In 1980 an ecologist and an economist chose a refreshingly unacademic way to resolve their differences. They bet $1,000. Specifically, the bet was over the future price of five metals, but at stake was much more -- a view of the planet's ultimate limits, a vision of humanity's destiny. It was a bet between the Cassandra and the Dr. Pangloss of our era.
They lead two intellectual schools -- sometimes called the Malthusians and the Cornucopians, sometimes simply the doomsters and the boomsters -- that use the latest in computer-generated graphs and foundation-generated funds to debate whether the world is getting better or going to the dogs. The argument has generally been as fruitless as it is old, since the two sides never seem to be looking at the same part of the world at the same time. Dr. Pangloss sees farm silos brimming with record harvests; Cassandra sees topsoil eroding and pesticide seeping into ground water. Dr. Pangloss sees people living longer; Cassandra sees rain forests being decimated. But in 1980 these opponents managed to agree on one way to chart and test the global future. They promised to abide by the results exactly 10 years later -- in October 1990 -- and to pay up out of their own pockets.
The bettors, who have never met in all the years they have been excoriating each other, are both 58-year-old professors who grew up in the Newark suburbs. The ecologist, Paul R. Ehrlich, has been one of the world's better-known scientists since publishing "The Population Bomb" in 1968. More than three million copies were sold, and he became perhaps the only author ever interviewed for an hour on "The Tonight Show." When he is not teaching at Stanford University or studying butterflies in the Rockies, Ehrlich can generally be found on a plane on his way to give a lecture, collect an award or appear in an occasional spot on the "Today" show. This summer he won a five-year MacArthur Foundation grant for $345,000, and in September he went to Stockholm to share half of the $240,000 Crafoord Prize, the ecologist's version of the Nobel. His many personal successes haven't changed his position in the debate over humanity's fate. He is the pessimist.
The economist, Julian L. Simon of the University of Maryland, often speaks of himself as an outcast, which isn't quite true. His books carry jacket blurbs from Nobel laureate economists, and his views have helped shape policy in Washington for the past decade. But Simon has certainly never enjoyed Ehrlich's academic success or popular appeal. On the first Earth Day in 1970, while Ehrlich was in the national news helping to launch the environmental movement, Simon sat in a college auditorium listening as a zoologist, to great applause, denounced him as a reactionary whose work "lacks scholarship or substance." Simon took revenge, first by throwing a drink in his critic's face at a faculty party and then by becoming the scourge of the environmental movement. When he unveiled his happy vision of beneficent technology and human progress in Science magazine in 1980, it attracted one of the largest batches of angry letters in the journal's history.
In some ways, Simon goes beyond Dr. Pangloss, the tutor in "Candide" who insists that "All is for the best in this best of possible worlds." Simon believes that today's world is merely the best so far. Tomorrow's will be better still, because it will have more people producing more bright ideas. He argues that population growth constitutes not a crisis but, in the long run, a boon that will ultimately mean a cleaner environment, a healthier humanity and more abundant supplies of food and raw materials for everyone. And this progress can go on indefinitely because -- "incredible as it may seem at first," he wrote in his 1980 article -- the planet's resources are actually not finite. Simon also found room in the article to criticize, among others, Ehrlich, Barry Commoner, Newsweek, the National Wildlife Federation and the secretary general of the United Nations. It was titled "Resources, Population, Environment: An Oversupply of False Bad News."
An irate Ehrlich wondered how the article had passed peer review at America's leading scientific journal. "Could the editors have found someone to review Simon's manuscript who had to take off his shoes to count to 20?" Ehrlich asked in a rebuttal written with his wife, Anne, also an ecologist at Stanford. They provided the simple arithmetic: the planet's resources had to be divided among a population that was then growing at the unprecedented rate of 75 million people a year. The Ehrlichs called Simon the leader of a "space-age cargo cult" of economists convinced that new resources would miraculously fall from the heavens. For years the Ehrlichs had been trying to explain the ecological concept of "carrying capacity" to these economists. They had been warning that population growth was outstripping the earth's supplies of food, fresh water and minerals. But they couldn't get the economists to listen.
"To explain to one of them the inevitability of no growth in the material sector, or . . . that commodities must become expensive," the Ehrlichs wrote, "would be like attempting to explain odd-day-even-day gas distribution to a cranberry."
Ehrlich decided to put his money where his mouth was by responding to an open challenge issued by Simon to all Malthusians. Simon offered to let anyone pick any natural resource -- grain, oil, coal, timber, metals -- and any future date. If the resource really were to become scarcer as the world's population grew, then its price should rise. Simon wanted to bet that the price would instead decline by the appointed date. Ehrlich derisively announced that he would "accept Simon's astonishing offer before other greedy people jump in." He then formed a consortium with John Harte and John P. Holdren, colleagues at the University of California at Berkeley specializing in energy and resource questions.
