 So, the first thing I want to cover is to make sure you guys understand the frame of reference here so that you'll see how the Austrian entrepreneurial perspective differs is what's called the Malthusian perspective. So, that's after Thomas Malthus, who was a classical economist, made a lot of contributions to classical economics. So, it's not that we should remember him as a bad guy or anything like that, but it is undeniable that a lot of the modern environmentalist or conservationist perspective, which tends to be very hostile to the free market comes from a mindframe or a worldview that can be described as Malthusian. And I'm saying this because nowadays a lot of people on the free market side who are, you know, optimists when it comes to these things will characterize their opponents and Malthusian. That's in some respects a, you know, not a slur, but like a criticism to point out that something's Malthusian because it turned out that he was wrong. So, where his position was, this right here is a diagram summarizing it. Malthus's basic theory, and I just grabbed this off the internet so this isn't coming from his book or anything, but you can go and look at his essay on population. And what he was saying is that population grows exponentially, but that food production at best grows arithmetically, or you can say linearly. All right, so what he was saying is the population grows like 2, 4, 8, 1632, whereas food grows at 2, 3, 4, 5, 6. All right, so this diagram here in the top right of your screen is showing the issue that resources you see is the straight line, you know, food production, production of medicine, other amenities of life. And then what if population is growing exponentially, you can see at some point it's going to whip up and exceed the growth in food production. All right, and so you can call it the Malthusian trap. So, what he was saying is that, you know, and of course he had a whole theory behind this, that I'm just boiling it down so you understand the big picture. The idea was that something has to give, right, because if population is growing exponentially but food production is only growing linearly, then you're going to hit a wall at some point. So even right now per capita food production is great and everybody's getting plenty to eat at some point that's going to have to reverse just because of these trends. And, you know, he goes through it and he's trying to be generous. And that's what I mean when I said before that he says the food is best grows arithmetically. He was listing all these reasons why it might not continue with that, but he was saying, suppose it could indefinitely. And his point was, look at it, at some point if population keeps growing exponentially, you're going to have this problem. So what did he think would happen? He would say, well, it's inevitable. Something has to keep population from growing like that. And so if it's not due to just our natural restraint and it's not due to, you know, people consciously limiting population growth because they don't want to hit this awful outcome, well, that's got to be wars and famine and disease and so on because it's impossible. He was saying just using that mathematics just drawn those charts out or those curves out. You can see. So the, you know, it's when you read it, if you didn't have any context, he makes them pretty compelling takes and you can understand why he would believe that. And again, that's the reason I'm stressing this is you see that mentality creep into modern policy debates over government intervention into the natural resource markets and things like populist bill with population control. And that's one of the reasons a lot of people say the government needs to regulate, especially in countries that are considered overpopulated, is that this basic idea of as more people get born, that's just going to put a greater and greater strain on our resources. So that's why I'm stressing this, this, this idea is still with us. And what I've got down here is I just grabbed a chart of global population and you can see how it has just exploded since the Industrial Revolution in particular. Okay, so it's, so the, how can I put it, thus far Malthus has been wrong, right. It has to be the case because right now there's way more people, you know, population has grown, grown exponentially. You know, it's from the time when he was writing so it wasn't that he was overly pessimistic about the population side. But what happened is food production has more than kept up. Right, certainly for many countries of the world, many regions of the world, the average person now is much better nourished than at the time when Malthus was writing. So what happened? What did he do wrong? Well, he was overly pessimistic about what would happen with food production. So, you know, in one sense, you could say, well, it just hasn't hit yet. But that's what the optimists have been saying all along is that no human ingenuity will always stay one step ahead of this. Okay, let me now go over what's called heroin hotelings rule. So this comes, so this is a mainstream economist. And this was a very famous article from the Journal of Political Economy from April, April 1931, called the economics of exhaustible resources. Okay, so it's the economics of exhaustible resources. So let me just make sure you guys don't get mixed up here. What I'm going to give you is the mainstream, what you could call neoclassical treatment of a finite or a deplorable resource. And so we're going to walk you through the logic of this because it is a nice sort of benchmark result. So just again, so you don't get mixed up as to why I'm showing you this. There's nothing, this is not Malthusian per se, right? This is just a mainstream result in standard economics and you could do whatever you want with it. And so it's, you'll see the result is not true empirically. So what hoteling says would happen in a market is not what empirically does happen with these things. But it's very useful to just think through the logic of what he's saying because there is an important insight embedded in what he's doing. But on the other hand, it's also good to work through it to understand, okay, but why, why isn't the real world like what hoteling is telling us? Okay, and also I don't know how much you can see here, but the context of what he thought he was doing was to show why the market would adequately look to the future. Okay, so hoteling thought that he was exonerating the market or defending the market. So if you make out like to that first page or if you want to go and Google it and read his actual article, I didn't assign his actual article because it doesn't get more technical than we need to in this course. What he's going up against are people who say, oh, the market's very myopic, short-sighted, and that when it comes to something like oil or copper, you know, finite resources that we can't make more of, then you need government intervention to make sure that the present generation doesn't selfishly use up too much of it and leave not enough available for the future. So it's a little bit funny because it used to be that we would oil was the quintessential resource to talk about this that we don't want that we're afraid the present generation is going to use the oil too quickly and not leave enough for future generations. And but now with the climate change issue that has gotten more for that we don't want the present generation using too much oil because that releases carbon dioxide and then causes climate change and hurts future generations. Okay, so it's the argument has changed and an oil might not be the right one to think about now to try to get the mindset correctly, but in terms of a finite resource that we can't make more of. But we want to be able to use and so that's the issue is how do we make sure how do we equitably distribute that between the present generation and future generations because every unit that we use up today is one less unit available for forever. So it's not like apples where we have eat more apples today on the demand for apples goes up we just need more well we plant more apple trees. But the idea is that the demand for oil or petroleum or fine gasoline goes up and we burn more gallons or barrels of crude oil. It's, it's not as obvious that oh we just will just make more barrels of crude oil in the future because there's that issue of where you can't just make it in the painting. Okay, so that that's the issue and that that's what he was addressing. And so what hoteling was trying to show was that no, no, we don't need to worry the market actually has a very elegant way of taking care of this. Okay, so let me explain what economists mean by hoteling rule. And then I will just sketch for you where he came up with it or what or what the assumptions lie behind the result. Okay, so the the actual rule is that the spot price, the commodity. And again, which is exhaustible, that was the word he used, rise at the interest rate. So that's in equilibrium, of course. All right, so once again, what, and with this thing too it's like this with with just about anything you do in the history of economic thought. So like if somebody says, Hey, what says law? And so I'm like, Oh, supply creates its own demand. Well, if you go back and read JV says law, you know, discussion of market, law of markets. He doesn't say supply creates own demand somewhere. It's