Jeff Guo
Appearances
Planet Money
Planet Money buys a mystery diamond
Exactly. But now the story gets weirder because by the 1990s, De Beers had started to lose its diamond monopoly. A bunch of competing diamond mines had opened up. De Beers later had to settle an antitrust lawsuit. So they didn't control the supply of diamonds anymore. But diamond prices still stayed high for decades.
Planet Money
Planet Money buys a mystery diamond
I'm so glad you asked because I called up the expert. Can you just say your name for us and what you do?
Planet Money
Planet Money buys a mystery diamond
He travels the world visiting mines and factories, collecting data on supply and demand. Paul says right around the time that De Beers was losing control over the supply of diamonds... they found a big new way to juice demand.
Planet Money
Planet Money buys a mystery diamond
They took the same classic playbook, you know, a diamond is something you give to someone because you love them, all that stuff, and they deployed that playbook in a huge untapped market, a country with more consumers than anywhere else in the world.
Planet Money
Planet Money buys a mystery diamond
So in large part, thanks to these new Chinese customers buying into the story of diamonds and also buying a lot of diamonds, Paul says diamond prices actually hit a new peak in the 2010s.
Planet Money
Planet Money buys a mystery diamond
Yes, but here's where the diamond story gets even, even weirder. So these high quality lab-grown diamonds, they started hitting the market in a big way about a decade ago. And people did worry at the time, are these going to crash the price of diamonds?
Planet Money
Planet Money buys a mystery diamond
But because scientists like Ulrika can actually tell a lab-grown diamond from a natural diamond, instead what happened is the diamond market split into two different markets. So if you look at the market for natural diamonds over the past 10 years, the price has come down maybe 20%.
Planet Money
Planet Money buys a mystery diamond
Yeah, that is a big part of it. But then you look at the market for lab-grown diamonds, and that has been just on a wild ride. So at first, lab-grown diamonds were pretty expensive. Paul says if you went to the jewelry store, the lab-growns, they were only 10% cheaper than natural diamonds.
Planet Money
Planet Money buys a mystery diamond
Um, I paid $137. What? I mean, it's not a real diamond, right? There's no way. Or is there a way? Hello and welcome to the Planet Money Diamond. I'm Jeff Guo.
Planet Money
Planet Money buys a mystery diamond
So they were piggybacking off the sort of a diamond is forever and super expensive marketing stuff from De Beers.
Planet Money
Planet Money buys a mystery diamond
Like you remember the marketing for this, Sarah, right?
Planet Money
Planet Money buys a mystery diamond
Yeah, this is not a blood diamond. This came from a lab. Yeah. But the more and more people that started to buy lab-grown diamonds, the more companies invested in perfecting the technology to make them, to grow them bigger and cheaper. A lot of those breakthroughs were happening in China, since China was already the world leader in making diamonds for industrial purposes.
Planet Money
Planet Money buys a mystery diamond
So, Sarah, let me show you something that blew my mind. Remember Alibaba, the Chinese website where I bought the Planet Money diamond? Well, they don't just sell diamonds there. Take a look at this page.
Planet Money
Planet Money buys a mystery diamond
Oh, it's a different kind of ice, Sarah. Yeah. This is a chemical vapor deposition machine. This is basically one of those fancy microwaves Ulrich was talking about.
Planet Money
Planet Money buys a mystery diamond
I mean, a lot of people did think this was a steal. Paul says over the past couple years, companies in India and China have been buying tons of these kinds of machines, building big new factories. Paul's actually visited some of them.
Planet Money
Planet Money buys a mystery diamond
All these automated factories with their rows and rows of diamond-making machines led to a huge upswing in the supply of lab-grown diamonds.
Planet Money
Planet Money buys a mystery diamond
Since then, the wholesale price for lab-grown diamonds has absolutely crashed. In just three years, it's fallen like 90%. It's been this cataclysm for the diamond industry. Paul says some lab-grown companies are going bankrupt. Also, you know how diamonds are also used a lot for industrial purposes?
Planet Money
Planet Money buys a mystery diamond
Some companies are actually pivoting back to that, just making diamonds for like saw blades and drill bits.
Planet Money
Planet Money buys a mystery diamond
I know. Apparently, this is like an open secret in the industry. Literally, nobody that I talked to was surprised at all that I'd somehow managed to buy this diamond for $137. Apparently, it was not even that good of a deal.
Planet Money
Planet Money buys a mystery diamond
Yeah, exactly. That is the biggest mystery in the diamond market right now.
Planet Money
Planet Money buys a mystery diamond
Yeah, I know. That's what I'm saying. So this is the big puzzle right now. Because for natural diamonds, the typical markup, like in a retail shop, It's maybe 30%. But for lab-grown diamonds, the markup right now is like 600%.
Planet Money
Planet Money buys a mystery diamond
Right. But that isn't happening. And there are a couple of theories why. So theory number one is maybe there's collusion, right? Maybe there's some conspiracy among diamond stores to not lower their prices. But there are so many diamond stores, you know, in person. You can also buy them online. So it's kind of hard to imagine that they would all agree to this.
