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Yes. Economists do love magical, lovely human selfishness

... and here's why

Worstall on Wednesday Over the weekend we were treated to the quite startling news that economists think that selfishness is just great.

TheOtherHobbes had this to say in the comments section of a Reg opinion piece about consumerism:

Economists actually believe – no really, they do – that if you allow people to be selfish then everything magically self-organises into the best of all possible economic worlds.

As I tried to point out, this isn't quite so: economists generally believe that sometimes this is so and that sometimes it is not. The difficulty of the subject is in deciding when this is.

To illustrate this, let us have a look at the market for rare earth oxides and metals: we like them around here because they're the stuff that makes advanced shiny-shiny work and thus provides the physical underpinning of the methods by which most of us here both make our livings and amuse ourselves.

China makes rare earths that much ... rarer

To set the basic scene: about six years ago, China was the global source for 97 per cent of the supplies of these wondrous elements. The People's Republic also had 30 per cent of all the economic reserves of rare earths. Other than a few people (like myself) shipping small amounts out of Russia, China essentially had a monopoly. No one cared about this as it was happily selling the stuff at prices that everyone was happy to pay.

Rare earths live second row from the bottom on the periodic – the row from Lanthanum to Lutetium (metallic d-block elements Yttrium and Scandium are usually added to the list).

Then one day, China decided that it would like to flex its economic muscles a bit and exploit its monopoly. Rare earth prices soared and there was much consternation in industrial and political circles. China decided that exports of the rare earths would be restricted: but exports of things made from rare earths would not. The aim, obviously, was to encourage companies to move the "value-added" part of making rare earths into components for shiny-shiny to China.

At this point, the rest of the world decided that Something Needed To Be Done. And much was talked about: take China to the WTO for example, which was done (China lost). Not that that made much difference. There were also cries that the US rare earth industry should be subsidised and reopened. And some of that did happen and tax money was spent: but not on any part of the system that made any difference. There were also those, like myself (see here) who said "just leave it alone and she'll be right". This was on the basis that we would be just fine if we left this all to human greed, that selfishness, to sort things out. As it turned out, I was correct and she came right.

What happened was that those soaring prices made people look for the profits that they hoped could be made from mining and extracting rare earths. There were a couple of companies (at one point there were 420 companies chasing investment in this space, but only two really got going) with plans ready to roll and they were able to raise the cash to go into production. Molycorp, in the US, had an IPO at $14 and the stock rose to $70. Lynas Corp, in Oz and with a processor in Malaysia, raised sufficient funds to go into production. Those two together can (or will imminently) produce enough to cover all of "outside China" demand for these metals. Our basic problem is solved and all rather faster than we might expect government action to have managed it.

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