a very long drawn out argument as to where what he's trying to say. The same thing here. If you go and read hoteling's original article, there's going to be all kinds of caveats and nuances and, you know, subtlety that he brings to the discussion. But I'm just explaining to you what a mainstream economist now who even has heard of this thing. If you say, Hey, what's hoteling's rule when it comes to the price of a depletable or an exhaustible resource, he's going to say, Oh, the spot price rises over time at the rate of interest. And so just make sure you guys are losing me already. So what I mean by spot price is the particular price at any given moment. So it's because of the current price. And the reason we got to specify that is when you start talking about commodities, especially in a framework of things changing over time. One of the problems or, you know, you have things like the future price or the forward price. And we might get into some of that in future lectures. All right, so you can talk, you know, you could talk right now about the price of a barrel of oil to be delivered in six months time. But when we say spot price, we mean right now what's the world price of oil. Okay. All right, so the basic I the basic way to think about this. The basic insight is that the owner of an oil deposit, and I'm just going to keep using oil just because that's an easy way to think about it. But this would apply to any kind of stockpile of a finite commodity. The owner of the oil deposit must decide to hold off the market, sell for the spot price and invest at the interest rate. Okay, so that's the basic choice that the owner faces. So just imagine some guy who owns a big pool of oil. And he knows what the price is today. And then he has to look forward and get in, make an expectation about what the price is going to be a year from now. And so the idea is, for example, if it's $100 now, and the interest rates 5%, then next year the spot price of oil has to be $105 a barrel. Okay, again, I'm skipping a lot of steps in the argument and you can go read that the Econ Live article that I assigned to this. We walk through the argument much more carefully and dot all the I's and cross all the T's. But I just want to make sure you get the logic of what's going on here. So the idea is, again, you want a bunch of oil, let's say the interest rates 5%. Right now, if oil sells at $100 a barrel, it can't be an equilibrium that you think the spot price of oil is going to be $103 next year. That would not be an equilibrium because if you think about it, if you refrain from selling a given barrel of oil on the margin, why are you doing that? Well, because you would rather sell it in the future. So a year from now, you know you could sell it for $103. But wait a minute, you could sell it for $100 today, use the $100 to go buy a bond that has a 5% yield, and then next year you've got $105. So that's the logic here. If you just get that, you know enough to understand hotel and rule. So that's not an equilibrium, you wouldn't do that. If you thought the spot price of oil would be only $103 next year, you would just keep selling more and more oil today. So if you think about that, well, then what would happen? Well, the more oil we sell today that pushes down the spot price today, right? Because there's more barrels of oil being brought to market today, the quantity supplied or actually the supply curve itself moves forward. And so with a given demand curve, you know, the refiners and ultimately the final consumers of crude oil based products, their demand is based on the price, you know, the quantity they demand is based on the price. So the more oil we're trying to push today in order to get people to consume that, the price has to go down. All right, so the price would be pushed down in the present. And then next year, if people sold more oil today, that means there's less oil available next year. So however much is brought to market next year would be lower than otherwise would have been. And so that means the fewer barrels being brought to market next year, the unit price has to go up. And so the idea is the only way that is vice versa to get the price of oil, spot price of oil today is $100 a barrel. And you thought the spot price would be 110 next year and the interest rates only 5%. Well, then you would you would cut back on your oil production today. If you're a producer, because rather than sell it at 100 today, which can then turn into 105 next year, we just keep it off the market. And then the oil just sitting in your pool would appreciate 10% value. So make sure that that makes sense. Do you get what I'm saying? You got a barrel of oil right now and you're trying to transform it into future dollars. So one technology of doing that is selling it today getting $100 in cash and buying a bond that transforms into $105 in one year. Or another technology, another mechanism for turning your crude oil today into cash available in 12 months time is to just keep it in the ground or keep it underwater depending on where your oil deposit is located. Wait a year and then bring it to the surface and sell it on the spot market. And so if you think the spot price a year from now is going to be 110, well then you're going to have transformed today's barrel of crude into $110 cash one year from now. And 110 is better than 105. So again, if you thought as the owner of this deposit, if you thought the price next year the spot price would be higher than this year's spot price rolled over at the interest rate, then you would have an incentive to cut back your oil production. You'd bring fewer barrels to market because on the margin you make more keeping those barrels in your possession than selling them for cash today. But then if you think through the logic, okay, well, what does that do if everybody on the margins cutting back oil production today? Well, that pushes up today's price. And then a year from now and more of them are planning on bringing more oil to market that pushes down the price. So I've looked at either extreme, the only thing that would work in equilibrium is if the person is indifferent between selling today and then rolling it over at interest or keeping it off the market and selling it next period. All right. So again, I just focused on the logic for one little decision for today versus a year from now, but in general that logic holds. And that's how hotelling derived this general principle that in a market with a depletable finite resources you would expect the spot price to rise over time with the interest rate. Now, again, there's all sorts of caveats you could say, well, what about uncertainty? Well, then use a higher discount rate, that sort of thing. All right, in other words, if you rather had to cash in hand and lock it in because you think a bond is safer than speculating on the future price of oil, what the spot price will be next year, that's fine. And that's realistic, but then that means the spot price should rise even faster because you should use it a discount rate that's higher than the rate on treasuries or whatever bond you think is safe. Okay, but the point is make sure you understand the basic logic of the simple case and then you can start making it more complex and realistic. But no matter how you slice it, in that sort of reality, in that sort of model, you would think that surely the basic result is the spot price has to rise predictably and perpetually over time because otherwise if it didn't, then why are producers selling more today? That's the idea. Now what's interesting is, let me just make two points about this. Hotelling thought that this was a very elegant result and showed the beauty of the market and exonerated the market from the criticisms of the people who said we need government intervention to ensure a fair distribution of these finite resources over the coming generations. Because what would happen here if you think about it, let me back up for a second. Let me just make sure you see the problem. You start getting into this stuff about who should be able to use a finite resource. You run into paradoxes really quickly. So if you say, for example, wait a minute, the present generation can't use this barrel of oil because we need to save it for our grandkids. Well, okay, but then when we wait two generations, now it's our grandkids turn and they're up to the plate and they're going to use this barrel of oil. Well, conservationists in their day can say to them, whoa, we can't use this because we got to save it for our grandkids. So you see, so taken to its extreme, the extreme conservationist principle would be nobody ever gets to do anything with a depletable resource. So that can't be right. That's stupid that nobody ever touches it because they want to save it for the future. But on the other hand, you would think it also doesn't sound right that the present generation should just burn up every last drop of oil and leave nothing for our children and grandchildren. That also seems that can't be right. And so Hotelling thought that what he was giving here was a very elegant solution to this complicate, you know, this weird problem. How do you allocate a finite resource over time? Because what would end up happening if you think about that, the spot price of oil in a long run equilibrium would constantly rise over time. But that just shows you the rate of increase. That's not