Planet Money
Planet Money buys a mystery diamond
Well, today on the show, we're going to answer all of those questions and dive into the economics of sparkly, sparkly things.
Planet Money
Planet Money buys a mystery diamond
Yeah, yeah, yeah. So theory number two. This is about something maybe going on with customers. Think about when you buy a diamond, right? For most people, it's maybe once or twice in your life. So the price of diamonds is... is not like the price of gas. You're not paying attention to it all the time.
Planet Money
Planet Money buys a mystery diamond
You don't know that it's actually $100. Yeah. So part of this is that the price of these lab-grown diamonds has been changing so quickly, the wholesale price. But eventually you would expect consumers to catch on and for the prices to come down.
Planet Money
Planet Money buys a mystery diamond
Well, unless you believe in the final theory, theory number three. And this goes back to why diamonds are so expensive in the first place. You know, the whole story that De Beers sold us decades ago, how diamonds are supposed to be this expensive symbol of love and affection. So there's a big difference between buying someone an engagement ring that costs $5,000 versus $99.
Planet Money
Planet Money buys a mystery diamond
Because the market for diamonds, let me tell you, it started to get very, very weird.
Planet Money
Planet Money buys a mystery diamond
Yeah. You know, I think it's just psychologically hard to let go of the idea that a diamond should be expensive. Like, on some level, it just doesn't seem right that you can just order a diamond like this for $137. I mean, just look at it. It's a diamond.
Planet Money
Planet Money buys a mystery diamond
Okay. So, Sarah, you know, I did try to embody that mindset. I did try to imagine this diamond as, you know, just a commodity in the cold, hard marketplace world.
Planet Money
Planet Money buys a mystery diamond
Well, okay, okay. Let me tell you one last story. So, when I was in New York, I took our little diamond out for a walk in the Diamond District.
Planet Money
Planet Money buys a mystery diamond
The street lamps are shaped like diamonds. It's pretty cool.
Planet Money
Planet Money buys a mystery diamond
the diamond district is this one block in midtown manhattan where like 90 of the diamonds that come to the u.s pass through it's like the ellis island of diamonds i was walking down the street and i saw so many shops selling diamonds but also buying diamonds you guys buy diamonds yeah diamonds yeah where can i i followed this guy wearing a sandwich board it said we buy diamonds we buy gold and he led me to this dark kind of
Planet Money
Planet Money buys a mystery diamond
Oh, here? Push, push? Okay. I walk in, and the door actually locks behind me. And they have me go into this small back room. The shades were down, and there were these three kind of big-looking guys just sitting around.
Planet Money
Planet Money buys a mystery diamond
The guy behind the desk said his name was George Mooks.
Planet Money
Planet Money buys a mystery diamond
All right, all right, all right. Hold on. I handed over the Planet Money diamond. Told him what kind of diamond it was, how many carats.
Planet Money
Planet Money buys a mystery diamond
No, he didn't even want it. Okay, so you wouldn't even buy this. Not for me, my friend. Not for you.
Planet Money
Planet Money buys a mystery diamond
But just then, one of the other guys who was watching our conversation gets up from the couch and comes over.
Planet Money
Planet Money buys a mystery diamond
Now, this second guy, he said his name was Solomon. No last name. Are you the owner of this?
Planet Money
Planet Money buys a mystery diamond
Okay. And you know what, Sarah? As I was standing there in that little room, seeing our diamond in the hands of some stranger, I realized something. I realized maybe I didn't want to sell this diamond.
Planet Money
Planet Money buys a mystery diamond
Fair enough. Fair enough. Anyway, I got our diamond back from Solomon. All right. Thank you so much. Appreciate it. And I got out of there. Thank you.
Planet Money
Planet Money buys a mystery diamond
Which is why we tried some experiments. So there are like tests you can do at home to see if something's a diamond or not. Do you want to try those?
Planet Money
Planet Money buys a mystery diamond
I mean, I kind of feel the same way. You know, that's what I was thinking in that room. Like me and this little diamond, we've been through things from the lasers and the liquid nitrogen to our romantic tour of the diamond district. No matter what anyone else says, this diamond is valuable to me. There is a new perk for Planet Money Plus supporters.
Planet Money
Planet Money buys a mystery diamond
You can now listen to some of our classic series from the Planet Money archive, like when we bought some gold to understand why it's been used as money for thousands of years. You can find all five episodes in one playlist, with more playlists coming. If you're already a Planet Money Plus supporter, check them out. Also, thank you. If you're not, sign up at plus.npr.org.
Planet Money
Planet Money buys a mystery diamond
You also get bonus episodes, sponsor-free listening, and you know you're supporting the work of Planet Money.
Planet Money
Planet Money buys a mystery diamond
Special thanks also to Martin Rappaport. I'm Jeff Guo.
Planet Money
Planet Money buys a mystery diamond
You can like get clues. No, not bite it. Don't bite the diamond.
Planet Money
Planet Money buys a mystery diamond
Right. Because diamonds, which are made of carbon, they are the hardest naturally occurring substance on Earth.
Planet Money
Planet Money buys a mystery diamond
Test number two, put a diamond in a glass of water. Diamonds are super dense, so they sink, but fake stones, a lot of them will float.
