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Michael Perelman interviewed on "Against the Grain"
Sasha Lilly: And you're listening to "Against the Grain" on KPFA, 94.1 FM,KFCF in California's central valley and online atKPFA.org. I'm Sasha Lilleywith C. S. Soong.The world's environment is in crisis. A report released just last week by over1300 scientists alleges that over two-thirds of our planet's resources havealready been used up. While there's some fringe controversy about issueslike global warming, most experts agree that something must be done. Sinceeconomic choices seem to be closely linked to the destruction of our manyprecious ecosystems, one might ask "What do mainstream economistsunderstand about the environment and the issue of resource scarcity?" Canwe rely on them to fashion a solution to the growing ecological crisis?Radical thinker Michael Perelman has written a book about this topic and hisconclusions are not optimistic. The book is titled The Perverse Economy: TheImpacts of Markets on People and the Environment and is published byPalgrave. Michael is professor of economics at Cal State Chico, and theauthor of many books including Steal this Idea: Intellectual Property Rightsand Corporate Confiscation of Creativity and Pathology of the US EconomyRevisited.When CS spoke recently on tape with Michael Perelman, he began by askingMichael if resource scarcity is a central focus and concern of orthodoxeconomics.
Michael Perelman: An orthodox economist would say yes, but theyfilter resource scarcity through the price system, and this creates adistortion. I like to think about helium as an example. During the1920's the military got very interested in helium because it wasperceived to be an important military resource for dirigibles. So inthe 1920's it began a program to collect helium under a federalmonopoly. Helium is all around us in the air, but it's very difficult tocollect. You can't just take tweezers and pick out the heliummolecules. The only place in the world where helium is concentratedis in natural gas supplies, particularly concentrated in Texas. So themilitary creates this monopoly, and after awhile builds up a bigreservoir of helium. Now, two things are happening. There areprivate companies that think they could do it, and the right wingtalks about helium... For example, Christopher Cox calls it the posterchild of government waste. And the fact is that the United States wascollecting more helium than there was demand for it. The problem isthis is your lifetime stock of helium unless you resort to picking thehelium out of the air, which can be done but it is very expensive.
CS Tsoong: What do you mean by lifetime stock of helium?
 
MP: Well, it's a fixed resource, and as you use up the natural gas youuse up the opportunity to collect this helium which is concentratedwith the natural gas and pretty easy to sort out. So eventually thegovernment eliminates this system, and sets up a private market.The physicists are going crazy about this, because they know thathelium is used for more than just blowing up party balloons. It's veryimportant for critically cooling certain high technologies, and it'sexpected that demand for high technology helium will increase in thefuture. At the time, and this is back in the mid- 1990's, they said thatthere would be shortages in less than 20 years unless privatebusinesses develop new technologies, which they weren't doing. Thisis to leave helium in the hands of Enron and Texas Panhandle andvarious natural gas producers. One of the most influentialeconomists in theoretical microeconomics is Tjalling Koopmans, aDutch- trained physicist and Nobel prize winner. He also becamepresident of the American Economics Association. He gave thePresidential Address to the American Economics Association in 1978,in which he explained that natural scientists don't understandscarcity. Only economists understand scarcity. And the reason is, youhave to understand scarcity through the price system.
CS: A price system means what? A system for assigning prices to goods, tothings?
MP: A market price. Physicists don't understand it, biologists don'tunderstand it. He took it upon himself to train them.
CS: Let's go back to the question of a diminishing ñ or maybe disappearing -natural resources. How does the price system work in relation to those?
MP: Very, very poorly. What's supposed to happen according toeconomic theory, is that as the resource becomes more scarce, eitherbecause of increasing demand or you're running out of supplies, theprice should increase. This increase in price should be signaling youto cut back on your use of the resource or develop new technologies.What we see today is that a number of people are talking about PeakOil. We have no way of knowing when this is going to be. Yet weknow about peak oil production, which refers to the maximumamount of oil that you can get out of the system. Whether this peakoil production will come in 10 years, in 15 years, we donít know. Butwhat we do know is that to transfer our economy to a system basedon renewable resources is going to be very difficult and take a lot of time. Theoretically the price system should be showing us increasingpetroleum prices to give us a signal to make the transition.
CS: At least the prices are going up right now, that part of the equationseems to be in place.
 
MP: Not really, because if you look in terms of the inflation, pricesaren't going up, that is they aren't higher than they were back in the1970ís. This is because of price levels going up.
CS: So basically you're saying that this idea that the more scarce somethingis, the more expensive it will be, causing people to find substitutes ñ that itdoesn't really hold up in light of the evidence.
MP: It doesn't. If you could immediately switch to an alternativeenergy source very quickly, then maybe this price-scarcity relationwould hold. But you don't see these price increases coming until it'stoo late. My favorite example is the passenger pigeon. The passengerpigeon was so numerous that in parts of the country flocks would flyover and they would block the sunlight; there'd be no light becausethe flocks would be so dense. And people would go out, hunterswould go out with big wagons and shoot at random, and then pick upa wagonload of pigeons, take them to the nearest city, sell them andthey were considered to be a good substitute for chicken. So theprice of passenger pigeon and the price of chicken were pretty muchin line. As the pigeon becomes more and more scarce, there's noincrease in price, and as the pigeon becomes almost extinct there'sno increase in price. It's just a straight line, so there's nosubstitution.
CS: If market prices, according to standard economic theory, do not then, infact, forestall natural resource depletion or species extinction by makingthese commodities more expensive, what about this argument about 'if oneresource runs out, like petroleum, it can always be replaced by anotherresource', and on and on... So we don't have to worry about the failure orcomplete absence of one resource.
MP: That is absolutely correct. When economics talks about scarcityit talks about scarcity in general. The problem is that sometimesgood substitutes don't exist.
CS: For example...
MP: ...Water.
CS: No substitutes for water.
MP: Not in your body. All living organisms depend upon water, andthey obviously depend on water of a certain purity. The same amountof water exists today that has always existed, but not in a form thatyou and I can drink. More and more of it is polluted. It is alsopossible that the oceans are rising, which would mean thatfreshwater resources are becoming diminished. Now, theoretically,you can get enough water by desalinating the ocean. This is veryexpensive and it also leads to another problem. The process takesenergy. Resources like petroleum are used to heat up the water,
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