enough information by itself to pin down the absolute dollar figure or money figure if you don't use dollars. The way you would pin that down is to then know the relationship between the actual supply and the shape of the demand curves over time. And so what would happen, again, if we had perfect information and everybody knew exactly how much oil there was at time zero and no new oil would ever be discovered. And we knew perfectly over the coming centuries what the demand for oil would be every moment. It's very unrealistic, but it's neat just to think through the logic of that sort of scenario. What would happen is in an equilibrium, the spot price of oil would rise over time in accordance with the interest rate. We know that's got to be true. But also, at every moment, you would clear the market where quantity supply to equal quantity demanded and the price of oil. And so over time, the available amount of oil would get depleted. But as the price got ever higher and higher, people in those future years would start substituting away from oil. So once it got to be $10,000 a barrel, and then the next year it would be 5% more if the interest rate is 5%, so remember that if the price of oil is increasing exponentially because it's rolling over at interest, each coming year, each subsequent year, the people alive at that moment are more and more substituting away from using oil. And they got to use other stuff. And so that's all taken into account in this sort of perfect certainty equilibrium. And at some point, you know, that stockpile of oil, there's like, you know, there's one barrel left. And then maybe they burn 10% of it that year because the price is $50,000 per barrel. And then next year there's only .9 barrels of oil, and maybe they only burn .05 barrels or so, whatever. And so you can imagine that amount of oil shrinks down, but it might not ever, you know, depending on the assumptions you make mathematically, there's calculus and whatever, it probably would never actually disappear. It would just, you know, approach zero but never quite get there. And the market in the year 2550 would have some, you know, totally diversified away. And so it barely uses any oil at all. It uses other stuff because crude oil at that point is so unbelievably expensive per unit. And hoteling is saying, that's exactly what you want. You know, again, if you just think about it, you don't want it to be that the earth perpetually carries around huge stockpiles of crude oil that nobody ever uses. You want it to be that humanity eventually uses up just about every last drop of oil. And the question is, well, how is usage distributed? And he was explaining, well, what's wrong with just distributed in the way the market normally would in accordance with the interest rate. And so it's also neat for us, I'm assuming everybody tuning into this is familiar with Austrian economics and is a fan. And that's why you're in this course, because it accords very nicely with the Austrian conception of what the interest rate does. That it's sort of a market price expressing the relative patience or impatience of the community. And so the idea is to hire the interest rates. So think of it this way. The higher the interest rate is, that means the more rapidly the spot price of oil and other depletable resources is going to increase. So if the interest rate is only 1%, then if you start out in the spot price of oil today happens to be 100, well, then next year it's going to be 101, and then 102 would change and so on. Whereas if the interest rate is 10%, then this year it's 100, and next year it's 110. And so you just think of the logic of that in order to get the broader result where over time the spot price rises exponentially according to the interest rate and over the coming centuries we use up just about every last drop of oil. The only way to get things to work within a higher interest rate is if it starts out lower in the present. So again, let me try this way just to make sure you're seeing this because it's kind of neat result. Other things equal. We've got the same amount of oil. We've got the same demand for oil. And it's in terms of today and the coming centuries, but in one scenario we're starting with an interest rate of 1%. In another scenario, we're assuming an interest rate of 10%. In the 1% scenario, today's spot price of oil is going to be a lot lower. Or sorry, it's a 10% scenario. Today's spot price of oil is going to be a lot lower. So it's going to grow more rapidly over time, but its initial level is going to be lower because we've got to burn more oil in the present because the rate of oil consumption is going to decline more quickly since its price is going to go up 10% per year. In contrast, if we say hold everything else equal, but now I'm telling you the interest rate is 1%, well that means the starting price of oil, if T equals 0, is going to be higher because then it's going to rise more slowly over time. And so the current generation this year uses less oil because the absolute number of barrels burned shrinks at a slower rate at the lower interest rate scenario because the price rises more slowly. Okay, so again let me just say that in different words. What I'm saying is if you hold everything else equal in a hoteling type model and just bump up the interest rate, the same total amount of oil gets consumed by humanity over the course of several centuries. Ultimately, whatever that stockpile of oil is at time zero, it's all going to get burned up or it's going to go just about to zero and never quite get there in terms of how much oil is left over the centuries. But the question is the distribution of, you know, is more of the oil consumed in the first 10 years than in the remainder or that kind of deal. The proportion of the oil consumption gets shifted up in the earlier years at a higher interest rate because the spot price starts out lower and rises more rapidly. Whereas at a lower interest rate the oil consumption is more equitably, well that's a loaded term, is more evenly distributed across time periods because the initial spot price starts higher and then rises more slowly. So that makes total sense in terms of the Austrian conception of the interest rate that if people are more impatient, if they want to consume sooner rather than later, then that's what happens with the exhaustible resource in a hoteling framework. Whereas if they're much more patient, then the oil gets, the consumption of the oil gets pushed out more into the future. Okay, so that's, like I say, it's a very elegant result and you need to have that as a benchmark just to understand the way it works. But then the problem is, oh, let me tell you one more thing, okay, and then we'll move on to the problem. Okay, so having that logic, that sort of framework in your back pocket, you can, there's a lot of counterintuitive results. And so let me just walk you through one of these that happened in the real world and that happened with me as I was in these policy debates. So let me just give you a little bit of background here. There was a ban on developing oil on the outer continental shelf of the OCS. So that in case you missed it, that stands for outer continental shelf. So as we're going to see, a lot of the debate in the United States over oil has to do with the fact that there's a lot of oil deposits on federally controlled land. And there's all sorts of barriers in the way of private developers being able to lease that land and develop the oil that's on it. So in one respect, it's like the government is artificially holding a lot of the earth's oil out of the reach of possible development. Okay, so what would happen in these policy debates, sorry, one more thing of one more way of background. Before these dates here, so up till June of 2008 for a long time, there were two overlapping and redundant bans on the development of outer continental shelf oil. The executive branch had its own ban, or moratorium I should say, and Congress had its ban in place. So in these policy debates, like I said, I was working for the Institute for Energy Research before this day, when did I start working for them? I think I started working for them in 07. There would be, you know, people would be complaining about the price of oil. Americans are always complaining about the price of oil because it makes gasoline more expensive. And Americans want to be able to drive cheaply. So many of us in the free market community would say, well, gee, right now the government is making it impossible to develop a lot of the oil that's sitting within the board of the United States. Right, and another element to this debate was a lot of critics of the market economy would say, we need the government to fund alternative energy sources. We need to wean the U.S. off of its oil addiction because we're importing all this oil from abroad from, you know, unstable dictatorships in the Middle East and that kind of stuff. And so it seemed like, duh, well, if you're worried about high gas prices and you don't want to be importing all this oil from the Middle East, how about the federal government stops making it illegal for companies to develop oil that's on federally owned U.S. land? Duh, right. And so one of the ways that the critics would deal with our argument would be to say, well, no, that's not going to do anything in the near term because it's going to take even if we allowed