Planet Money
Planet Money buys a mystery diamond
Right, so diamonds are incredible conductors of heat, so they're supposed to feel weirdly cool against your skin. Does it feel hot or cold? No. You feel nothing?
Planet Money
Planet Money buys a mystery diamond
Mm-hmm, mm-hmm. I had mailed this thing to her as a kind of proposal to, you know, co-host this episode about this very strange economic mystery. And then more bubble wrap. This package had come from the Chinese e-commerce website Alibaba. Alibaba is the kind of place where you can buy like two dozen lawnmowers straight from the factory.
Planet Money
Planet Money buys a mystery diamond
No, no, no, no. So do you want to know the real answer, Sarah?
Planet Money
Planet Money buys a mystery diamond
Well, no, no, no. First, I got to tell you a story about how I figured it out.
Planet Money
Planet Money buys a mystery diamond
Okay, so before I ever mailed you the Planet Money Mystery Diamond, I actually took it on a couple adventures. We started out at the GIA, the Gemological Institute of America. They're like the diamond experts. So a couple weeks ago, okay, we're walking into the GIA. I went to one of their labs in Midtown Manhattan. Wow, this lobby is really pretty.
Planet Money
Planet Money buys a mystery diamond
For the diamond industry, the GIA is like the temple of truth. It's where people take their diamonds to get poked and prodded and given a grade by expert gemologists. I met their executive vice president, Tom Moses. Hi. Hi, Tom Moses. Hi. Who was going to take me behind the scenes, which they don't usually do because the GIA inspects millions and millions of diamonds a year.
Planet Money
Planet Money buys a mystery diamond
So let's just say we were in the presence of a lot of dollar signs. And I've noticed we have a security guard following us. Yes, we do. Is that just for me? Yeah, just for you. No, no, I'm kidding. I'm kidding. Tom kind of was not kidding. The whole time I was there, I had to have a security escort.
Planet Money
Planet Money buys a mystery diamond
Anyway, Tom introduced me to the scientist who was going to be taking a look at the Planet Money mystery diamond.
Planet Money
Planet Money buys a mystery diamond
Dr. Ulrika Dannens-Janensen has a PhD in physics, specifically in diamonds and how to identify them. So if anybody in the world could tell us what we had, whether it was a real diamond or a cubic zirconia or some newfangled futuristic kind of fake diamond, it was going to be Dr. Ulrika. Should we talk about this mystery diamond that I bought?
Planet Money
Planet Money buys a mystery diamond
All right. Um... I've been showing it off, so it might be a little smudged.
Planet Money
Planet Money buys a mystery diamond
On the table in front of us was a large microscope hooked up to a television.
Planet Money
Planet Money buys a mystery diamond
My life is covered in cat hair. So after getting the cat hair off and the fingerprints of basically all my friends and family, Ulrika got her first good look at the Planet Money Mystery Diamond.
Planet Money
Planet Money buys a mystery diamond
Olga said, yeah, if this is a diamond, it is a very nice diamond. And to figure out if it is a diamond, she was going to pull out all the stops for us, run all of these fancy scientific tests. So she takes me to where the GIA keeps all of its most advanced equipment. It kind of looks like a room where NASA might assemble satellites. Like the walls are white, the ceilings are white.
Planet Money
Planet Money buys a mystery diamond
There's this HVAC system that's filtering out every stray pinpoint of dust. And in one corner... There was this big beige cabinet. It was called a spectrophotometer. This machine was going to tell us what kinds of atoms the Planet Money mystery diamond was made of. A real diamond, of course, is made of pure carbon.
Planet Money
Planet Money buys a mystery diamond
Now, to get our diamond ready for the big test, apparently we had to make it really, really cold.
Planet Money
Planet Money buys a mystery diamond
Ulrika has this bubbling thermos of liquid nitrogen. She pours it over our mystery diamond, which is sitting in a little dish, and she loads it into the machine. Inside, a bunch of lasers turn on, and they're just like blasting our sample, like pew, pew, pew, pew, pew. Meanwhile, Ulrika is watching a monitor nearby.
Planet Money
Planet Money buys a mystery diamond
So the screen was showing this squiggly graph. It looked like a bunch of mountain peaks. And somewhere in those peaks was the answer. Ulrika points to one of them.
Planet Money
Planet Money buys a mystery diamond
She says that specific peak in that specific place, it tells us we have carbon atoms. Carbon atoms arranged in a very special way.
Planet Money
Planet Money buys a mystery diamond
Sarah, it is official. The Planet Money diamond is a real diamond. This is, this is a twist.
Planet Money
Planet Money buys a mystery diamond
OK, OK. So it is true that for the last 10, 15 years, people have been growing these beautiful diamonds in the lab. But I just want to be clear, natural diamonds and lab grown diamonds, they are both real diamonds. They are chemically the exact same thing.
Planet Money
Planet Money buys a mystery diamond
Right. So a natural diamond like this could sell for maybe $5,000. But if it's lab-grown, the price is more like $1,000. And Ulrika's machines, they could actually tell us exactly what we had. Because every diamond, it turns out, is unique. It doesn't matter if they look flawless to the naked eye. Ulrika says they all have these little defects, these little impurities, little imperfections.
