Thirty years ago, an environmentalist and a business professor made a bet. In The Population Bomb (1968), Paul Ehrlich predicted global ecological calamity. Saying that free markets would solve environmental problems, Julian Simon, a University of Maryland business professor, disagreed.
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 and Simon said they would fall because of the market’s response. The winner would receive the total change in price from the loser. Simon won. In 1990, Paul Ehrlich gave Julian Simon $576.07.
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.
The Economic Life
Fundamentally economics is about scarcity and opportunity cost. All of our land, labor, and capital are scarce because their quantity is limited. Looking at limited quantities environmentalists suggest conservation. Others believe that because the opportunity cost of using a resource rises when shortages are imminent, innovators develop more efficient alternatives. Then the shortage is no longer a problem.