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One of the live oaks that bless my home

Wednesday, June 19, 2013

The Ghost of Julian Simon

The essence of my unchanging argument is as follows: An exponential growth of human population can be supported for a while by a similarly exponential increase of production of power as primary energy per unit time and food we must eat each day. After a certain time interval, whose length depends on the rate of population growth and technology, both the population and the means of its survival must stabilize or collapse.  The elapsed time to collapse depends strongly on the rate of deterioration of environmental services of the Earth: abundance of clean air, water, good soil, large healthy forests, and biodiversity in general, as well as on the healthy oceans.

Please note the two key phrases: "for a while" and "a certain time interval."  My argument is generally  rejected, because most people focus on the here and now, and forget that a few decades are less than a blink of an eye in history of humanity.  In the more sophisticated circles of "main-stream" economists, my argument is summarily dismissed as Malthusian.

Thomas Robert Malthus was one of the most influential economists of all times. His anonymous Essay on the Principle of Population was published in 1798. The second edition, revised in 1803,  had a longer title too: ..., or a View of its Past and Present Effects on Human Happiness; with an enquiry into our Prospects respecting the Future Removal or Mitigation of the Evils which it occasions. It contained an analysis of the unequal nature of food supply to population growth. The exponential nature of population growth is today known as the Malthusian growth model: "This natural inequality of the two powers, of population, and of production of the earth, and that great law of our nature which must constantly keep their effects equal, form the great difficultly that appears to me insurmountable in the way to the perfectibility of society."
The Reverend Thomas Robert Malthus FRS  (13 February 1766 – 23 December 1834)
The first modern professor of political science, the first faculty fully endowed by a corporate chair and  - according to some - a unique scoundrel. 
Enter the famous bet between Julian Simon and Paul Ehrlich.

Julian Lincoln Simon was a professor of business administration at the University of Maryland and a Senior Fellow at the Cato Institute at the time of his death, after previously serving as a longtime business professor at the University of Illinois at Urbana-Champaign. Simon strongly believed that the infinite Earth can support an infinite human population and infinite consumption of resources over infinite time. I summarize such views as cornucopian, a term derived from the cornucopia, the "horn of plenty" of Greek mythology, which magically supplied its owners with endless food and drink.
Julian Lincoln Simon (February 12, 1932 – February 8, 1998)
Paul Ralph Ehrlich is an American biologist and educator who is the Bing Professor of Population Studies in the department of Biological Sciences at Stanford University and president of Stanford's Center for Conservation Biology. Ehrlich is best known for his dire warnings about population growth and limited resources. Ehrlich became well-known after publication of his controversial 1968 book The Population Bomb.  Paul Ehrlich's views can be summarized as Malthusian.
Paul Ralph Ehrlich (born May 29, 1932)
In 1980, Julian Simon and Paul Ehrlich decided to put their money where their predictions were. Ehrlich had been predicting shortages of various natural resources, while Simon claimed natural resources were infinite. Simon offered Ehrlich a bet centered on the market price of metals. Ehrlich would pick a quantity of any five metals he liked worth $1000 in 1980. If the 1990 price of the metals, after adjusting for inflation, was more than $1000 (i.e., the metals became more scarce), Ehrlich would win. If, however, the value of the metals after inflation was less than $1000 (i.e. the metals became less scarce), Simon would win. Ehrlich agreed to the bet, and chose copper, chrome, nickel, tin and tungsten. By 1990, all five metal were below their inflation-adjusted price level in 1980. Simon won, based on this particular snapshot of commodity prices, and the world sighed with relief.  So here is my update.
Click on the image to enlarge it. Value of the metal portfolio chosen by Paul Ehrlich - with chromium substituted by zinc and tungsten by silver - in dollars of the day (red curve).  The chromium and tungsten prices are not readily available in public domain. The chromium price behaves similarly to that of copper, but with less variation. The tungsten and silver prices behave similarly. The black curve is $1000 worth of West Texas Intermediate (WTI) crude oil. The vertical line denotes October 2004, when the global production rate of conventional petroleum and lease condensate reached a plateau. Note the close correlation of metal prices with oil price post 2002.  In dollars of the day, Ehrlich won most of the time. Updated 1/30/2016.
Click on the image to enlarge it. Value of the metal portfolio chosen by Paul Ehrlich  - with chromium substituted by zinc and tungsten by silver - in constant 1982 dollars  (red curve).  The black curve is $1000 worth of West Texas Intermediate crude oil. The vertical line denotes October 2004, when the global production rate of conventional petroleum and lease condensate reached a plateau. In constant dollars, Simon won 60% of the time between September 1982 and December 2015. The 2008 crash of the global economy carved deep canyons in both curves. According to this history of the portfolio, Simon was mostly winning until 2006, and started mostly losing thereafter.  The global recession of 2008 helped Simon to win again for one year. The developing global recession of 2015/16 may yet help Simon win again for some time. Updated 1/30/2016.

The plot above illustrates the dynamic nature of resource prices, their direct link to the price of oil, and the generally increasing prices of all commodities since the year 2000.  A decade is less than a tick of a clock, and one cannot draw permanent conclusions based on a snapshot of global economy at any given time.  Trends over years or decades are far more important.

Today, the prevailing wisdom still is that the Earth's resources are infinite.  If, on the other hand, one admits that the Earth is finite, all resources must eventually become scarce in absolute sense. The fundamental inability of "main-stream" economics to deal with absolute scarcity is probably the main reason why so many economists have wished it away and buried Malthus so many times. But as the another famous ecologist, Garrett James Hardin, once said, "anyone who has to be reburied so often cannot be entirely dead."
The standard macro-economic model of global economy.

P.S. Professor Albert Bartlett has send me this text of his 1996 paper that is very pertinent to this blog.