One of the most famous bets in the past half-century — at least among economists — wasn’t about the Super Bowl or a presidential election. No, it was about the price of metals. That is, whether five critical metals would be worth more or less in 1990 than they were in 1980.
Really, though, this was about how we consume natural resources and whether we would just gobble up more and more as the human population grew or figure out a better way to manage what the planet provides.
Researchers are now looking at this question all over again, and Marketplace’s senior economics contributor, Chris Farrell, went back to the future along with “Marketplace Morning Report” host David Brancaccio.
The following is an edited transcript of their conversation.
David Brancaccio: What’s the full story on this crazy bet?
Chris Farrell: So it’s famed biologist and environmentalist Paul Ehrlich, and he predicted population growth would deplete the planet’s resources, and the increasing scarcity of resources would drive commodity prices higher. Now, this iconoclastic economist Julian Simon, he just didn’t buy this forecast. He believed human innovation and ingenuity would overcome commodity shortages; prices would fall over time rather than rise. So, Simon, being an economist, challenged Ehrlich to put some money on the line.
Brancaccio: All right, real money. Challenge accepted. Exactly what were they betting on?
Farrell: OK, so they wagered on the decadelong price of five metals: copper, chrome, nickel, tin and tungsten. Ehrlich would win the so-called scholarly wager of the decade if the inflation-adjusted prices of these metals were higher in September 1990 compared to September 1980. Simon, of course, would win if prices were lower.
Brancaccio: And I vaguely remember this: Simon wins the bet, right?
Farrell: He does. So at the end of the decade, the world’s population had risen by 800 million people, while nominal prices and inflation-adjusted prices of each of the five commodities were down. Ehrlich wrote Simon a check. The bet, by the way, David — I mean, obviously it’s long over — but its meaning, its significance and its symbolism are still being debated 35 years later.
Brancaccio: Enter some new research on this. What did you see?
Farrell: Hannah Ritchie is a senior researcher at Oxford University and deputy editor of “Our World in Data.” And she looked at the price trend of the five metals starting in 1900. Prices didn’t change much over the past century, even though the economy is dramatically different today. Studies going back as far as 1840 show that a broader basket of mineral prices has been essentially trendless, she says.
Brancaccio: All right, but what’s the big conclusion here?
Farrell: So, looking at price trends over the long haul, she finds herself closer to Simon’s perspective about the impact of human innovation. For instance, she notes that the world produces 40 times as much copper annually and 250 times as much nickel as it did in 1900, yet prices aren’t that different from 1900, she says. The lesson in the price message: When resources become scarce, the price signal unleashes human ingenuity, and new supplies bring prices back down.
Brancaccio: If past performance gives us some indication of the future, I guess. Marketplace’s senior economics contributor Chris Farrell. Thank you.
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