unrestricted drilling in the outer continental shelf. You don't be allowed people to go to ANWAR. I'm throwing around terms here, so I want to make sure I don't lose you guys. So ANWAR, ANWAR is the area controlled, certain area in Alaska that's again off limits because it's a reserve area considered, you know, for environmental and protecting the animals there and so forth. It's considered pristine and they don't want to develop it. And so that's another, but there's, we have reasonable leaders, a lot of oil reserves there. And so that's another hot button political issue. I'll come back to all this stuff in the last lecture of this course, but I'm just giving you a specific example to talk about how you can use a hoteling framework to get counterintuitive results. All right, so that's, so they were saying, oh, no, we will talk to the oil companies and whatever, and it would take them years, even if they started tomorrow, even if the federal government gave them a total green light to start drilling like crazy. And so the baby drill and the offshore and on ANWAR and so forth, it would take years to bring that new development to market. And so the critics concluded, don't be telling us drill baby drill is going to lower gas prices today because it won't. And so then I and a few other economists in the free market community were saying, no, you're wrong. All it would take if right now the federal government unambiguously signaled to world markets that they were changing policy course in that people predicted, oh, starting a few years from now, world oil production will be whatever $500,000, $500,000 barrels a day more, because the US federal government has relaxed its restrictions. That would lead to higher oil production today, not from, you know, the places that have just had been deregulated, right, they don't have a time machine, they can't go forward in time and bring oil. But what would happen is places with excess capacity, like Saudi Arabia would ramp up their output today. Because again, just think of the frame of yours. You're the people in Saudi Arabia controlling their oil output. You have to do that you make expectation you make forecast about what oil prices are going to be like over the coming decades. And then you decide, okay, do we want to increase or decrease our current daily rate of output. And so if now all of a sudden you get a major new piece of information that holy cow the US federal government just, you know, had Ron Paul get elected and he's totally open in the doors to production of oil on federal lands. And so then you're the people making decisions Saudi Arabia, you're going to realize, oh, wait a minute, 10 minutes ago before we had this bombshell, we predicted the price of oil two years from now or three years from now would be $90 a barrel. But now in light of this new information, if we don't change anything, the price of oil three years from now instead of being $90 a barrel is only going to be $75 a barrel, because the US is going to be bringing that much more production to market. And so given that we were in the equilibrium before, that we were optimizing before, well now and later this new information, today's spot price of oil seems very attractive relative to only getting $75 three years from now. So we don't want to hold as much in the ground in Saudi Arabia, keeping it off the market today to then sell it down the road because oil prices down the road are now going to be a lot lower than we thought before getting this new information. So in light of the new information, we're going to re optimize, and we're going to increase output today. And so now in the new equilibrium, oil prices today are going to be lower, but they're not going to be 75 and three years, they're going to be whatever, 88 and three years. They're still going to be lower than they would have been before, but they're not going to fall as much because oil producers around the world are going to readjust what they're doing. All right, so that's, that was the lodge of what we said and so we said, so if, if the government did make a very bold announcement and convinced markets they were going to change policy, you would see an immediate drop in the price of oil. And a lot of people didn't believe us, even free market people, they were like, yeah, that's a neat argument, but come on, that just sounds crazy. There's not a time machine, but then it actually happened. So this chart is showing this is the price of oil and you can see it was rising through away. Remember oil prices were really high and away. And then what broke the back of them, it wasn't the financial crisis, which you know really hidden in September of a lot of people, I think, looking back know that, oh yeah, oil prices were soaring, you know, a, and all of a sudden they, they collapsed. That was because of the financial crisis and all it was, it happened before you can see it was basically to the day of when George Bush in a speech said that he was going to lift the executive moratorium. What's interesting is this by itself didn't even do anything because Congress still had its ban in place. So George Bush by himself, even by lifting the executive moratorium, could not allow one more drop of oil to come to market. So the idea was people thought because he made that bold move and now it was on Congress is it was, you know, the ball is in their court, and plus they were going into the oh wait elections. And so they didn't want to, you know, the idea was Nancy Pelosi who was running, you know, the Democrats were in control of the House at that time. And they allowed this ban to expire. That was the other political quirk was that the, you know, when they banned it, it wasn't like it was a perpetual thing unless the policy was reversed. The ban would naturally expire. And so Congress was in the position when Bush did this deal on July 4, or sorry, July 14. Now, Congress was in the position of, are we going to renew the ban when, you know, crude oil prices were really high and go into an election so that our Republican opponents can point to us and say that we renew the ban on developing more oil when oil was really expensive. And they didn't want to do that. So they just let it expire. All right, so again, you can see with these charts that it looks pretty good. Now, why did it spike here? I don't know. So anyway, you can see the general result of oil prices were on the steady uptick. And then when did they turn around? Like I say, it happened. It was actually like the day after. So he made the announcement and then the day after he was at a press conference talking about the announcement that had been made the day before. And it was during that press conference that, you know, in real time the price of oil fell several dollars a barrel just during the press conference itself. So I, you know, my take is that what happened is when they announced the ban the day before, they kind of caught everyone by surprise, and they weren't sure of the implications. And then when he was clarifying in the press conference the next day as to what he did, I think that's when the speculators and the oil markets were like, holy cow, this is, and that's when I started shorting oil futures. Okay. So notice the framework with which we could talk like that and say that changing production, letting you know that there's going to be more oil available in the future could lower the spot price of oil today that relies on a hotelling like framework. And the only thing that you needed was that there had to be at least one major producer who had access capacity in Saudi Arabia did. And so it'd be physically possible to increase oil production consumption today, knowing that there'd be oil in the future. Another way of doing it, let's say scientists figured out, like they saw, you know, an asteroid that was going to crash into earth, and they could tell it had just a huge supply of copper or tin or something like that. So if people were pretty sure about that, and they were pretty sure that, oh yeah, there's a mother load on that thing, that would make copper and tin prices today plummet. Even though we physically don't have access to that yet, just knowing that we are going to have that down the road means we would increase our development of our earthbound supplies of that today, anticipating that once that thing crashes and those supplies hit the market, the price is going to collapse, that would be accelerated and reflected in today's prices. And again, physically, the way that happens is we would more rapidly develop the deplorable resources we already have on earth, knowing that all that asteroids come in and we're going to have a mother load hit in 20 years. So that's another example of that kind of thinking. Okay, however, it's cool as the hoteling framework is, it's actually not a good model for the absolute level of oil prices. So it's not true, if this is this historical US price, as you can see, there was a long stretch here where the nominal price was flat because it was being fixed by a group in Texas. All right, and then, even after that group sort of lost its dominance, still, you can say a lot of things about the price of oil in here but it doesn't look like it's rising gently with the interest rate. So there's lots of problems with the hoteling framework. And in the EconLib article, I walk through some of them. I mean, there's some things that are like