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The Simon-Ehrlich Wager, 2011 Edition



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A few weeks ago, George Mason University economist Don Boudreaux was nominated by Brad DeLong as the stupidest man alive, along with New York Times columnist John Tierney and economist Mark Perry. Their offense: being economic optimists. (These three are just a few of the many who, over the years, have been labeled superlatively stupid on DeLong’s blog.)

What triggered DeLong’s vitriol was this article by John Tierney on a debate he had with Matthew R. Simmons about the future of energy supplies. Back in 2005, Tierney bet Simmons that a prediction Simmons had made — that oil prices would soar into the triple digits — would not materialize. They bet $5,000; Tierney was recently declared the winner. Tierney is an economic optimist in the tradition of the great Julian L. Simon, whose bet with biologist Paul Ehrlich was the wager that started it all.

While Tierney’s bet focuses on the price of oil, Julian Simon’s key prediction was about human welfare, not prices. George Mason University’s Alex Tabarrok reminds us of the original bet:

Remember that at the time of the famous bet, Paul Ehrlich was predicting increasing resource scarcity, mass starvation, and an end to economic growth. Simon was arguing that human welfare would continue to rise. Resource prices were easy to observe so the famous bet was made in terms of prices. Simon understood, however, that prices are not a measure of welfare or even of scarcity (quantities would have been a better metric but these are much more difficult to observe).

As Tyler [Cowen] notes, catch-up growth may mean that demand will increase faster than supply at least for some periods thereby driving up prices. But here is the key point, increased demand with a non-decreasing supply means an increase in social welfare. If tomorrow we discover that cold fusion actually does work, the price of palladium will increase dramatically, perhaps never to fall again. Nevertheless, human welfare would dramatically rise not fall.

Julian Simon’s point was that as long as society remains reasonably free, resource constraints will become less binding rather than more. In any case, this optimism rewarded by Tierney’s got them DeLong’s nomination. Now, Boudreaux responds with a new bet. Here it is:#more#

Prof. Brad DeLong
Department of Economics
UC-Berkeley

Dear Brad:

Happy 2011!

I write to you as one of your recent nominees (the others being my former student Mark Perry, and New York Times’s science writer John Tierney) for “stupidest man alive.” (I win this contest, by the way, because I’m certain that both Mark and John are a heckuva lot smarter than I am.)

Being stupid, I’m an easy financial mark for persons smarter than myself. So here goes: let’s make a bet very much like the famous bet that Julian Simon and Paul Ehrlich made in September 1980.

Because of inflation, I propose that the wager be larger than the Simon-Ehrlich amount. How about $2,500? And I offer to you terms similar to those that Julian offered to Ehrlich. Like Ehrlich, you can choose whichever bundle of five or more raw materials you like, and choose which (professionally respected) means to be employed for adjusting nominal prices for inflation.

The bet will be for a duration of at least ten years, but no longer than 15 years. (You choose.)

If I win (fat chance, I know, given the pinto beans I have for brains) you will contribute 2,500 (tax-deductible!) U.S. dollars to the Department of Economics at George Mason University. If – er, when – you win, I’ll mail you a check for $US 2,500.

Shall we wager?!

Don

P.S. I add here, for the record, that I agree fully with my colleague Alex Tabarrok’s assessment of the Simon-Ehrlich bet. Still, I’m willing – as was Julian – to bet on real prices as a good-enough proxy for human well-being.

We’ll see if DeLong responds.



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