Briefing Impact of natural resource limits on inflation and growth

You have asked me a number of interlinked questions about the impact of environmental limits on inflation and economic growth. These are not easy questions to answer. Theodore Roosevelt once exclaimed "O for a one-handed economist!"  He was tired of economists who gave advice along the lines of "On the one hand, this -- On the other hand, that" This duality is unavoidable because at the heart of economics lies the duality of supply and demand. And the interaction between supply and demand can be very hard to predict when thinking about resource limits.

My presentation has three parts. First, I briefly show how environmental issues appear when looked at from an economic perspective. Second, I discuss each of the six natural resource limits mentioned in the letter from the Chair and consider these in relation to inflation, growth, and substitutability. Third, I re-examine oil in more depth because it is arguably the most pressing issue economically in the short term due to our dependence on it. Oil has additional significance because it is connected to the problem we are running up against most dramatically: climate change.