Cobalt Superabundance and the Pretense of Knowledge

Sometimes, doing nothing is the best solution to a problem.

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A miner holds a cobalt stone at the Shabara mine in the Democratic Republic of Congo on October 12, 2022. (Photo by Junior Kannah/AFP/Getty Images)

Dear Capitolisters,

A little more than two years ago, a lot of U.S. politicians and wonks were worried about cobalt, a mineral central to the production of the lithium-ion batteries that power everything from smartphones to electric vehicles.  Politico reported in December 2020, for example, that “China’s state-directed industrial policy has outmaneuvered America’s laissez-faire approach to securing access around the world to a metal that’s taking on growing economic and strategic importance.”

The story went on to explain that two decades of Chinese government “strategic thinking” on cobalt (and other key minerals) put China at the center of the cobalt supply chain, making it “one of the materials at highest risk of supply disruptions.” This risk, we were told, had serious economic and security implications that had Washington rethinking its hands-off approach to “critical minerals”—instead contemplating subsidies, tariffs, and other industrial policies to secure future access to these scarce, vital resources.  

Back then, I took to Cato’s blog to caution—as I’m known to do—that hysteria about widespread China-related shortages of cobalt was very likely misguided.  My warnings, as they’ve sadly been in recent years, were ignored: Since 2020 the federal government has implemented an array of industrial policies to ensure U.S. access to cobalt, including substantial new subsidies for cobalt production in the 2022 IRA (aka The Bill that I Shall Not Name).

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  1. Avatar photo
    Ben Connelly

    What do you mean “sometimes…”?

    Man, I can’t get over this newsletter. It was so good I can barely contain myself. Quoting Hayek AND Mike Munger! Global free markets once again solve another resource problem and planning falls flat! Industrial policy and protectionism fail again. Man, you’d think more people would get on board with the free market in the face of all this evidence… oh wait.

    I have faith in the market because I believe in the permanence of human nature, including the “propensity” of man to “truck, barter, and exchange” (I wonder who said that!). Socialism will always fail and we will never achieve world communism. Every attempt to cure human nature and eliminate the market will fail (there will always be black markers). But I also know that human nature contains within it that skepticism and zero-sum scarcity mindset that you rightly identify. We don’t know what’s good for us and we can’t help meddling in things and trying to control them. Oh well. At least we’ll always fail and the market will continue to deliver for us despite our best efforts to stop it.

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  2. Mike W

    In one of his books, Thomas Sowell writes about "natural resources" and the idea about "running out" of important natural resources, etc. One of the concepts he writes about is that what is considered a "natural resource" during one time period is often not a very important one in a later time period, as human ingenuity either comes up with alternative technology that leverages other resources, or that as a natural resource starts to become scarce, the cost to get more of it that was previously prohibitively high, now becomes attractive, along with new technologies making it easier to get at those resources. (think about all the times we were to supposed to have reached "peak oil"...)

    ...also the earth is really really really big and digging things out of it can mostly be treated as unlimited for any practical time horizon.

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    Jerrymasters7vwp

    Ah...humility.

    Simone Weil called it the essential virtue. She was talking philosophically; Scott Lincicome, here, economically.

    Refreshing to hear seriously smart people extol the products of the crucible of humility.

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  4. Jfan

    As I recall, in 1992 President Bush rejected Democrats' calls for some measure to fight the "recession," which actually ended the previous year. A newspaper printed the headline "Bush to Congress: 'Do Nothing' on economy," and Bill Clinton held up the newspaper as evidence that Bush was unfit to help us through our crisis.

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    Earl King

    This article leaves me is a quandary. On the one hand, a critical material was thought to be problematic to the government sponsored and forced change to our transportation fuel. So, someone developed a plan or workaround to the supply chain issue. Which may have been scarcity or really it may have been Chinese hegemony of cobalt. Take you pick.

    I am heartened that there was a plan. I am disheartened that it involved wasteful spending. I don’t see that planning is a bad idea. The real issue is do we have the expertise to decide whether to implement the plan.

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  6. NickNiarch

    "Market factors" are not the only reason for cobalt prices falling. Stockpiling is a massive issue, and to pretend that most of the major companies mining cobalt follow the same market rules as the free-market darlings that Mr. Linicome presumably admires is fantasy. When I say "most of", the clue is in the name for most of these mining companies (China Moly, Eurasian Resources Group, Congo Dongfang Mining): every major cobalt mine in DR Congo apart from Mutanda and Kamoto (which are owned by Glencore) is owned by Chinese (or in ERG's case, Kazakh) companies. Almost all the minor cobalt mines trade with Chinese companies.

    The fall in cobalt prices is cyclical--yes, market factors are involved, but also at issue is the huge amount of cobalt stockpiled in an anti-competitive way by Chinese companies.

    What will be interesting to see is what happens when Tenke Fungurume and the Congolese government come to terms and that huge amount of stockpiled cobalt is released into the market. Presumably prices will collapse, but deals to limit supply from other companies and so on should not be considered off-the-table.

    I guess my point is that we're not out of the woods yes, and a short-term price drop should not be considered a signal that we're out of the woods on this one.

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  7. Deleted Comment

    This comment has been deleted

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    Kizedek

    "this “superabundance” is what usually happens when markets are allowed to adjust and humans—motivated by prices, profits, and other things—are relatively free to innovate and trade."

    Or, it's what happens when a spotlight is put on something to highlight some concerns. The markets "adjusted" *because of the attention and awareness* placed upon it. I don't know why that is controversial.

    Regardless of whether the spotlight and concern result in some kind of over-reactive, and ultimately unnecessary policy changes (which it doesn't have to), it is most often the case that *the spotlight and the raising of concerns* causes the necessary changes and innovations (such as focusing on alternate chemical processes to make batteries that use less cobalt, etc.), that in turn lead to the "superabundance" AND better practices (such as using less child labor and other forms of exploitation, as well as avoiding the complete gang rape of the environment) .

    Without the spotlight and concerns being raised, it would just be "business as usual", in terms of both supply chain and social/human rights/environmental implications. ...until, again, such time as someone says, "Hey, there's a problem here, the way we are going with this is neither sustainable, practical, nor ethical." At which point, *further* down the line, the lucky "superabundance" that the market serrendipitously "discovered" for us is neither so rosy nor inevitable. And we haven't had to develop alternative solutions in the meantime.

    But, hey, let's just keep testing the "intelligence of the market" against real world realities... because, somehow, the Market "creates" these "superabundances", as though they don't correspond to actual resources that have to be pulled from actual mines on an actual piece of rock we call earth and which we all have to live upon.

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  9. Neelthakrebew

    Well, so the world got lucky on cobalt. Seems like an issue where Congress could agree on modifying the IRA.

    However, luck will not always be on our side.

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  10. Edward Grant

    To the extent that the “superabundance” of cobalt is due to the horrific mining practices in the Congo, that’s hardly an endorsement of “free markets.” More like exploitive labor markets. Other factors such as reduced demand are contributors to lower prices, but there is clearly value in avoiding reliance on labor practices that do not meet minimum standards of human decency.

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