Planet Money
Planet Money buys a mystery diamond
So these imperfections can tell you how a diamond came to be. And when Ulrika examined our diamond, she saw three really telling imperfections. Number one, she saw when she looked at it under the microscope.
Planet Money
Planet Money buys a mystery diamond
Oh, I see them. Oh, but they're so small. So these specks, most diamonds have them, are bits of stuff from the environment that get trapped inside the diamond when it's born, whether that's deep underground or in a lab. Now, the second imperfection she saw was when our diamond was in that fancy liquid nitrogen laser machine. Because no diamond is like 100, 100% carbon.
Planet Money
Planet Money buys a mystery diamond
A little while back, I bought something online that, frankly, seemed too good to be true. And after seeing this thing with my own eyes, I knew I had to share it with somebody. My Planet Money colleague, Sarah Gonzalez.
Planet Money
Planet Money buys a mystery diamond
Most natural diamonds, they have a little bit of nitrogen in them. But our diamond, it had something else. It had tiny traces of silicon in it. You can see it on the chart.
Planet Money
Planet Money buys a mystery diamond
And both of these clues, they were pointing in the same direction.
Planet Money
Planet Money buys a mystery diamond
According to the website that I bought it off of, that is a real diamond. It is a one carat, colorless, ideal cut diamond. It's basically an engagement ring quality diamond. That's what they told me.
Planet Money
Planet Money buys a mystery diamond
She is 100, 1000% sure. She said the shape of those little black specks and the fact that they were silicon were Those are really only things you see in lab-grown diamonds. Okay, but now, here is the coolest part.
Planet Money
Planet Money buys a mystery diamond
There is one more imperfection that Orca noticed, and the moment she saw it, she was like, oh, not only can I tell you this is a lab-grown diamond, I can tell you exactly how they grew it.
Planet Money
Planet Money buys a mystery diamond
Is it amazing? There are actually two different ways that people create large diamonds in the lab. So one, you try to mimic how a diamond is made in nature. So you get this giant press. Some of them are 20 feet tall. And you just like squish some carbon at really high temperatures. But there's also a newer method that's becoming really popular.
Planet Money
Planet Money buys a mystery diamond
It involves growing diamonds layer by layer in what Ulrika says is basically a fancy microwave oven. So when Ulrika put our diamond under this special blacklight and zoomed way in, she could actually see traces of that process.
Planet Money
Planet Money buys a mystery diamond
Under the blacklight, you could see a very faint line going through the middle of our diamond.
Planet Money
Planet Money buys a mystery diamond
So you're telling me that the top half and the bottom half of the diamond grew at different stages.
Planet Money
Planet Money buys a mystery diamond
We have a Kit Kat diamond. It's got, like, layers to it.
Planet Money
Planet Money buys a mystery diamond
I just want to be clear. I just want to be clear here, okay? The layers are invisible. You cannot see it with the naked eye. This is a high-quality diamond. That happens to be lab-grown.
Planet Money
Planet Money buys a mystery diamond
Yeah. So that, that is the final mystery we're going to try to figure out. After the break, we're talking about the bizarre economics of the diamond market. So before we talk about how we were able to get a diamond for $137, let's just take a step back to talk about where diamond prices in general even come from.
Planet Money
Planet Money buys a mystery diamond
Yeah, exactly. Like the diamond industry is built around this kind of circular idea that people want diamonds because they're valuable, which makes diamonds valuable because people want them because they're valuable. And the deeper you get into the economics of diamonds, the weirder it gets. So to understand how our planet money diamond fits into all of this, we should start with natural diamonds.
Planet Money
Planet Money buys a mystery diamond
Like, why are natural diamonds so expensive? The modern version of that story begins with... De Beers.
Planet Money
Planet Money buys a mystery diamond
Yeah. So for many, many decades, the De Beers company, they controlled almost all the world's diamond mines. So they were able to keep the supply of diamonds really low. But more importantly, like you said, in the 1930s and 40s, De Beers launched maybe the most genius marketing campaign in history.
Planet Money
Planet Money buys a mystery diamond
You better have that diamond ring if you want to get engaged.
Planet Money
Planet Money buys a mystery diamond
It's forever. Yeah. So that marketing campaign really, really juiced diamond demand.
Planet Money
Planet Money buys a mystery diamond
Now, the retail price for a diamond like this, it depends. If it's a natural diamond, we're talking $5,000. If it's a lab-grown diamond, we're still talking around $1,000. But that was not what Alibaba was charging.
Planet Money
PM x Radiolab: Can the economy grow forever?
This led to the Industrial Revolution. We... Avoided the problem. We avoided the shortage. And it's not an isolated example. This is a pattern that comes up. We did this with whales when we stopped using whale oil for lamps and started using kerosene. We did this with rubber. We started making synthetic rubber instead of getting all our rubber from trees. It's happened forever.
Planet Money
PM x Radiolab: Can the economy grow forever?
over and over again, where we have stood at the edge of the cliff, where it looked like, oh, crap, if we keep doing what we're doing, we are going to run out of some precious resource. And then, somehow, at the last minute, catastrophe is averted. I mean, this has happened so often, I feel like we should give it a name.
