A great deal of the debate over the perceived limitations of the world’s natural resources appears to reflect a lack of understanding of the difference between shortage and scarce. A shortage is generally defined as not enough of something that is needed and scarce is defined as a small amount, not plentiful.
Consider, Super Bowl tickets are scarce, but there is no shortage. If you have the $ you can get a ticket.
The same concept works for almost anything we want or need, although there maybe a time lag in balancing supply and demand.
Think about it. What have we ever run out of? For more than 50 years there have been claims that we were on the verge of running out of oil. Then there have been projections suggesting that the land’s ability to provide food would be outstripped by population growth, and the list of dire forecasts of supposed shortages seems endless. In fact, it is very difficult to actually run out of anything. As the supply decreases relative to demand, the price increases. Higher prices reduced demand. As prices rise, new supplies become economic and innovators are stimulated to seek attractive alternatives. The horse and buggy did not disappear because we ran out of horses or hay.
It has been said that “necessity is the mother of invention”. It is also the precursor to investment opportunity. Shortages, limits and the rewards associated with developing a “better mouse trap”, are all opportunities for investment, whether it is to increase supply, develop alternatives or to capitalize on higher prices.
All comments and suggestions are welcome.
Walter J. Kirchberger, CFA