Opportunity Cost and Energy

Boyes points out the importance of adaptive efficiency and the role that trial and error plays in growth and development in his post Energy Wars. The disaster in Japan continues to reverberate illustrating the ubiquitous nature of risk and uncertainty. Just as no one can anticipate the types of energy that will emerge in the futures, no one can anticipate the future costs and benefits of existing energy sources - these future flows will be impacted by the indeterminate path that society takes.

As a result of this uncertainty an open access society that tolerates or even incentivizes trial and error will, in the view of North and others, make larger strides in growth and development than will those societies that are more risk averse and make institutional efforts to curtail trial and error.

In previous blogs I have argued for the importance of failure. It is through the error in trial and error that societies acquire important information and, this error is a powerful incentive in the feedback loop.

Nuclear power may or may not be a high order solution to energy needs, but the key point here is to allow a full portfolio of energy options to be explored in the market. It is, as Hayek argues, the process of trial and error in a competitive environment that leads to discovery.

Future inhabitants of the planet will most certainly be impacted by decisions made today. Allowing for a wide ranging set of energy experiments - most of which will fail - is the legacy that the discovery component of the competitive process leaves to those who are yet to come.

I also think that along with the trial and error element of an entrepreneurial society a historical perspective is useful. In thinking about energy sources in 19th century America it is important to recall that water and human power remained key energy sources up to 1900. Steam and electricity, as the newly emerging technologies, had to overcome a number of costs and obstacles which took time.

The Schumpeterian creative destruction is a process that both takes time, is opposed by those who are content in the present and imposes a current cost on society that is offset by large future benefits.