Planet Money
PM x Radiolab: Can the economy grow forever?
Not that I could find, so I'm going to take the opportunity to give this a name.
Planet Money
PM x Radiolab: Can the economy grow forever?
I think we should call this the Malthusian Swerve. Swerve. Malthusian.
Planet Money
PM x Radiolab: Can the economy grow forever?
Yeah, so he was this famous English philosopher type. He lived, you know, he grew up in the 1700s, pretty much around the time that coal was taken over England.
Planet Money
PM x Radiolab: Can the economy grow forever?
So he was seeing a lot of this happen. And he's famous for predicting that humanity's growth would hit a limit, that, you know, populations would grow faster than we could possibly.
Planet Money
PM x Radiolab: Can the economy grow forever?
provide food for them right and so the future of humanity was to be limited and trapped by our own lack of resources and that everybody would just be miserable and sad and poor and hungry forever he does not sound like he would have been fun at parties yeah yeah he's a real bummer but maybe what he's more famous for is that none of that happened the reason that Malthus's prophecy didn't come true yeah
Planet Money
PM x Radiolab: Can the economy grow forever?
is due to what I would say is the most important Malthusian swerve of all time.
Planet Money
PM x Radiolab: Can the economy grow forever?
Yeah, yeah, yeah. Yeah. So I don't know if you want to hear the guano story.
Planet Money
PM x Radiolab: Can the economy grow forever?
Okay, let's do it together. So this is like the 1800s, a little bit after Malthus's time. In the 1800s, Europeans are starting to realize you can really supercharge food production if you use better fertilizer.
Planet Money
PM x Radiolab: Can the economy grow forever?
Right. And specifically, there's this one fertilizer that indigenous people in South America were using that was amazing.
Planet Money
PM x Radiolab: Can the economy grow forever?
Yeah. Okay, so basically you would have all these seabirds and they would poop on these rocky islands and coastlines along South America. And the poop would just accumulate. So the Europeans, so like in the 1800s, the Europeans are importing hundreds and thousands of tons. They're literally fighting wars over control of these guano islands. Like Spain is getting into wars with Peru and Chile.
Planet Money
PM x Radiolab: Can the economy grow forever?
Yeah. Like, just who gets to seize the poop islands? Right. But the problem is, we were using guano way faster than the birds could, you know, make the guano. Yeah, yeah, yeah, yeah, yeah. And then... In the 1900s, in the early 1900s, some German chemists figured out a way to basically make synthetic guano. They invented an industrial process to literally pull nitrate.
Planet Money
PM x Radiolab: Can the economy grow forever?
Yeah, that's like the key ingredient in guano.
Planet Money
PM x Radiolab: Can the economy grow forever?
To pull it out of the air and make synthetic fertilizer. Right.
Planet Money
PM x Radiolab: Can the economy grow forever?
Yeah, it's a miraculous story. And it is like maybe one of the best examples of this thing that I'm going to call the Malthusian swerve. Swerve.
Planet Money
PM x Radiolab: Can the economy grow forever?
Yeah. And if you look at human history, this is a pattern that happens over and over again.
Planet Money
PM x Radiolab: Can the economy grow forever?
But, you know, to help us unpack it, I think we should talk about a swerve that we are in the middle of right now.
Planet Money
PM x Radiolab: Can the economy grow forever?
So we have been talking about a couple historical examples of this thing I'm calling the Malthusian swerve, where it looks like society is about to run out of some resource, but at the last minute, some new resource or idea or innovation comes along and saves the day. And when I was looking into this, I was like, okay, is there a more recent example?
Planet Money
PM x Radiolab: Can the economy grow forever?
Is there an example of a Malthusian swerve that happened just in the last couple years? And you know what? There is one.
Planet Money
PM x Radiolab: Can the economy grow forever?
We are, yes. Remember, do you remember like in the 80s and 90s, all of the talk about peak oil?
Planet Money
PM x Radiolab: Can the economy grow forever?
Yeah, exactly. Yeah. You have people, you have geologists, distinguished geologists saying, warning us that, you know, we're going to run out of oil, that we're going to reach peak oil very soon, and that oil is going to diminish.
Planet Money
PM x Radiolab: Can the economy grow forever?
The same thing, yeah. Yeah, well, back in the 1990s, they were saying it's going to happen in the 2000s. They were saying, oh, crap, like, we're going to start running out in the year, like, 2000-something. Yeah, yeah. And if you look at oil production, like, yeah, it does, especially in the U.S., yeah, it does kind of start to slow down in the 2000s.
Planet Money
PM x Radiolab: Can the economy grow forever?
A lot of people were wondering about what are we going to do, how are we going to adapt, how are we going to move away from oil? And if you look at the chart, you'll see the oil production, it kind of starts to dip in the 2000s and then starts to rise again more and more and more. There's a swerve. And that was caused by the fracking revolution.
Planet Money
PM x Radiolab: Can the economy grow forever?
