Simon-Ehrlich wager

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Julian L. Simon and Paul Ehrlich entered in a famous wager in 1980, betting on a mutually agreed upon measure of resource scarcity over the decade leading up to 1990.

1 The wager
2 Analysis of why Ehrlich lost
3 Aftermath
4 The proposed second wager
5 References
6 External links

[edit] The wager

Simon had Ehrlich choose five of several commodity metals. Ehrlich chose 5 metals: copper, chrome, nickel, tin, and tungsten. Simon bet that their prices would go down. Ehrlich bet they would go up.

"The face-off occurred in the pages of Social Science Quarterly, where Simon challenged Ehrlich to put his money where his mouth was. In response to Ehrlich's published claim that "If I were a gambler, I would take even money that England will not exist in the year 2000" - a proposition Simon regarded as too silly to bother with - Simon countered with "a public offer to stake US$10,000 ... on my belief that the cost of non-government-controlled raw materials (including grain and oil) will not rise in the long run.

You could name your own terms: select any raw material you wanted - copper, tin, whatever - and select any date in the future, "any date more than a year away," and Simon would bet that the commodity's price on that date would be lower than what it was at the time of the wager." ... Ehrlich and his colleagues picked five metals that they thought would undergo big price rises: chromium, copper, nickel, tin, and tungsten. Then, on paper, they bought $200 worth of each, for a total bet of $1,000, using the prices on September 29, 1980, as an index. They designated September 29, 1990, 10 years hence, as the payoff date. If the inflation-adjusted prices of the various metals rose in the interim, Simon would pay Ehrlich the combined difference; if the prices fell, Ehrlich et al. would pay Simon. ... Between 1980 and 1990, the world's population grew by more than 800 million, the largest increase in one decade in all of history. But by September 1990, without a single exception, the price of each of Ehrlich's selected metals had fallen, and in some cases had dropped through the floor. Chrome, which had sold for $3.90 a pound in 1980, was down to $3.70 in 1990. Tin, which was $8.72 a pound in 1980, was down to $3.88 a decade later. [4]

As a result, in October 1990, Paul Ehrlich mailed Julian Simon a check for $576.07 to settle the wager in Simon's favor.

[edit] Analysis of why Ehrlich lost

According to Paul Ehrlich's website: "In 1980, Julian Simon repeatedly challenged environmental scientists to bet against him on trends in prices of commodities, asserting that humanity would never run out of anything.... Paul and the other scientists knew that the five metals in the proposed wager were not critical indicators and said so at the time.... They emphasized that the depletion of so-called renewable resources--environmental resources such as soils, forests, species diversity, and groundwater--is much more indicative of the deteriorating state of society's life-support systems....Nonetheless, after consulting with many colleagues, Paul and Berkeley physicists John Harte and John Holdren accepted Simon's challenge in late 1980..."[5] It's not clear if Ehrlich consulted with economists. If he had, the flaw in using commodity prices as the best way to understand biophysical limits might have become obvious. Many economists understand the principle of substitution and the dynamic influence of technology with respect to commodity prices. For example, in the absence of any new technologies, copper prices would indeed be expected to increase as growing economies demanded more copper to meet the needs of expanding communications networks and plumbing infrastructure. Technological changes mitigated much of this expected demand as fiber optics replaced copper wire networks and various plastics replaced the once ubiquitous copper pipes throughout the construction industry.

Julian Simon won because the price of three of the five metals went down in absolute terms and all five of the metals fell in price in inflation adjusted terms [6] with both tin and tungsten falling by more than half (inflation adjusted). So, per the terms of the wager, Ehrlich paid Simon the difference in price between the same quantity of metals in 1980 and 1990 (which was $576.07). The prices of all five metals increased between 1950 and 1975, but Ehrlich believes three of the five went down during the 1980s because of the price of oil doubling in 1979, and because of a worldwide recession in the early 1980s.

