All bets are off

While I try to keep an open mind, you could probably consider me a healthy skeptic of the neo-Malthusians, so I did enjoy this passage in Charles Kenny’s Getting Better about a bet on future commodity prices:

“Technological change and market forces may reduce the demand for, or reduce the disruption caused by, resource depletion. The operation of such processes in the past is what has given the lie to earlier predictions of imminent global environmental and economic collapse. For example, in 1980  economist Julian Simon challenged Paul Ehrlich to a bet. Ehrlich – author of The Population Bomb and an environmental millenarian – argued that increasing populations in a world of finite resources would lead inevitably to scarcity and so to price increases. Simon offered Ehrlich a long list of raw materials, any time range longer than a year, and a bet that those commodities would be cheaper in the future than they were in 1980. Ehrlich chose chromium, copper, nickel, tin, and tungsten, and a time frame of ten years. In  1990, all five had declined in price, and Ehrlich paid up, grumbling that he’d been goaded into a bet on an issue of limited environmental relevance.

Yes, score one for the skeptic team! Except then I read this piece in this week’s Economist:

But what if Mr Ehrlich had taken up Mr Simon’s 1990 offer to go “double or quits” for any future date? All five have risen in price since the rematch was proposed. Furthermore, Jeremy Grantham of GMO, a fund-management group, points out that Mr Ehrlich would have won the original bet were it recalculated today (he is still alive; Mr Simon died in 1998). An equally weighted portfolio of the five commodities is now higher in real terms than the average of their prices back in 1980 (see chart).

Whoops – maybe it’s time to stop patting ourselves on the back. I should note that this doesn’t prove Ehrlich’s case (it’s still pretty amazing that the average price is only marginally higher 30 years later) – but it’s time we removed this fun story out of our collective consciousness and instead recognize that we’re not going to be very good at predicting these things in the long run.

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