"Betting the Planet" revisited

Way back in 1980 Paul Ehrlich, author of the "Population Bomb" and Julian Simon, author of "The Ultimate Resource" (by which he meant people) entered into a bet that some called "Betting the Planet." Ehrlich believed that, as Malthus predicted, population growth would overrun resources, the evidence of which would be a rise in resources prices. Simon disagreed and argued that human ingenuity would solve the world's problems and so prices would not rise because humans would find substitutes for each resource and just move on. This week's Economist picks up the story:

Faced with a challenge from Mr Simon, Mr Ehrlich selected five metals—copper, chromium, nickel, tin and tungsten—whose prices he thought would rise in real terms over the following ten years. Mr Simon bet that prices would fall. It is clear in retrospect that Mr Ehrlich showed bad timing, since the late 1970s saw a cyclical zenith for commodity prices. But Mr Simon also had history on his side: real commodity prices fell steadily throughout the 20th century.

Mr Simon duly won the bet. The economic boom of the 1980s and 1990s also contradicted Mr Ehrlich’s wilder claims—that a billion people would starve to death and that, by 1985, America would be trapped in an “age of scarcity”.

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.

The Cornucopians might argue that today’s metals prices are due to the buoyancy of demand in the developing world rather than any cataclysmic shortages in supply. But the Malthusians might retort that man’s famed ingenuity has not stopped prices from rising in real terms over an extended period. Place your bets.