Arnold Kling  

Mining for PSST

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James Hamilton writes,


My suggestion is that America should try to return to what some scholars maintain was the original source of America's success, which came from using North America's abundant natural resources as a basis for a competitive advantage in manufacturing.

He notes that shale gas and rare earth elements are resources that we could exploit. It seems to me that these offer opportunities for patterns of sustainable specialization and trade.


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CATEGORIES: Macroeconomics



COMMENTS (5 to date)
ajb writes:

Of course, the difficulty of exploiting such resources fully today shows that the real advantage of the nineteenth century was a government willing to promote enterprise and business over minority interests -- especially those (like the green movement today) -- which seem heavily focused on slowing growth. There will always be government waste and incompetence, but at the end of the day, are governments pro enterprise or not? Is there a conception of the common good that is economically progressive? Are the big projects that they choose to push merely redistributive or ultimately tied to greater values?

Anyone who believes the fantasy that the American or the British governments of the era were non-interventionist must not know the history of how Britain overrode existing property (feudal) rights in the eighteenth and nineteenth centuries in order to create what we think of as a liberal economic climate.

Tim Worstall writes:

Rare earths?

This is my specialist field so forgive me if this comes over as a tad dismissive. But just no way, no way at all.

It's absolutely true that the things that we produce from rare earths are wonderful, life enhancing (often quite literally, an MRI works because of a 10 kg crystal of lutetium inside it) and so on.

But what's important is what we make, not where we get the raw materials from. Those lutetium crystals for example, used to be made (might still be, not checked for a few years) in Texas. In a plant owned by Siemens I think. Out of lutetium oxide mined in China.

The value of an MRI is some $millions, the use value higher than that. The Lu2O3 that the crystal is made from costs some $6,000. Runs around $400 a kg at present (you need more kg of oxide than you get kg of crystal, obviously).

Having MRIs is important, being able to get your illness diagnosed with one is important, knowing how to make an MRI is important but where you get the rare earths from to make one is almost entirely irrelevant.

Further, people don't seem to realise quite how small the rare earths business is. 130,000 tonnes a year perhaps. That's of the mixed oxides. Take away the current shortage from Chinese games playing and a value of perhaps $15,000 a tonne. Maybe, if you stretch it, $25,000.

That's a $2 or $3 billion a year market. Globally. In the context of the US's $15 trillion a year economy that's not even large enough to be a rounding error.

I agree that doing things with rare earths can be very profitable, very important. But the actual mining of them, as long as it's done by someone, somewhere, just isn't all that important nor a big industry.

As to why there's lots of people saying that the US must invest in rare earths, must rebuild production lines, make sure there are domestic supplies. Well, you do know that Congress is thinking about throwing some money at doing just that and there are lobbyists about trying to make sure that they do?

David Levey writes:

All such suggestions are semantically ambiguous. Who is the "America" that should be doing these things? Many people will read this as a recommendation for government subsidies to the industry mentioned or at least as supporting the view that mining and manufacturing are somehow more "productive" than services. If it is profitable to invest in these lines of activity, the private sector will undertake them. If there is some kind of serious barrier to such investment, then an explicit argument needs to be made for government action to overcome them. In general, there is a serious risk that PSST will just be another excuse for wasteful industrial policy.

Dave Schuler writes:

It might be helpful if you gave us your operative definition of "sustainable". It's not obvious to me that pulling an exhaustible resource out of the ground and shipping it elsewhere for processing and use so that it can be shipped back here for final sale is sustainable in the conventional definition of the word.

Note that in James Hamilton's post he doesn't just talk about shale gas and rare earths but about refined oil products. It seems to me that's a valuable distinction.

Jim writes:

The search for inexpensive and plentiful energy is a fundamental requirement for civilization's advance. Period. There is no civilization without it.

Choosing to buy that energy instead of developing it makes less sense if the country is out of work. So if the government is suppressing that development, it should arguably stop doing so.

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