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crude oil reserves averaged between $11.50

not exhaustible resource theories

and $12.50 per barrel in the United States

(true but practically dull) but getting

and most areas of the world. In the mid-

supply to market (logistics) without

1990s finding costs had fallen to around $7

disruption (geopolitics). While it is

per barrel despite 40 percent inflation in the

easy to see how political events may

interim. In the United States alone, finding

disrupt supply, it is hard to contrive

costs dropped 40 percent between 1992 and

an overall resource depletion effect on

21

1996.1 5That is perhaps the best indicator that

prices.

oil is growing more abundant, not scarcer.

Finally, the amount of energy needed to

The facts, however, are explainable. Says

produce a unit of economic goods or services

Adelman:

has been declining more or less steadily.1 6New

What we observe is the net result of

technologies and incremental gains in pro-

two contrary forces: diminishing

duction and consumption efficiency make

returns, as the industry moves from

the services performed by energy cheaper

larger to smaller deposits and from

even if the original resource has grown

more (or less) expensive in its own right.1 7

better to poorer quality, versus

Fossil-fuel avail-

increasing knowledge of science and

ability has been

Understanding Resource Abundance

technology generally, and of local

government structures. So far,

How is the increasing abundance of fossil

increasing even in

knowledge has won.2 2

fuels squared with the obviously finite nature

the face of record

of those resources?1 8 "To explain the price of

consumption.

oil, we must discard all assumptions of a

Human ingenuity and financial where-

fixed stock and an inevitable long-run rise

withal, two key ingredients in the supply

and rule out nothing a priori," says M. A.

brew, are not finite but expansive. The most

Adelman of MIT. "Whether scarcity has been

binding resource constraint on fossil fuels is

or is increasing is a question of fact.

the "petrotechnicals" needed to locate and

Development cost and reserve values are both

extract the energy.2 3  Congruent with

measures of long-run scarcity. So is reserve

Adelman's theory, wages in the energy indus-

value, which is driven by future revenues."1 9

try can be expected to increase over time,

while real prices for energy can be expected

Natural resource economists have been

to fall under market conditions. Under polit-

unable to find a "depletion signal" in the

ical conditions such as those that existed

data. A comprehensive search in 1984 by

during the 1970s, however, the record of

two economists at Resources for the Future

energy prices can be quite different.

found "gaps among theory, methodology,

There is no reason to believe that energy

and data" that prevented a clear delineation

per se (as opposed to particular energy

between depletion and the "noise" of tech-

sources) will grow less abundant (more

nological change, regulatory change, and

expensive) in our lifetimes or for future

entrepreneurial expectations.2 0 A more

generations. "Energy," as Paul Ballonoff has

recent search for the depletion signal by

concluded, "is simply another technologi-

Richard O'Neill et al. concluded:

cal product whose economics are subject to

the ordinary market effects of supply and

Care must be taken to avoid the

demand."2 4 Thus, a negative externality can-

seductiveness of conventional wis-

dom and wishful thinking. While the

not be assigned to today's fossil-fuel con-

theory of exhaustible resources is

sumption to account for intergenerational

seductive, the empirical evidence

"depletion." A better case can be made that

would be more like the bible story of

a positive intergenerational externality is

the loaves and fishes. What matters is

created, since today's base of knowledge

6