Thomas Malthus, an economist and demographer from the 18th century, held the belief that a doomsday scenario was imminent due to the assumption that while the population was growing exponentially, food production was only increasing at a linear rate. However, his belief turned out to be incorrect because food production also grew exponentially. In the present day, the world produces an average of 2,800 calories per person and day, which is considered more than sufficient. So, where did Malthus make his mistake?<\/p>\n
Malthus was no musician, no artist. The lack of imagination was his main error. Malthus was a scientist who could count the number of keys on a piano but couldn\u2019t compose music. The number of keys on the piano are finite but the number of musical compositions humankind can invent is infinite. Albert Einstein put it well: \u00abLogic will get you from A to B. Imagination will take you everywhere.\u00bb<\/p>\n
Prophets of environmental doom have been making the same mistake for at least 50 years. They have been arguing that this or that will run out. The limits of growth<\/em>, they called it in the 1970s. They are, and have been, making the same mistake as Malthus: underestimating the ingenuity of humankind. While the number of atoms on Earth is limited, the number of combinations is infinite. This is the reason why we have never run out of anything useful, and we never will.<\/p>\n The by far most actively traded commodity in the world is crude oil. Crude oil is used in at least 6,000 products. However, it is not oil itself that is important but what it adds to our civilization\u2019s current unprecedented affluence and longevity. Oil, like anything else, is an arrangement of atoms that is useful because it allows to be converted into fuels, petrochemicals, lubricants, asphalt, waxes, bitumen, plastics, fertilizers, pharmaceuticals, clothing, etc. It is the utility we derive from oil that is important. There are no limits as to how we can rearrange atoms to produce a breathable, moisture-wicking, quick-drying, odor-resistant, lightweight sports shirt, to name just one product currently made from oil.<\/p>\n Since the beginning of human evolution, combustion\u2014that is, the quick oxidation of carbon and hydrogen in biomass and fossil fuels\u2014has been the predominant method of energy conversion. Human evolution was confined to wood burning in open fires for hundreds of thousands of years. Until the advent of industrialization, biomass fuel combustion remained the primary method of securing heat and light; even the most advanced post-industrial societies today derive the majority of their useful energies from the burning of fossil fuels. What is most remarkable over the past 150 years is the efficiency gains of the conversion, i.e., how much more output-bang is gained per input-buck. Imagination was applied.<\/p>\n Big monkeys with a similar mass as humans live to around 30\u201335 years. That\u2019s nature. It is somewhat puzzling why so many want to roll back the achievements of civilisation, \u00abdegrowth\u00bb they call it, the last time at the EU sponsored \u00abBeyond Growth 2023 conference\u00bb in May this year. Nature is glorified as an ideal, and hunter-gatherer lifestyles are romanticized. \u00abSustainability\u00bb is a key concept in this regard. Constraining 21st century farming is just one \u00abdegrowth-back-to-nature-sustainability\u00bb idea. The collapse of Sri Lanka in 2022 is a recent reminder of what happens when \u00abgrowth\u00bb is replaced with \u00abdegrowth\u00bb. We should be glorifying civilisation, i.e., the imaginative rearrangement of nature\u2019s finite atoms to the benefit of humankind.<\/p>\n Like Malthus, modern-day Malthusians lack imagination too. One aspect of environmentalism is the opposition against not just efficient fossil energy, but nuclear energy, hydro energy, and fertilizers too, i.e., an aversion against some of the main achievements of civilization. Another puzzling aspect of environmentalists is with regards to the ideas they propose to solve the negative externalities of growth. One such \u00abidea\u00bb involves windmills, a technology that is at least 800 years old. Windmills are a good example of \u00abdegrowth\u00bb, i.e., non-imagination, faux-innovation, and retrogression. Environmentalists, it seems, want to \u00abflintstone\u00bb the economy.<\/p>\n While the \u00ablimits of growth\u00bb crowd from the 1970s predicted famine, scarcity, and an ice age, we got the opposite, i.e., obesity, abundance, and global warming. One bizarre thing about forecasting the future is that nearly all of Captain Kirk\u2019s gadgets in the original Star Trek series from the 1960s, then science fiction, are in existence today: wireless communication, food replicators, scanners including health scanners, computer tablets, lasers, voice activation, talking computers, drones, autopilot, virtual reality, GPS, biometric identification, 3D games, etc. The makers of Star Trek had imagination, while the limits of growth crowd didn\u2019t. They used computer models instead. A bit like the Intergovernmental Panel on Climate Change (IPCC) today.<\/p>\n The practical relevance is that the problem solving of civilization\u2019s negative externalities has been politicized. This means efficiency and growth are no longer prime objectives. If efficiency were a prime objective, environmentalists would advocate for thorium rather than wind power. Thorium, a metal, is more abundant than uranium, can be used as a fertile material in nuclear reactors, and large quantities have already been mined and are currently stored in countries that are friendly to freedom, business, and human rights, i.e., countries that are neither authoritarian nor totalitarian. (Energy security is not a strong suit of environmentalists either.)<\/p>\n There is a significant risk associated with the current political emphasis, driven by the UN\/WEF matrimony, and often supported by governments, on inefficient sources of energy and food production. This may be viewed as one of the largest misallocations of capital in history. The extraction of energy from low-density sources such as wind necessitates substantial investments, which typically rely on government subsidies and interventions, such as the Paris Accord, Renewable Energy Sources Act (EEG), Green New Deal, Inflation Reduction Act (IRA), and similar initiatives. Whatever it is these \u00abinvestments\u00bb will be producing, free cash flows to investors are not an agenda priority.<\/p>\n In Disney\u2019s Jungle Book<\/em>, King Louie, a monkey, wants to know from Mowgli, a human, how to burn fossil fuels; \u00abman\u2019s red flower\u00bb King Louie calls it. King Louie, unlike many environmental activists and fossil energy defunding ESG investors, knew about the benefits of reliable energy for civilization and the flourishing of humans. King Louie, unlike Malthus, had imagination.<\/p>\n Alexander Ineichen is founder of Ineichen Research and Management AG<\/a>, an independent research firm focusing on investment themes related to nowcasting and risk management.<\/em><\/p>\nRemarkable efficiency gains<\/span><\/h3>\n
Imagination required<\/span><\/h3>\n
Investment without looking at cash flow<\/span><\/h3>\n