When I first read about the discovery of a vast new deposit of lithium in a volcanic crater along the Nevada-Oregon border, I cannot say that I was surprised. Not because I know anything about geology, but because, as an economist, I am a strong believer in the concept of the elasticity of supply.
Before I get to that, it is worth dwelling on the significance of this find, which could help limit climate change and ease geopolitical tensions. The find, estimated at between 20 million and 40 million tonnes, would be larger than the current largest source, about 21 million tonnes beneath the salt flats of Bolivia.
The discovery awaits final confirmation, but at least one company says it expects to start mining this supply in 2026. Lithium is, of course, a crucial ingredient in batteries for electric vehicles, demand for which is surging and which are an important part of any plan to fight climate change.
Yet US policymakers have been nervous, both because lithium is scarce and because the US did not seem to have major deposits of its own. Major lithium supplies are not commonplace, and many of the known deposits are not in North America but in Chile, Bolivia, Argentina, China and Australia. If this discovery is validated, US investment in electric vehicles would no longer be so fraught with national security concerns.
Now about the elasticity of supply, in which we economists tend to have more faith than do most people. Time and again over the centuries, economists have observed that resource shortages are often remedied by discovery, innovation and conservation — all induced by market prices. To put it simply: If a resource is scarce and there is upward pressure on its price, new supplies would usually be found.
Unsurprisingly, Lithium Americas Corp put in a lot of the work behind the discovery. Searching for new lithium deposits has been on the rise worldwide, as large parts of the world remain understudied and, for the purposes of lithium, undersampled. Just as Adam Smith’s invisible hand metaphor would lead one to expect, that set off many new lithium-hunting investigations.
Sometimes the new supplies would be for lithium substitutes rather than for lithium itself. In the case of batteries, relevant potential substitutes include aqueous magnesium batteries, solid-state batteries, sodium-based batteries, sodium antimony telluride intermetallic anodes, sodium-sulfur batteries, seawater batteries, graphene batteries and manganese hydrogen batteries.
I am not passing judgement on any of these particular approaches — I am just noting that there are many possible margins for innovation to succeed.
It is also worth noting that the search for lithium ranges far and wide. Occasionally there are reports of significant lithium deposits in Afghanistan, and the Taliban is already selling off those mineral rights, most notably to China. Yet Afghanistan is not exactly the most favorable locale for commerce and mining, for obvious reasons.
Nonetheless this example illustrates just how powerful the elasticity of supply is. It is possible that all the ongoing lithium prospecting would fail, and that none of these lithium substitutes would work out, but that is unlikely. Hence my strong belief in the elasticity of supply.
In short, if you want more of something, pay more for it. The point sounds trivial, but few non-economists consistently incorporate it into their worldviews.
There is a long history, in fact, of doomsayers worried about resource shortages. The Club of Rome report The Limits to Growth was issued in 1972, and anxiety about resources peaked in the 1970s. Yet few of the worries of that era have been borne out. If anything, the problem has been that we keep on finding more of some resources, such as coal and oil, and burning them excessively into the atmosphere.
That said, the lithium shortage is not over. Last year, there were 45 lithium mines in the world, with 11 more expected to open this year and seven more to follow next year. That is progress, but on its own, even with this new US discovery, it is unlikely to meet the rapidly growing demand for electric vehicles, not to mention the other uses of lithium-based batteries in computers and other devices. Expect lithium prices — and exploration opportunities — to remain robust.
Tyler Cowen is a Bloomberg Opinion columnist. He is a professor of economics at George Mason University and writes for the blog Marginal Revolution. He is the coauthor of Talent: How to Identify Energizers, Creatives, and Winners Around the World. This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
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