In October 1980 the Ehrlich group bet $1,000 on five metals -- chrome, copper, nickel, tin and tungsten -- in quantities that each cost $200 in the current market. A futures contract was drawn up obligating Simon to sell Ehrlich, Harte and Holdren these same quantities of the metals 10 years later, but at 1980 prices. If the 1990 combined prices turned out to be higher than $1,000, Simon would pay them the difference in cash. If prices fell, they would pay him. The contract was signed, and Ehrlich and Simon went on attacking each other throughout the 1980's. During that decade the world's population grew by more than 800 million, the greatest increase in history, and the store of metals buried in the earth's crust did not get any larger. . . .
The bet was settled this fall [in 1990] without ceremony. Ehrlich did not even bother to write a letter. He simply mailed Simon a sheet of calculations about metal prices -- along with a check for $576.07. Simon wrote back a thank-you note, adding that he would be willing to raise the wager to as much as $20,000, pinned to any other resources and to any other year in the future.
Each of the five metals chosen by Ehrlich's group, when adjusted for inflation since 1980, had declined in price. The drop was so sharp, in fact, that Simon would have come out slightly ahead overall even without the inflation adjustment called for in the bet. Prices fell for the same Cornucopian reasons they had fallen in previous decades -- entrepreneurship and continuing technological improvements. Prospectors found new lodes, such as the nickel mines around the world that ended a Canadian company's near monopoly of the market. Thanks to computers, new machines and new chemical processes, there were more efficient ways to extract and refine the ores for chrome and the other metals.
For many uses, the metals were replaced by cheaper materials, notably plastics, which became less expensive as the price of oil declined (even during this year's crisis in the Persian Gulf, the real cost of oil remained lower than in 1980). Telephone calls went through satellites and fiber-optic lines instead of copper wires. Ceramics replaced tungsten in cutting tools. Cans were made of aluminum instead of tin, and Vogt's fears about America going to war over tin remained unrealized. The most newsworthy event in the 1980's concerning that metal was the collapse of the international tin cartel, which gave up trying to set prices in 1985 when the market became inundated with excess supplies. . . .McDonald:
Paul Kedrosky has cleverly turned the famous 1980 Simon-Ehrlich wager on future commodity prices into a new teaching story, recasting the old lessons from that economist’s tete a tete into a false moral. In his interview here, with Andrew Keen, Paul explains that not only was the original bet limited to a not-very-useful 10 year timeframe, but worse, a generation of economists interpreted the wager’s outcome as law. Both points are worth making. As Kedrosky correctly points out, once you start moving the 10 year bracket forward from 1980 then Ehrlich, who bet on scarcity and lost, starts to win. Indeed, the winner of the wager was the beneficiary of timing, not insight. But leave it to economists to convert ephemeral conditions into permanent ones. While it’s true that both the price signal and technology can bring forth more supply of resources, often at lower costs, this is only true up to a limit. Once those limits are reached, as we have seen in global Copper and also Oil for example, then better technology might be able to create more supply on a nominal basis, but not at a lower price, and not in real terms. Anyone who has studied the chart of declining ore grades of Copper, or accepted the massive cost escalation in simply keeping global oil supply flat, will understand.
Paul Kedrosky calls the Simon-Ehrlich wager The Bet That Ruined the World. As much as I like that phrasing, I am instead more excited with the possibility that Kedrosky’s recasting of Simon-Ehrlich will now supplant the antiquated, false teaching story originally derived from the bet. As the world now faces up to the fact that no cheaper substitute exists for the uber-dense 5.8 million BTU in a barrel of oil, a recasted Simon-Ehrlich is necessary to usher us more quickly to a confrontation with energy facts, and energy limits. Indeed, for Transitionists who dream of moving quadrillions of BTU demand, currently supplied by oil in global transport, over to a new electrified grid it behooves us to think harder about resources such as Copper. Like Kedrosky, and surely some of my readers, I have marveled over the possibilities of material upgrading and other technological wonders of resource substitution–the kinds of methods that often appear in presentations from places like MIT’s Solar Group. That said, we need to confront the fact that in conjunction with new lows in global copper ore grades, the price of copper–just like oil–has entered a new regime. Expecting a miracle of substitution in copper, or a price reversal downward away from the current regime, is certainly not realistic if we are on the threshold of hitting hard global copper resources to electrify world transport. Simon-Ehrlich recasted is another important step, therefore, towards the realism we need to actually solve the challenge of energy-transition.