realistic issues about you can't just indefinitely expand or contract production that if you do have a pool of oil, let's say, or deposit of oil you can't, how can I put it, the rate at which you extract the oil causes you to have varying costs of extraction. So it's not like you're purely just making your decision on what maximizes the present discounted value of my revenue. You also have to worry about, well, gee, if I want to extract it faster or slower, it costs me more to do the extraction. So that's one real-world complication of the hoteling framework. But another huge thing is stuff that Robert Bradley talks about. So we'll get into that. So again, just so you don't get lost here in the flow of the lecture, the sorts of things that Robert Bradley talks about in his work is going to show why the hoteling framework is actually limited. Okay, so who is this guy, Robert Bradley, I described him if you read the infomercial for the course as the leading Austrian energy economist in the world. He also happens to be just to give a disclaimer, the founder of IER for whom I work. So I have a vested interest in being nice to this guy. So just so you know that. Okay, so what's the Rothbard connection that I also alluded to in the infomercial for the course. So Robert Bradley, he got his PhD. I think it might have been in political economy. Don't quote me on that, but it might not have been in economics proper. It might have been in political economy, but he got it under Rothbard. He didn't go to UNLV, it was that Bradley was in some program somewhere that allowed you to have an outside professor be the chair of your dissertation committee. So he, Bradley, being a huge fan of Austrian economics obviously went and sought out Rothbard and Rothbard agreed. I believe there's only, I think maybe Murray Sabron is the only other person, there's not too many people walking around that got their PhD under Rothbard. I believe there's only two of my, I think it's Bradley and Murray Sabron and teaches up in New Jersey, but again, I wouldn't bet my life on that. So anyway, what Rob's dissertation was was this thing called oil gas and government in Rothbard, like I say, was the chair of this and Rothbard says you can go look at this. Rothbard is a glowing blurb for the book saying, you know, this is the most comprehensive reference for the history of US and state government intervention in the oil and natural gas markets. And that's what it's, it's a really big book, and it's a reference book in the sense that it's just a detailed thing. So any, if you ever want to do a research paper on intervention and energy markets, particularly oil and natural gas, then you want to get Rob's book here. So interesting things from it, just one little tidbit is that, and again, it's all from an Austrian perspective, which is great. So Rob actually does get into using, you know, there are conflicts in terms of the property rights, you know, that if you own, let me just give you an example of what I mean. So you got, this is, you know, plot A, in terms of land, and then there's plot B right here. Right. So this guy owns that, and this guy here owns this piece of land. But what if underground, there's this, the positive oil, like this. Right. So it's, you know, well underground. And then this guy builds, he drills down and he gets it. And so, oh yeah, that oil starts coming up. So this guy of course is thinking, well gee, any oil that's shooting up out of my property, I get to sell and that's mine. But you can see what happens underground. He's actually sucking dry the oil that if this guy had just drilled down, he would have had access to that deposit, which, you know, geologically is not neatly separated in terms of the plots of land as we see them on the surface. I hope you guys are getting what I'm saying here. So that's an interesting problem that came up in the courts and, you know, can this guy, sue this guy for stealing his oil. You know, could he say, well, I should get a cut of that because by him developing his oil well and pumping barrels of oil, he's draining the oil that technically is mine. It's, you know, falls in terms of the altitude. If you just went towards the center of the earth for my property down, he's draining the oil out of there. So anyway, Rob Bradley goes, I mean, he talks about the actual court rulings and the regulations and so on that happened in the real world. But then he also does a nice little discussion with libertarian property law. You know, Rothbardian framework to say, this is the way the issue should be resolved. But then he says, and this is the way they were resolved in the actual real world. So anyway, it's kind of a neat thing. Another little tidbit is, I don't know if this is true elsewhere, but certainly in the United States gas stations have disgusting bathrooms, generally speaking. So if you're on a road trip and you have to go to the bathroom, you're taking your life in your hands if you stop and go into a gas station bathroom, right? You're better off going into a McDonald's or better yet, like there's these officially designated rest stops that are actually pretty clean. But the gas station bathrooms, you're playing a lottery and you don't want to lose that lottery. And Rob says that that wasn't always the case. You know, back in like the 1950s, if you're, you know, driving and you go into the gas station, first of all, all kinds of people come out to service your car. Like some guys put an air in your tire, somebody's washing your windows and someone's pumping your gas. And then if you had to go to the bathroom, the bathroom would be very clean. And so there were reasons for that changing. Some of it had to do with just the breaking apart of the ties between the oil companies. It used to be an integrated framework. So it was like the same company would drill, you know, bring the oil to the surface, refine it, and then bring it and sell it, you know, in the retail market to the final motorist, the final consumer. And so they had an interest in ensuring all that whereas when that got broken up, disaggregated, and they were just selling the refined gasoline to them, the mom and pop shops who had marketed it, you know, that there was that. It was the main brand recognition broke, broke down. So it wasn't like the company could, you know, it's not a UV drive and say, Oh yeah, I know that shell gas stations are really have really clean bathrooms. You know, because it wasn't just the same company that actually ran all of the retail outlets. It was just individual owners. And then the other big thing was, in the 1970s, there were price controls on all sorts of things but in particular on oil and gasoline. And so everybody who studied economics, at least from a free market perspective knows that the 1970s price controls on gasoline led to gas lines. Right, meaning there was a shortage of gasoline and so people had to line up and the government had to ration it, do goofy things like saying it depends what your license plate is as to whether you can buy gasoline that day. But another consequence Rob says is that that's when gasoline bathroom or gas station bathrooms really got disgusting. Because why would you spend money keeping your bathroom clean when there's lines out to the street people to buy your product. All right, so just like rent control laws on apartments. Turn them into so-called slums by the same token if you have price controls on gasoline that paved the way for really disgusting bathrooms because they were trying to cut back because the profit margins were getting squeezed in one way with the stop maintaining the bathroom. Okay. So what Rob has done besides his dissertation, he's also the author of this book, Energy the Master Resource, that is available in PDF and you just Google that. And that's a great little read so that I've exerted one chapter of that for you guys for the reading syllabus. So if you like the tone, you know, the depth of treatment where it's full of statistics and facts and, you know, fun quotes from people who were, you know, warning that the US was going to run out of energy in 1940 that kind of stuff. The whole book is like that. So I wanted to give you a sample of what the book was like the whole book is like that. And it's like I say you can get it for the PDF is available. Also, Rob runs what I would say is the, if you really want to get into energy economics, you should be reading his blog master resource. He's gone out and found some of the most cutting edge people in terms of climate science and peak oil and all that all those kind of issues renewables that, you know, someone doing a report on how wind turbines kill a bunch of birds. And that, you know, if it were any other industry the Obama administration would be cracking down on the threats of wildlife but since it's wind turbines. They're, you know, a pet project, then they get a free pass, all kinds of stuff like that is what Rob runs as master resource so it's like a an aggregator site but he'll go out and reprint stuff. Kind of like blue rock will calm is for libertarianism in general master resource is for free market energy economics. Okay, so here next few slides let me just walk through. Some of the key figures from that chapter for master resource the book entitled will we run out of energy. And you can see so I'll just go over make sure you understand what these slides are saying and then