On the list of things that motivate economic activity, scarcity is number one. It’s the condition that we all start with, the one that requires that we cooperate with others in order to satisfy our desire for a better life. Why? Because all things that are desirable—”goods”—are scarce. Market exchange offers the best possibility to coordinate our plans and goals, and perhaps surprisingly, to conserve scarce goods for future use. That means that the idea of “running out” of a scarce good or “using up” a resource, including oil, has no economic meaning. The scarcer the good is, in fact, the greater the incentive to conserve it.
“Free” goods don’t need a market since they are there for the finding, and of course we don’t have to conserve them. There are very few examples, though, of items that are both goods and free. Tumbleweeds? Free perhaps, but not usually goods. Air? Not conditioned air, heated air, or clean air. Almost none of the things we really want to acquire more of are free, including conditioned air, clean water, wholesome food and adequate shelter. We have to use up some resources to get even the minimum of any of these.
How do markets work to coordinate plans, and prevent scarce goods—like oil and petroleum resources—from being “used up?” If world petroleum prices become higher (and there is no evidence to suggest that they will climb without falling, unless we deliberately prevent new supplies from becoming available), petroleum-using processes, including driving and manufacturing, will become more costly. But it will also become worthwhile to explore more expensive oil extraction techniques and locations. And as price of the refined products go up, consumers will also look to more petroleum-conserving equipment, cars, and home heating options. No private owner would carelessly or recklessly use up the last bit, even if that were possible. Scarcity leads to higher prices and conservation.
Practically speaking, we can never run out of oil in a market setting, just as we can never run out of Rembrandts or Hope diamonds. We are sure that they will be conserved due to the presence of high market values. Individual collectors of these rare treasures often place them in museums, which specialize in preservation, rather than trust them to the security of their private collection. In this sense, there can be no finite supply of oil just as there can be no finite supply of Rembrandts or Hope diamonds. At a high enough price, the item will re-enter the market, so current owners protect and preserve their “stock.”
As for alternatives, particularly in energy, deregulation of petroleum exploration, with private land, liabilities, and incentives fully in place is far superior to the present system of subsidized alternatives, public lands, and second-guessing the market. Wind power, one of the most highly-touted and fashionable alternatives of late, is a disaster for birds, utilizes vast areas of ground space, and is, according to reports, extremely noisy. Would consumers choose it? Possibly, but central energy planners won’t be able to guess what costs consumer are willing to bear unless the proposal goes to the market. As past proposals to develop petroleum resources on government-held lands in the West (and of course ANWR) have shown, energy development without private incentives can lead to a quagmire of claims and objections. Alternative energies face exactly the same problems of public rejection.
The U.S. has undergone energy transitions in the past, and can certainly do so again if market forces lead that way. Instead of discouraging oil production and refining, however, and abandoning a vast industrial base which relies heavily on petroleum, we should allow market development of more and better petroleum resources and petroleum-using technologies, including new refineries, and adopt the changes that minimize cost and maximize plan coordination. Freeing up markets to allow the existing well-functioning technologies to continue is a far less disruptive and costly venture than leaping toward centrally-planned, expensive, and untried “innovations.”