February 17, 2015

The bet between Julian Simon and Paul R. Erlich

Filed under: Economics — Tags: , — Nicholas @ 04:00

Aaron Tao remembers one of the more amusing stories from the career of economist Julian Simon:

February 12 marks the birthday of the late economist Julian Simon (1932–1998). On this special occasion, I wish to bring attention to this thinker whose work I feel has not been fully appreciated. The implications of his controversial but time-tested ideas certainly deserve greater attention in academia and society at large.

Simon is perhaps best known for his famous wager against ecologist Paul R. Ehrlich, author of the notorious best-seller The Population Bomb.

In line with classical Malthusian theory, Ehrlich predicted that human population growth would result in overconsumption, resource shortages, and global famine — in short, an apocalyptic scenario for humanity. Simon optimistically countered Ehrlich’s claim and argued that the human condition and our overall welfare would flourish thanks to efficient markets, technological innovation, and people’s collective ingenuity. Both men agreed to put their money where their mouth is.

They agreed that rising prices of raw materials would indicate that these commodities were becoming more scarce, and this became the premise of The Bet. The metals chromium, copper, nickel, tin, and tungsten were chosen as measures of resource scarcity by Ehrlich’s team. Ehrlich and his Malthusian colleagues invested a total of $1,000 (in 1980 prices) on the five metals ($200 each). The terms of the wager were simple: If by the end of the period from September 29, 1980, to September 29, 1990, the inflation-adjusted prices of the metals rose, then Simon would pay Ehrlich the combined difference, and vice versa if the prices fell.

Here’s the final outcome as summarized by Wired:

    Between 1980 and 1990, the world’s population grew by more than 800 million, the largest increase in one decade in all of history. But by September 1990, without a single exception, the price of each of Ehrlich’s selected metals had fallen, and in some cases had dropped through the floor. Chrome, which had sold for $3.90 a pound in 1980, was down to $3.70 in 1990. Tin, which was $8.72 a pound in 1980, was down to $3.88 a decade later.

    Which is how it came to pass that in October 1990, Paul Ehrlich mailed Julian Simon a check for $576.07.

    A more perfect resolution of the Ehrlich-Simon debate could not be imagined.

Looking back on this high-profile debate, it is important to realize that Simon did not win because he was a savvier investor or had special knowledge about economic trends. Rather, Simon’s ideas were shown to be more empirically, intellectually, and morally sound. A distinguishing hallmark of Simon’s work was that he held a sincere conviction that human imagination was the ultimate renewable resource that can create a better world

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