I'll talk a little bit about the theory behind it like how can this be possible. Because remember, according to Malthus, you would expect things to get really awful, but then even according to hoteling it's hoteling is neither optimistic nor pessimistic he's just kind of explaining the way you expect the market to behave under certain conditions. And so it's, let me just take a moment to make sure you're following me when I say hoteling is neither optimistic nor pessimistic. It's true we won't run out of oil suddenly. Right and the hoteling framework. It's not that in the reason hoteling thought it was great and exonerated the market is saying look at work. We're taking adequate account of future generations their needs are being brought into the discussion. The fact that someone in the year 2080 is willing to spend $50 for a gallon of gasoline. That information is being incorporated into the current spot price of oil and hence gasoline. Right that we're not going to burn up the oil too quickly today. Because that high demand for gasoline in the future is going to make it profitable to at least keep some of the oil off the market today to be around the year 2080. What the barrel of crude is going to be $600 or whatever I'm just making numbers up obviously, but you make sure you get what I'm saying there. The hoteling thought he had demonstrated that the market was not disregarding future generations. It was taking account of them and it was discounting their desires by the rate of interest. Okay, so in other words, a consumer today who's willing to spend a dollar on oil based products. You know, exercises his consumer sovereignty and he's sort of, you know, voting, if you'll permit me to use that analogy to burn the oil today. And how much is he voting? Well, if he's going to spend a dollar on a petroleum based product, that's what he's doing. And a guy 50 years from now was willing to spend a dollar. He also is sort of tugging at the entrepreneurs to allocate the oil to his needs or his desires. But his dollar, because it's 50 years from now is discounted. All right, so that's that's the idea. So telling thought, yeah, the market in practice doesn't isn't myopic. It doesn't disregard the future and handles everybody's needs adequately. And how else would you do it? Proposed to me a better framework. Okay, but what I'm saying is strictly speaking, you could be a malethusian and fully endorse the hotel analysis and say still were screwed. Right. Yeah, we have a finite amount of oil and yeah, it's we're not it's not going to like fall off a cliff tomorrow. But the point is, it's oil is going to get more and more expensive over time. And so when our grandkids are there and oil is going to be $1,200 of barrel and gasoline is going to be, you know, some outrageous price and they're all going to be riding bicycles. They're going to have a very low standard of living because the oil right now. Right. So you get what I'm saying that strictly speaking the hoteling framework per se doesn't mean that doesn't signify energy abundance. Right. You could be we could we could be, you know, if you were on a ship that crashed on a tropical island somewhere and there were no natural resources on the island, which is the deserted pieces saying, and we landed there and then we had like some tuna fish and other things and some bottled water. I mean, we could have a market there and hotelings rule could apply. But the point is we would all eventually just run out of food and die. Right. So it's not like hoteling rule would save us. It would just sort of allocate the food over time in a market clearing way such that we, you know, we could calculate the rate at which we would starve to death. All right. So in contrast to all that Rob Bradley relying on Julian Simon's frame or cool talk about in a minute is very optimistic. So again, just to give you a big picture of the lecture here. Malthus, you know, the Malthusian approach is very pessimistic and thinks that the government needs to come in and regulate everything. The hoteling framework is kind of neutral in that respect. I don't know what Harold hoteling personally. I don't know if he was optimistic or pessimistic, but I'm saying his framework basically just said, well, the government's not going to be able to improve on this, whatever it is, whatever it is. You could still be very pessimistic about the future, even if you endorsed hoteling analysis or you could be optimistic either way. Whereas Bradley and Julian Simon are going to be very optimistic. So let me just show you some of the statistics so we can see historically there's reason for optimism when it comes to energy markets. So what this chart shows Bradley makes the argument. He says, you know, there's various ways we could measure the price of types of energy like gasoline or electricity. But one particularly relevant metric is to say how many or how much labor time does the average worker have to expend in order to earn the wages needed to go buy that type of energy? That type of energy in the market at those prices. All right. And so using that metric you can see that gasoline and electricity have gotten much cheaper from 1920 to the year 2000 gasoline falling 80% electricity falling 97%. So what what these just make sure you understand these are saying so the blue is electricity. In 1920 to buy one kilowatt hour worth of electricity, the average worker would have to work for eight minutes. Whereas in the year 2000 he'd only have to work for two tenths of a minute with that 12 seconds. All right. And then with gasoline back in 1920, the average worker would have to work 32 minutes, a little over a half an hour to buy one gallon of gasoline. Whereas in the year 2000 that had fallen the only six minutes that the average worker would have to work to earn the pay to then go down to the gas station and buy a gallon of gas. So in that respect, it's easier now for workers to sell their labor to then buy energy, at least gasoline and electricity. Okay, now we're going to hit some really counterintuitive stuff if you've never studied this area. Okay. Incidentally, so I'm taking these figures from the the version of master resource the book that the PDF is up online. So it's a bit dated but not that much. Right. So these are, for example, these these estimates are at the end of 2002 right but the general pattern is still the same if you updated it. Okay, so what Rob is doing here is he's showing the difference between what's called proved reserves and probable reserves. And this is going to play into when people talk about how many years left are there of various types of resources. And what they're usually doing like if somebody says something like oh right now the earth of the United States or Saudi Arabia has 35 years worth of oil left or such and such years of coal up and what they're usually talking about is proved reserves. And in the book there Rob gives a more precise definition about what proved versus probable means proved means that current market prices and existing technologies. Reserves that we've identified and are pretty sure are there that can be brought to market at current condition, whereas probable resources refer to things like we kind of know they're there, but it wouldn't be economical to bring them to market yet. But they could be brought to market down the road. Okay, so you can just see that especially if you opt for the more generous category of probable resources. There are lots of years worth of these resources, especially coal, but things are even more optimistic than this would lead you to believe. So you still might, you know, look at this, the crude oil thing and say okay well they're still 116 years. So does that mean we basically got a century left and then it's going to be back to the stone ages, and not necessarily. Let me show you this now this is where it really starts getting counterintuitive. So, here in the year 1944, if you had asked geologists or people, you know, who studied the oil industry, hey, what are the world proven reserves of crude oil, they would have said 51 billion barrels. And you say okay, what about in the year 2003 worldwide where proven reserves of crude oil in a hoteling framework, certainly in a Malthusian framework, you expect that number to be lower than 51. But actually you can see it's 25 times higher, it was 1.3 trillion barrels of known reserves. And on top of that, in the interim, the world had consumed 917 billion barrels. All right, so that's, so again, make sure you understand the amount of oil that they knew about and were sure could be brought to market in the year 1944. They produced 18 times that by the year 2003. And then on top of that, at that point, they had located an in reserve in the ground, you know, deposits around the world where they knew where it was, and we knew how to bring it to market. There were 25 times what they had back in 1944. Okay, so, so this is the main reason that the hoteling framework isn't very useful. This is the main reason that the price of oil has not just steadily risen over time at the rate of interest is because it's not true to say at time zero. We know where all the oil is it's just a fixed amount and every barrel we burn means now we have x minus one barrels. If we burn another barrel now we have x minus two. Let me see what the next slide is here. Okay, that's the same thing with global resources. Let