That is one way to think about it. The way I think about it is, like, it's a mini-swerve, you know? Like, oh, crap, we're running into the cliff. We can't find any alternatives. But we did find a way to get a little bit more oil out of the ground in the meantime.
Planet Money
PM x Radiolab: Can the economy grow forever?
It's true. The problem with fossil fuels, it's not that we're going to run out of them. We have too much of them. It's too easy to go and find oil on the ground. It's too easy. We have a problem. That's not it's not a scarcity problem. It's an anti scarcity problem. Right. And then we burn them. And then there's these horrible side effects for the environment.
Planet Money
PM x Radiolab: Can the economy grow forever?
And then the world's getting hotter and wildfires are popping up.
Planet Money
PM x Radiolab: Can the economy grow forever?
Yes. That is the key thing here, I think. Like, you look at how these Malthusian swerves, if we're going to call it that, how they happened.
Planet Money
PM x Radiolab: Can the economy grow forever?
How did they happen, right? And it was people who were motivated by the terror of... we're going to crash into this giant problem in so many years, and we need to figure out how we're going to do it.
Planet Money
PM x Radiolab: Can the economy grow forever?
Yeah, yeah, right? And you look at how an economy works, and I'm not saying this is the ideal way to operate, but an economy works through incentives.
Planet Money
PM x Radiolab: Can the economy grow forever?
we might try to innovate right like now there's an incentive to invent something newer cheaper better than what we had before like i would bring up the example of like lithium right now there is so much money and if you can invent a battery that doesn't need lithium you will like i don't know win the nobel prize right like you will like there is a lot of
Planet Money
PM x Radiolab: Can the economy grow forever?
energy and motivation to solve that problem. And if we were all just going to be like, well, we don't need that much lithium because we're just going to conserve it and recycle it and we're not going to grow, then what's the point of trying to make anything more efficient or better or There's no incentive.
Planet Money
PM x Radiolab: Can the economy grow forever?
Yeah, right. How do we get people to actually do the thing that is in the long-term interests of everybody? Is the solution to have some intergalactic Queen Elizabeth come down and say, no, no, no, no, guys. You're using way too much oil. You got to stop. You got to stop. You got to put a pause on it, right? Is it that?
Planet Money
PM x Radiolab: Can the economy grow forever?
Or is it sort of we're all left to our own devices and some combination of the free market and also government leaders worrying about this thing hash out some kind of, you know, compromise? That's kind of what we're stuck in right now.
Planet Money
PM x Radiolab: Can the economy grow forever?
I think that growth is... Maybe we should talk about what growth even is. Like, there are always going to be parts of the economy that we point at, and we're going to say, that's bad growth. We don't want that. But growth is not just... us burning a lot of fossil fuels and polluting the planet, right? Growth can be good.
Planet Money
PM x Radiolab: Can the economy grow forever?
Like, growth could be starting a new business, mentoring kids, inventing a new kind of medicine that saves lives. That is also growth. And so, for me, I guess, it's hard for me to say that growth is bad. And maybe it's because I've just been too economics-pilled. But when people say the word growth to me, I think of a country like China. You know, China's economy...
Planet Money
PM x Radiolab: Can the economy grow forever?
grew so fast that it lifted 800 million people out of poverty. Incredible. Right? It's like hard to say that.
Planet Money
PM x Radiolab: Can the economy grow forever?
Yeah. And that's amazing. And so I think it's about... Figuring out specific things that we can do to be smarter about it, to make it less harmful. But I don't know.
Planet Money
PM x Radiolab: Can the economy grow forever?
I think Sandy and I were totally in agreement about what we want for the world, for the future. It's just about how we get there. And so can I give you my silly galaxy brain way of thinking about all of this? Yeah, please, please. So you're talking about like, why can't we, this is, you know, the earth is our home. So why can't we all, you know, get together and take care of it? Yeah.
Planet Money
PM x Radiolab: Can the economy grow forever?
And cooperate and all of that, right? And if you're just a household of, like, a couple people, you have a relationship. If you're just a village, you, like, know everybody. You, you know, you can help each other out.
Planet Money
PM x Radiolab: Can the economy grow forever?
Give each other things, all of that. But when you get bigger and bigger, when you get to the scale of countries and, like, the world, right, it's very hard to get people to cooperate, right? It's very, very hard. Everybody has different opinions. No one's going to agree. Everybody's going to have different motives.
Planet Money
PM x Radiolab: Can the economy grow forever?
And what an economy is, is a way of turning all of that, of organizing us at a global scale into something bigger.
Planet Money
PM x Radiolab: Can the economy grow forever?
productive and obviously you know the economy is not perfect uh there are all kinds of problems we didn't even have the time to talk about today but when it comes to dealing with issues of scarcity like running out of some resource markets are a tool that you know historically have kind of worked even if it's been super messy and dramatic and swervy and may have created way bigger problems down the road i
Planet Money
PM x Radiolab: Can the economy grow forever?
Yeah. Okay. So I am Jeff Guo. I'm one of the hosts of the Planet Money podcast at NPR.
Planet Money
PM x Radiolab: Can the economy grow forever?
Thank you. And I guess, what do I do? I talk about economics all day. I guess that's what I do.
