Dennis Meadows : Limits to Growth updated

I will not comment the whole speech made by Meadows as Harriet already did it. I am just impressed that although  big critics had been made on the former report, as did Friedrich von Hayek in his Nobel Prize reception “Pretense to knowledge”, Pr. Meadows haven’t lost any scientific credibility. I would nevertheless add some critics about the economic reasoning underlying the report.

Indeed, the report makes the basic assumption that because something happened in the past, it will go on in the future, provided that we want to consume more. But consuming more doesn’t mean to consume the same thing more. If, as the report says, we will lack of resources, as prices going up, consumption (directly, but also indirectly through investment and substitution) will decrease. It will not happen because we will limit growth and consumption but because we will switch to other resources and technologies, thanks to substituability, which does exist in natural resources. Unfortunately, during the speech, Pr. Meadows pooh-poohed the most basic economic principle that people respond to incentives. ( It's not  because a little increase in prices doesn't lead to a consumption reduction that the whole principle is false. It just says that the increase is not big enough, according to the demand curve.)

If he doesn’t even understand that point, it is normal then to think like him that prices getting higher because of speculation is a bad thing. First of all, speculation isn’t a bad thing. If current prices go up, it gives us information about the future consumption and production of the resource. Speculation is based on this information and therefore enhances it. If this information is well used by agents, they will adapt their behaviors and react appropriately. In this case, high prices would lead to more energetic efficiency, more investment in research on renewable resources, etc ...

 

We shouldn't forget that the major shifts in our resources consumption and in our lifestyles were made in the 1970's, were oil prices touched the sky. If that is not an evidence that people respond to incentives, I don't know what it is.