me go back to this one. Let me just make sure you understand the logic here why this is happening. I tried to find, when I used to work in a financial firm, we did a paper on oil. We had this really neat chart where we had gone through because like the U.S. What the heck is that called? The statistical abstract of the U.S. in the energy department or whatever they would calculate U.S. reserves of crude oil. And then you could look at for that same year, you know, so that would be by year. And then you could look for that same year and see how many barrels of oil did the U.S. consume. And so you could just divide it to and calculate and come up with a figure saying how many years of oil the U.S. had at current rates of consumption. Right, so if they had a, you know, a billion barrels in reserve and you consumed a thousand barrels or sorry, a million barrels a day, then that would be a million days worth of oil. You know, that kind of deal. A thousand, sorry. That's doing my multiplication run. All right, you get that. So the thing is you would expect, especially since the rate of oil consumption increases over time, you would think the number of years left of oil would fall drastically. Right, because even if the consumption stayed the same, you would think that, well, gee, every year don't we have one fewer years. So if we had 50 years of oil last year, well, this year we should have 49 years left and next year we should have 48 years left. And so make sure when you read reports in the media about how many years left of oil or natural gas or whatever the commodity is under discussion. That's a very misleading approach because that statistic, that figure can often increase over time. And so that's where I was going with this anecdote is we had this chart in this paper that we put out using that approach. We would go look at the official, you know, U.S. government estimate of how many barrels of oil are in reserve in the United States and then that year's consumption. And we'd calculate for that year how many years of oil does the U.S. have left. And it would bounce around. It's not like it would always go up, but the point was it was higher in 1980 than I think it was in like 1930. And I did one of these things. So I was given a talk in the year 2005 or so. And so in 1980, if you calculated that figure, it was about 25 years. So again, in the year 1980, if you looked up what the official report was for how many barrels of oil the U.S. had and then divided by U.S. consumption in that year, it would be about 25. So you would think that 25 years from then the U.S. would be out of oil. And of course, it was 25 years later when I was given that talk and I said, as far as I know, the U.S. still has oil right and everybody laughs. So what's happening is these concepts of proven reserves mean seismologists and geologists and the people working for the oil companies have gone out and found this stuff. And they know it's there with varying degrees of certainty. You have to drill and see where it is, that kind of stuff and get a sense of, okay, we started developing this, how many barrels could we pump out of this deposit. So it's where they know it's there and that's what goes into the figure of proven reserves. And if oil is relatively plentiful, there's no reason to go find more. Okay, great. Right? There's no reason to go find more. It's only when that margin starts to shrink that then people start to get nervous and they go find more. And so if you think about from the oil company's perspective, they have to spend a bunch of money to go out and explore and develop. You know, it costs a lot of money to try to go find oil way offshore and do deep sea platform and that kind of stuff. And so you're not going to do that unless you think it's going to be profitable. So the point is, it would be silly to be a waste of resources to go find every last drop of oil on planet Earth. That would be stupid. And so what they do is they always just keep pushing out the margin. So if the rate of consumption increases, well then that puts pressure. The price of oil goes up. And so now it's more profitable to go find more oil. And so that will accelerate the research and development and the exploration efforts. Whereas if the demand for oil for some reason collapsed, well now the price of oil collapses. And then you're not going to spend millions of dollars trying to locate more. You're going to wait until your existing stockpiles get drawn down a little bit. All right? So that's the basic logic. The analogy I would use for that is to say, you know, imagine a little kid opens up the pantry and he looks at, you know, the pantry where the food is stored at his house. And every day they keep eating whatever pasta for dinner or something. It's not a Marxist and approved diet. And he just notices that every day they have one fewer box of pasta after each meal. And so he's counting and eventually he says, mom, at the rate of current consumption, we're going to be out of food in two days. So we better stop eating so much. And of course, the mom would just say, no, once that gets low, we just go to the store and buy more. So, you know, you wouldn't just focus on the amount that's in the pantry. That's crazy. By the same token, when people say, oh, we only have so many years left of oil, it's the same fallacy that what they're doing is they're looking at the oil reserves or whatever the commodity is that has actually been located quite definitively and we know it's available for development. Okay. Let me just now very quickly, I'll spend just a few minutes on the Simon Arolic wager and then I'll turn to your questions. So it's this famous bet between Paul Arolic and Julian Simon. So Paul Arolic was his very Malthusian. He had this popular book that came out in 1968 called The Population Bomb and it opened up with this famous statement saying, the battle to feed all of humanity is over. In the 1970s, hundreds of millions of people will starve to death in spite of any crash programs embarked upon now. Okay, so he kind of painted himself into a corner there. Some of his apologists later said, oh, the reason millions of people didn't starve to death was that people woke up because of his book and others like it and governments change policies, but no, he's saying it's going to happen regardless of what we do. So, and he again had a very Malthusian framework to say that. He was just saying, look, as the population grows, it's going to strain our finite resources and we're already seeing the stress points and things are just going to get worse and worse as population continues to grow exponentially. Julian Simon in contrast was much more optimistic. And by the way, just so you know, so Julian Simon thought the ultimate resource was the human mind or human creativity. And so to make a cute little dichotomy, Simon. So, you know, Ehrlich looked at people as bellies, whereas Simon looked at people as brains. If you wanted to think of a quick way to keep their views in contrast. All right, so when Paul Ehrlich is picturing millions of new people being born all the time, he's like, how the heck are we going to feed all these people? Oh, my gosh, you know, what are we going to do with all their waste products? Oh, the environment can't handle it. Julian Simon was thinking this might be, you know, some new scientist who comes up with, you know, a revolutionary way to fertilize crops and increase food production. Or this guy might figure out how to, you know, colonize Mars. And so now we can move people to Mars. This guy might figure out how to bring in an asteroid. So now we're going to have that much more tin, right? So that was the way that they looked at the world. So the wager, I'll just go over this really fast because we're low on time here. What happened is, you know, given their respective worldviews, so Ehrlich, or sorry, Julian Simon said to Ehrlich, okay, you know, he said this in the late 70s. You're so pessimistic and you think that, you know, the population is going to outrun our ability to, you know, innovate and entrepreneurship and come up with new ways to deal with these problems. So you think resources are going to get more expensive, right? And Ehrlich said, yeah. And so Simon said, I'll let you choose. You pick five commodities. And I don't know if he made them say metals or just commodities, but there was five commodity metals with the end of choosing. But so Simon let Ehrlich pick them. And then the bet was going to be we'll look at their inflation adjusted price between 1980 and 1990. So we'll let it go a decade. And if the price rose, then, you know, Simon would write a check for the difference that the price fell, then Ehrlich would write him a check for the difference. Okay. And so John Holdren was also one of the guys on Ehrlich's side of the bet who was helping him pick the metals and everything. And Holdren ended up being an advisor to Obama. It was kind of funny. All right. So anyway, and at the time, Ehrlich said this is like shooting fish in a barrel. Meaning, of course, we're going to win this bet. This is so easy. He's letting us pick. So they picked the thing. And I believe it's so the bet was about the inflation adjusted price, but the actual nominal price. I think I'm three of them went down, let alone that the inflation adjusted price go down. And then on the other two, the nominal price rose from 1990 to 1990, but