Planet Money
PM x Radiolab: Can the economy grow forever?
Cure this existential dread that you have now.
Planet Money
PM x Radiolab: Can the economy grow forever?
Okay. Well, I mean, I guess where I would start is, and, you know, I would hate to contradict a Nobel Prize winning astrophysicist. It sounds like, you know, starting out on dangerous territory there.
Planet Money
PM x Radiolab: Can the economy grow forever?
She's going to. She's going to. It sounds like she's going to win.
Planet Money
PM x Radiolab: Can the economy grow forever?
But you did ask me to kind of look into what things are we going to run out of.
Planet Money
PM x Radiolab: Can the economy grow forever?
after the break can we cure Latif's existential dread or did we just make it worse Okay, Latif, so I looked into your question about growth and stuff that we might run out of, and I found a couple things that, you know, people are worried about. Okay, great. And I just did some very rough back-of-the-envelope math. Like, this is so totally not precise.
Planet Money
PM x Radiolab: Can the economy grow forever?
And in trying to answer their big question, we ended up in some pretty heady and unexpected places. Hello and welcome to Planet Money. I'm Jeff Guo. And today we're doing something a little bit different. We've teamed up with Radiolab and we're going to try to answer one of the biggest questions that often goes unsaid in economics. Here's Latif Nasser from Radiolab to get us started.
Planet Money
PM x Radiolab: Can the economy grow forever?
Great. I love it. Okay, so I don't know. What should we start with? Copper? Copper.
Planet Money
PM x Radiolab: Can the economy grow forever?
So if you look at copper consumption over the past century since the Industrial Revolution, our demand for copper has grown about. 3% every year. Okay. Like, you know, in recent years, we've consumed about 26, 27 million tons a year of copper.
Planet Money
PM x Radiolab: Can the economy grow forever?
Yeah. So if you just, you know, extrapolate that out, if you just assume copper is going to keep growing at 3% every single year, right? Fair. Fair assumption. I looked up how much copper people think we have. According to geologists, what we know is out there and could theoretically get to. And that number right now is 5 to 6 billion tons. Okay.
Planet Money
PM x Radiolab: Can the economy grow forever?
It's not nothing, but we're using it pretty quickly. And if you just assume that this number is going to keep growing at 3% a year... Yeah, yeah, sure. It would take about maybe another 70 years. And then no more copper. That's it? 70 years? 70 years. Oh, okay, so that sounds terrible. It's true. It's true. That's assuming, of course, that... You know, we do keep consuming copper that quickly.
Planet Money
PM x Radiolab: Can the economy grow forever?
It's true. It's true. It's true. Yeah. Do you want to do another one?
Planet Money
PM x Radiolab: Can the economy grow forever?
Okay, but there's a but, there is a but coming up. There's a but.
Planet Money
PM x Radiolab: Can the economy grow forever?
Okay, so another one I looked into is sand.
Planet Money
PM x Radiolab: Can the economy grow forever?
Which seems like there should be a ton of that. Seems like there should be so much of it. Yeah. And you know the reason why we need sand, right? Why do we need sand? For concrete. Ah. So it's actually so important that we don't know how much we're using.
Planet Money
PM x Radiolab: Can the economy grow forever?
Like, we're using so much. We just, we actually don't know. But, like, ballpark estimates, we're using maybe 50 billion tons of sand and gravel every year.
Planet Money
PM x Radiolab: Can the economy grow forever?
I can't even visualize that. I don't know. It's a lot. Right. And I couldn't even find how much sand and gravel there is in the world. Like, nobody actually knows.
Planet Money
PM x Radiolab: Can the economy grow forever?
This is one of those numbers where it's like, oh. But we're doing, like, back-of-the-envelope math here, right? Right, right. So I was like, well... If we don't know how much sand and gravel there is in the world, surely we know how much rock there is in the world, right?
Planet Money
PM x Radiolab: Can the economy grow forever?
Totally. So I looked it up, and according to geologists, the Earth's crust, all of the Earth's crust contains... maybe like 23 quintillion tons of rock and stuff. Okay.
Planet Money
PM x Radiolab: Can the economy grow forever?
It would. But assuming that we're able to do that, right? Okay, great. Assuming that we're going to use sand and gravel at a rate that grows by 3% every year, year after year after year. Yeah. It would take about, do you want to guess how long it would take to deplete the entire Earth's crust?
Planet Money
PM x Radiolab: Can the economy grow forever?
That's how I felt. That's how I felt when I started on this journey. Right.
Planet Money
PM x Radiolab: Can the economy grow forever?
I got a couple more. Okay, great. Love it. I'm going to pull up my spreadsheet. I'm going to talk about lithium.
Planet Money
PM x Radiolab: Can the economy grow forever?
Anyway, okay, keep going. Okay, hang on. Let me see. Let me pull up my notes go on this. I can't wait when we have to fact check all of this. Okay, lithium. So we are using about... 190, 200,000 tons of lithium every year.
Planet Money
PM x Radiolab: Can the economy grow forever?
A few weeks ago, we got this kind of mind-bending question. It was from our friends at Radiolab, which is a show about science and philosophy and, you know, just the sheer joy of curiosity. In this case, they were curious about growth, in particular, economic growth. How could it possibly go on forever? And can too much growth destroy us?
