33 years ago, an environmentalist and a economist made a $1000 bet. In The Population Bomb (1968), Paul Ehrlich predicted global ecological calamity. Disagreeing, Julian Simon said that free markets would solve environmental problems.
The bet involved the prices of five commodities –chromium, copper, nickel, tin and tungsten. Ehrlich said prices would rise during the next ten years because of shortages. With population growing and resource abuse, prices had to spike. Simon said, “No.” He believed that whenever a shortage appeared imminent, capitalist ingenuity would kick in. New technology and a switch to substitutes would keep a lid on prices. The market would take care of it.
Simon won. While world population had risen from 4.5 to 5.3 billion, adjusting for inflation, the average prices of the 5 minerals declined by 50%. In 1990, Paul Ehrlich mailed Julian Simon a check for $576.07, the total decrease in price.
But, it is not over until it is over…
A TED speaker, Paul Kedrosky, returned to “The Most Important Bet in History” to see how each would have fared more recently. The results? It all depends on the starting year. With starting dates during the 1980s, Simon wins most of the time. Using starting dates during the 1990s, then Ehrlich wins. Between 1900 and 2008, using simulations for every 10 year permutation, Ehrlich would have won 63% of the time (p.187, the Big Bet).
In 2011, The Economist looked at a history of metal prices:
For us though, I prefer Yale historian Paul Sabin’s conclusion in his book, The Bet. “Neither biology nor economics can substitute for the deeper ethical question: What kind of world do we desire?”
Sources and resources: Engaging, Paul Sabin’s The Bet is a good read that goes beyond the whole story of the Simon/Ehrlich bet. He even tells us Jimmy Carter kept the White House so warm during the summer that National Security Advisor Zbigniew Brzezinski used a lamp near his thermostat so the heat would trick his thermostat into starting the AC. Insightfully, Sabin concludes with each man’s contribution to a constructive future debate. For a discussion of the bet in a more academic framework, you will enjoy this NBER paper. And here is Paul Kedrosky’s summary of the debate.