the inflation adjusted price fell. So hands down, Simon won that particular bet. And then they went in, like I say, it was just funny because Ehrlich later was coming up with reasons. Oh, that was a stupid bet. But at the time, that's not what he was saying. At the time he said this is shooting fish in a barrel. So he was quite sure he was going to win the bet and then he ended up losing it. So that's pretty famous in free market circles as to what happened. And you can go again. I gave you that Wikipedia page if you want to read more about the precise details. Okay, so let me now we've got actually there's only one question here. If you've got questions, go ahead and post them in the Q&A block. But let me just say a little bit more about this wager because I only see one question so far. So just to round out that discussion. So again, Julian Simon's framework was, you know, he wasn't denying the fact that there on earth are finite quantities of tin and whatever the other metals. Let's look that up real quickly. It was copper, chromium, nickel, tin and tungsten. All right, so of course, you know, Julian Simon wasn't denying that there was a sense in which there were limited quantities of that on planet Earth. And that, you know, as humanity use them, there would be less available. But his point was given human ingenuity, you know, over time we would discover alternative uses or we would discover ways to economize on the use of those things. And so he was saying, you know, the real question is not as far as human welfare is concerned, the real question is not the physical quantities of these things available rather for human beings. The relevant question is how much is economically available. And so the economic measure of scarcity is the price or the relative price that you're going to say, compared to a basket of goods if you're accounting for the fact of monetary inflation. Right, so that's where Simon was coming from. Another way that Simon would express things is he would say, look at, you know, people who are talking about the overpopulation threat and how human beings are a scourge. And, you know, we have to limit the production of human beings and that sort of thing. He's saying, if you were right, over time we would see real wages decreasing. Right, if it really were true that human beings were on net hurting more than they were helping, over time you would think real wages would fall because, you know, as labor became more plentiful and there wasn't anything left for these people to do. And they were just bellies that needed to suck away scarce, scarce resources and they weren't contributing anything, you know, what would that look like? He's saying economically you would see wages falling as, you know, as there was more and more labor and then we couldn't figure anything useful for them to do. The wage would have to go up. Plus, you know, the price of food and metals and everything would get pushed higher and higher because of the scarcity of those markets. And what you would see is wages compared to the prices of everything else, you'd expect to go down. And he's saying, but of course in reality in a free market system at least, it's the opposite. Real wages tend to increase greatly over time, even as we see population growing much more rapidly than it had in centuries earlier before modern capitalism came on the scene. So Simon's point is that when you are looking at things from the perspective of human welfare, generally speaking things get better over time. Okay, let me now turn to your questions. Jack Manzo says, is Hotelling's rule similar to maximum optimality theory of the market? Unfortunately, Jack, I am not sure exactly what you mean by that. Like, I don't know if you're referring to something very specific or if you're just saying the theory that the market is optimal. So let me just move on because I'm not sure exactly what you're saying there. I think what Hotelling was saying is given, if we're not worried about negative externalities and stuff like that, if you make the sort of standard assumptions you make about markets that mainstream economists make in an introductory discussion, people are price takers and that sort of thing, then the market is perfectly capable of allocating finite resources over time. I think that's what Hotelling was trying to say. So yeah, it would be efficient in any way you want to measure it. So it's not like the government could come in and improve upon it. This is the market allocation of resources over time is quite straightforward. Okay, Roger says, does Hotelling's rule address the demand side of things? Yes. I mean, I'm not sure in what sense you mean, but yeah, it takes into account what the demand curves are and all that stuff. And also, if demand suddenly changed, then everybody would reoptimize and then you'd get a new equilibrium. So yeah, it does take into account the demand. That's what I was saying that the issue about looking at it from the producer's point of view, all that pins down is that the price has to increase with the rate of interest. But that by itself doesn't tell you what the absolute numbers are. Like, so if the interest rates 10%, then we know because of the producer's side of things, the supply side, we know the price of oil next year has to be 10% higher than it is this year. But that by itself doesn't tell us what the price of oil is this year and what it is next year. We just know it's got to increase 10%. In order to solve the full equilibrium, you've got to know what's the supply and what's the demand. And then in the equilibrium, it's got to be such that the spot price rises with the interest rate over time and looking over the whole history, every last unit of the product is eventually brought to market. Okay, Travis says, is it possible we will ever run out of resources someday and or that the free market won't be able to keep up with the rapid increase of population, especially once man becomes biologically immortal. What happens then? Well, that's obviously a big question. Well, when you say is it possible we run out of resources? Yeah, of course it's possible. I mean, aliens could show up and press a button and steal everything. Or maybe they wouldn't be stealing it. Maybe they would point out that they own the earth since before humans showed up. Who knows? That's possible. It's possible that there's some kind of tectonic shift and a bunch of resources we thought were there would disappear. But the point is, if you and I right now are able to imagine certain things, it's not going to be something about just because humans are making further and further medical advances. And then all of a sudden, they're going to run out of energy. What I'm saying is with this whole telling framework, you can see predictable changes. People take that into account and they price it in the market. So what could happen is if human ingenuity just can't come up with something, if it just for some reason technologically became impossible to grow more food, the markets would adjust to that new reality and you would see the price of food would skyrocket and then it would rise according to the rate of interest in the hoteling framework and people would die. Right? Just like I said, if we got stranded on a desert island and there was nothing we could do technologically, we would just eat our available food and if we had a market for it, the price would be whatever it was going to be. And eventually we just all starved to death. So the existence of markets per se doesn't give us this magic invulnerability to running out of resources, but the point is empirically unleashing free people to innovate. Thus far, humans have not only pushed back the Malthusian crisis point, they've actually flourished. If you look at a chart of the population, like I showed earlier in this lecture, Malthus would think, holy cow, these people are breeding like rabbits. I mean, they must be living like paupers at the verge of subsistence in the year 2013 when no, we're living in ways that Malthus couldn't even have imagined. Okay, let's see, we got just timed out. Of course, and I said that now, you guys flooded it with questions. Let me answer just one more and then we'll stop and I'll catch the rest on the forum. So Justin Quinn says, has the ban on drilling oil on the continental shelf been completely lifted? What further restrictions are currently placed on oil production? That's a really complicated question. Let me, I'll talk more about that in week five, where I get into the current policy debate and I'll show you guys some of that. The quick answer is a lot of what has, it's a lot more legally permissible now than it was, excuse me, in early 2008. But the issue is you still need to get permits from the federal government. So now it's like, it's not totally off, you know, it's not totally off ground to do it or totally off the table, but they still have to issue you a permit before you can go and start drilling. And so now the issue is, and I'll show you these guys, these statistics later, if you look at like the number of permits granted or like federal, you know, drilling activity on federal versus state land, it's, there's a huge disparity. So I think part of the, my explanation to you is to say, yeah, now it's not legally forbidden, but they still aren't, you know, aren't running around trying to approve as many projects as they can get their hands on.