On this day, I was able to take in my 5th grader’s GT class. After a couple of rebuses (kinda like brain teasers from back in my day), their teacher Mr. Cox played a short video on the recent epidemic of bees mysteriously dying off, to the tune of “42% of the population”. He invited them to hypothesize as to what was the culprit(s) & what could be the ramifications. One girl thought it might be pollution. Mr. Cox told me he read that it might be the result of the proliferation of smart phone usage (good luck putting that genie back in the bottle!) Some say pesticides.
The video implied what the consequences were when it indicated the pollination work that bees do. Nearly all the kids who offered their thoughts on what the potential fallout could be, pointed to decreased fruit & vegetable production.
Mr. Cox allowed me to ‘raise my hand’:
“What would happen then,” I asked.
“We’d buy fewer fruits & vegetables.”
“Because there’d be less at HEB.”
“And what about the fruits & vegetables that would be there?”
“They’d cost more.”
I told them that those high prices would actually signal to someone that there is an opportunity to step in & try to solve the problem. Someone could invent some machine or method, something beyond our imagination that could, to one degree or another, plug the gap of pollination left by the dwindling bee population. Harvard engineers are working on just such a robot-bee project right now.
This is what has happened in the oil industry in recent years.
When the price of a barrel of oil reached almost $150 in 2008, we started hearing murmurs, again, about “peak oil”; “at the rate China is growing, not to mention the other BRICs & developing world, we’re bound to run out soon.” Sure enough, it started resuming an upward trajectory after the recession of 2008-2009.
But something happened along the way. New methods of extracting oil became more viable. Suppliers saw what kind of price oil was fetching and hydraulic fracturing i.e. “fracking” became a part of the American lexicon. Next thing you know, the U.S. is awash in new sources of North American crude (including development & production of the tar sands in Canada, which also became technologically worthwhile). The new supplies would eventually be a prime catalyst in the cratering of prices since the summer of 2014.
All because prices first rose, making new technologies economically sustainable.
Furthermore, the intense activity & competition behind the rising supply spurred even further enhancements & refinements to the techniques, continually pushing down the breakeven costs of operators. The American energy industry had improved so much that production didn’t actually slow down until this spring!
All because rising prices caught the attention of enterprising innovators.
This is one of the most important lessons I regularly try to impart on my classes. “We’re all demanders,” I tell them. We know how we tend to react when the price of jeans goes down; we buy one more pair. Very few of us are suppliers in the ‘supplying goods’ sense. We do, though, contribute our labor to a business that supplies a good. That entity doesn’t respond to prices like we individuals do as demanders.
When I then ask my students “what does Levi Strauss or Lucky Brand do when the price of jeans goes down,” invariably most of them, even my A students, respond “they offer more of them.” The demand tendency is quite a bit more ingrained in us than the supply tendency.
This is a concept that could apply to any industry.
I once invested in a company that manufactured desalination equipment. I figured it was a good investment since we all need drinking water. Turns out it was a little ahead of its time. If, however, the dire predictions of overpopulation & subsequent resource depletion come true, we will need equipment like that which makes ocean water potable. The most inventive & innovative minds will need price signals to make apparent to them the viability of the relevant machinery they envision.
Unfortunately, such high & rising prices also lead to demagoguery by public leaders. Shortages of necessities such as food, water & energy (what we call inelastic goods due to the relative inflexibility of demand for them regardless of income) understandably cause trepidation amongst us. Think allegations of “price gouging” in the days leading up to landfall of a hurricane, or price spikes in gasoline in recent years. It hurts our pocketbooks.
However, trying to cap the price of such a good usually backfires. Ask any Venezuelan going grocery shopping. Suppliers see prices that drive them to seek more valuable uses of their time & resources. Rationing isn’t far behind.
Subsidizing favored industries and/or companies won’t necessarily work, either. Remember the solar panel-maker Solyndra? They haven’t been heard from since taking a half billion dollars in guaranteed stimulus loans. The government can give out all the tax credits it wants on hybrid automobiles. We Americans will still tend to buy more SUVs when the price of gas takes a dive.
Price signals work. The very dive in gas prices we’ve seen recently is the result of an industry that went gangbusters due to technological advances made possible by high prices … TEMPORARILY high prices. It’s not the end of the world if someone profits from solving such problems. Worse things have happened, like genocide, slavery, reality TV, etc.
For nature’s purposes, I hope scientists can find what’s been killing bees at such an alarming rate lately. Their pollination is effective, efficient & natural. After all, I’m sure I’m not the only one who has a kid who likes Honeycomb cereal, and for all she knows, they come from bees, too.
Don't we always do something if 'it’s for the children'?