5/12/2012

Can you explain the economics error here?

From the UK Independent:

It is the second-lightest element in the Universe, has the lowest boiling-point of any gas and is commonly used through the world to inflate party balloons. But helium is also a non-renewable resource and the world's reserves of the precious gas are about to run out, a shortage that is likely to have far-reaching repercussions.
Scientists have warned that the world's most commonly used inert gas is being depleted at an astonishing rate because of a law passed in the United States in 1996 which has effectively made helium too cheap to recycle.
The law stipulates that the US National Helium Reserve, which is kept in a disused underground gas field near Amarillo, Texas – by far the biggest store of helium in the world – must all be sold off by 2015, irrespective of the market price.
The experts warn that the world could run out of helium within 25 to 30 years, potentially spelling disaster for hospitals, whose MRI scanners are cooled by the gas in liquid form, and anti-terrorist authorities who rely on helium for their radiation monitors, as well as the millions of children who love to watch their helium-filled balloons float into the sky. . . .

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OpenID ken-maurer said...

We'll where should we start? First there's the issue of the definition of the available resources. As with petroleum, natural gas and most other natural resources, I'd assume the the proved reserves of helium are defined by the currently known resources that would be profitable or at least break-even to extract using currently proven technology and at current market prices. As has been the case with every other resource the immanent loss of which has been used to scare us, technology continues to improve, despite government's best efforts to impede it. The result is that despite all the petroleum we've used over the past 100, 50, 20, 10 or 5 years, proved reserves are greater now than they were then. I'd happily place a large Julian Simon type wager that helium will follow the same pattern.

Second, there's the little issue of how free markets treat such problems. While politicians hate speculators (unless, of course when they were the ones speculating), the simple fact that the US is dumping reserves of helium at prices which we're assured will increase drastically in the near future when "it's all gone", will lead people to purchase it while it's cheap in order to reap the profits of selling it when it's much scarcer. If they're not, there are only three possibilities. Either people don't believe that the supply is really going to dry up, they believe there will be a readily available substitute discovered or developed, or the government is intervening in the market to prevent them from taking advantage of this gold (sorry, helium) mine staring them in the face.

There are undoubtedly some more errors I could find with a little thought. (Thanks to Jack Hirshleifer.)

5/13/2012 6:07 PM  

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