Planet Money
PM x Radiolab: Can the economy grow forever?
Yeah, batteries. Batteries is a big one for lithium. Very important. Lithium consumption, of course, has been exploding. So over the past decade, lithium has been growing. Do you want to guess how much it's been growing?
Planet Money
PM x Radiolab: Can the economy grow forever?
On average, around 20%. Okay, wow, okay, wow. So we need a lot, and we need a lot more lithium, right?
Planet Money
PM x Radiolab: Can the economy grow forever?
So geologists think that of all the lithium that we know is out there, there's probably like 105 million tons of it, like out there.
Planet Money
PM x Radiolab: Can the economy grow forever?
Right. And so, you know, if you do this whole, you know, the same math, and you just—if you assume—if you just assume, just, you know, for the sake of argument, it's only going to grow at 3% a year, right?
Planet Money
PM x Radiolab: Can the economy grow forever?
We'd probably run out of lithium around— March.
Planet Money
PM x Radiolab: Can the economy grow forever?
I'll do one more. I'll do one more, which is, and this is a big one, oil. Hmm.
Planet Money
PM x Radiolab: Can the economy grow forever?
Doesn't seem like it's really happening yet. Oh, God. But. But.
Planet Money
PM x Radiolab: Can the economy grow forever?
So if you look at oil, right. How much do we consume every year? About 37 billion barrels of oil. All right. As a world. How much is left? Probably 1.6 trillion barrels. Really? Yeah. So it's not. That's a lot. It's a lot, but it's maybe less. It's less than I thought. So another way to say 1.6 trillion is 1,600 billion. Right, right. So 37 billion a year.
Planet Money
PM x Radiolab: Can the economy grow forever?
We have about 1,600 billion barrels left out there.
Planet Money
PM x Radiolab: Can the economy grow forever?
Yeah. Not great. So, you know, if you do the math again, exponential growth, very scary.
Planet Money
PM x Radiolab: Can the economy grow forever?
Maybe decades. Yeah. So I started to get... You know, a little nervous. And so I thought, well, like, what happened in the past? You know, like when we were overexploiting some resource and it looked like it was going to run out. And when I looked into it, there's this funny thing that happens. And so just for example, let me tell you a story. Please. It's about medieval England.
Planet Money
PM x Radiolab: Can the economy grow forever?
So it's the 1400s. Okay. It's like medieval England. It's the 1400s. And this amazing new technology has just arrived on the shores of ye olde England. And it is this new way of making iron. Okay. Okay. It's called the blast furnace.
Planet Money
PM x Radiolab: Can the economy grow forever?
So just like very briefly, like before the blast furnace, you kind of had these backyard ovens basically where you kind of baked the iron ore to make the iron and they were like super inefficient and really slow and not great.
Planet Money
PM x Radiolab: Can the economy grow forever?
But this blast furnace, the scientific innovation was that if you blew air onto the fire, you could get it really hot and then you could get it so hot. Ah. that you could just melt the iron, and it was amazing. Got it. And this, like, revolutionized ironmaking. So these blast furnaces, they're these huge 20-foot-tall stone towers. You would have these giant bellows at the bottom blowing in air.
Planet Money
PM x Radiolab: Can the economy grow forever?
Yes. And medieval England... Iron was so precious, so important. You needed it for plows and spades, horseshoes, pots, kettles, nails, hammers. Yeah, whatever. And so now you had this technology that you could make. These blast furnaces, they could make a ton of iron a day. A ton, a literal ton. A literal ton, which is like just unprecedented. Yeah.
Planet Money
PM x Radiolab: Can the economy grow forever?
The problem with all of this is what was the fuel that went into this blast furnace? At the time, it was charcoal.
Planet Money
PM x Radiolab: Can the economy grow forever?
Yes. Just picture the English countryside, right? You've got these blast furnaces sending up these huge plumes of smoke. And then everyone is just chopping down trees as fast as they can to feed these giant blast furnaces.
Planet Money
PM x Radiolab: Can the economy grow forever?
And it makes people really concerned. Yeah. Like really concerned. They're like, oh, my God, where are the trees going? But it got so bad that by the late 1500s, you have parliament banning new iron mills from starting up in different places. They're like, we cannot do this. We just cannot deal with this.
Planet Money
PM x Radiolab: Can the economy grow forever?
Yeah. Yeah. You even have Queen Elizabeth I. Not the second. The first. Okay. All right. You have Queen Elizabeth I. She is issuing royal edicts saying, no more charcoal making in my royal forests.
Planet Money
PM x Radiolab: Can the economy grow forever?
We just can't. We can't do this anymore. But then something happened.
Planet Money
PM x Radiolab: Can the economy grow forever?
So in 1709, this English guy named Abraham Darby, he figured out how to use a different kind of fuel. So not charcoal. So maybe you want to guess what he figured out. Oil, probably, right? Coal. He figured out coal, yes. He figured out you can use this sort of modified coal to run these blast furnaces. And this changed everything. I'm not exaggerating. The iron industry took off.