Does the prospect of a few billion more upper middle class conspicuous consumers roaring down the highway ensure the planet's doom.... or its rescue?
Simple mathematics suggests that everybody in the world can't live like Americans or Western Europeans currently do without creating impossible strains on the planet's resources. But maybe such mathematics are too simple. Matthew Kahn, an environmental economist at UCLA suggests that we might be looking at the problem in the wrong way.
Under "business as usual," of course it is the case that rising demand will exhaust a finite supply. But, the whole field of "rational expectations" in modern economics is based on the idea that self-interested households and firms plan ahead and use all available current information to plan for future scenarios. The innovation sector is a crucial part of modern capitalism.
China and India's ongoing growth is a credible signal that resource demand will rise -- if this is predicted to lead to rising resources prices over time then this creates sharp innovation incentives to devise substitutes for the increasingly scarce natural resources. The net result of this innovation activity, caused by the need to find substitutes for increasingly scarce fossil fuels, will be a "green economy". Thus, we owe China. Its anticipated appetite for energy will green the world!
I'm not sure I have the same faith in rational expectations as the average economist -- to paraphrase John Maynard Keynes, I think humans might be able stay irrational a lot longer than the planet's biosphere can stay habitable. But then I look at the latest news from China, where every major car company has plans to bring electric cars to market, the deployment of wind turbines is growing at an astonishing annual rate, and solar power module makers are rapidly conquering the U.S. market.
China can read the writing on the wall. It remains to be seen what level of reading comprehension will be demonstrated by the U.S.
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