I also expect that when he referred to "natural resources" he meant consumables.

Let us know if he responds.

August 26, 2005 10:33 AM  
Blogger Jim H said...

What forests?

Destroying the National Parks

August 30, 2005 9:45 AM  
Blogger Richard Wolfe said...

Responses from NY Times columnists are usually not forthcoming unless you count the newspaper's"letters" section, where micro-messages (no more than 25 words) are sometimes allowed space.

As for "Destroying the National Parks," this was forwarded, yesterday, when it came out, together with my words, "I don't want this! Please stop this mischief!" to the White House. (To forward to the White House, you have to start a new email to president@whitehouse.gov and copy in the text you are forwarding. They block forwarding services offered by the newspapers. Of course, if you do this, you run the risk of never being allowed to board a commercial flight again.)

August 30, 2005 1:25 PM  
Blogger Richard Wolfe said...


April 20, 2006 7:18 AM  

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