Yet, it is significant that "All of the former's [Ehrlich's] grim predictions had been decisively overturned by events. Ehrlich was wrong about higher natural resource prices, about "famines of unbelievable proportions" occurring by 1975, about "hundreds of millions of people starving to death" in the 1970s and '80s, about the world "entering a genuine age of scarcity." In 1990, for his having promoted "greater public understanding of environmental problems," Ehrlich received a MacArthur Foundation Genius Award." [7]

"[Simon] always found it somewhat peculiar that neither the Science piece nor his public wager with Ehrlich nor anything else that he did, said, or wrote seemed to make much of a dent on the world at large. For some reason he could never comprehend, people were inclined to believe the very worst about anything and everything; they were immune to contrary evidence just as if they'd been medically vaccinated against the force of fact. Furthermore, there seemed to be a bizarre reverse-Cassandra effect operating in the universe: whereas the mythical Cassandra spoke the awful truth and was not believed, these days "experts" spoke awful falsehoods, and they were believed. Repeatedly being wrong actually seemed to be an advantage, conferring some sort of puzzling magic glow upon the speaker." [8]. Exponential population growth eventually results in sharp declines for all species, regardless of whether they exist as microbes in a petri dish, wild salmon at sea, caribou in the taiga, or human societies around the world. However world population growth is not exponential has been slowing down for the last half century or so. It is a common error to describe current world population growth as exponential in nature]^[1].

Simon offered to raise the wager to $20,000 and use any resources at any time that Ehrlich preferred. Ehrlich countered with a challenge to bet that temperatures would increase in the future. [9] The two were unable to reach an agreement on the terms of a second wager.

Inflation-adjusted price movements of the commodities in the wager between Simon and Ehrlich may be seen in the larger 1950-2002 context in the following chart. Prices were generally rising up until 1978, and generally falling thereafter.

[edit] Aftermath

The price of raw and other natural commodities such as oil have risen substantially in recent years, due to increased demand from China, India, and other industrializing countries. However, this short term price increase is not contrary to Simon's cornucopian theory.

"More people, and increased income, cause resources to become more scarce in the short run. Heightened scarcity causes prices to rise. The higher prices present opportunity, and prompt inventors and entrepreneurs to search for solutions. Many fail in the search, at cost to themselves. But in a free society, solutions are eventually found. And in the long run the new developments leave us better off than if the problems had not arisen. That is, prices eventually become lower than before the increased scarcity occurred."

[[10]]

[edit] The proposed second wager

Understanding that Simon wanted to bet again, Ehrlich and climatologist Stephen Schneider counter-offered, challenging Simon to bet on 15 current trends, betting $1000 that each will get worse (as in the previous wager) over a ten year future period.[11]

The trends they bet would continue to worsen were:

The three years 2002-2004 will on average be warmer than 1992-1994.
There will be more carbon dioxide in the atmosphere in 2004 than in 1994.
There will be more nitrous oxide in the atmosphere in 2004 than 1994.
The concentration of ozone in the lower atmosphere (the troposphere) will be greater than in 1994.
Emissions of the air pollutant sulfur dioxide in Asia will be significantly greater in 2004 than in 1994.
There will be less fertile cropland per person in 2004 than in 1994.
There will be less agricultural soil per person in 2004 than 1994.
There will be on average less rice and wheat grown per person in 2002-2004 than in 1992-1994.
In developing nations there will be less firewood available per person in 2004 than in 1994.
The remaining area of virgin tropical moist forests will be significantly smaller in 2004 than in 1994.
The oceanic fisheries harvest per person will continue its downward trend and thus in 2004 will be smaller than in 1994.
There will be fewer plant and animal species still extant in 2004 than in 1994.
More people will die of AIDS in 2004 than in 1994.
Between 1994 and 2004, sperm cell counts of human males will continue to decline and reproductive disorders will continue to increase.
The gap in wealth between the richest 10% of humanity and the poorest 10% will be greater in 2004 than in 1994.

Simon declined the bet, and used the following analogy to explain why he did so:

"Let me characterize their [Ehrlich and Schneider's] offer as follows. I predict, and this is for real, that the average performances in the next Olympics will be better than those in the last Olympics. On average, the performances have gotten better, Olympics to Olympics, for a variety of reasons. What Ehrlich and others says is that they don't want to bet on athletic performances, they want to bet on the conditions of the track, or the weather, or the officials, or any other such indirect measure."

[edit] References

^ "There is no strong evidence that the human population—nor any real population—actually follows exponential growth. In plant or animal populations that are claimed to show exponential growth, closer examination invariably shows that the supposedly exponential curve is actually the lower limb of a logistic curve, or a section of a Lotka-Volterra cycle. Also, examination of records of estimated total world human population ([1] [2]) shows at best very weak evidence of exponential growth: A chart of total world population 1952-2002 The annual increase graph does not appear as one would expect for exponential growth. For exponential growth, it should itself be an upward trending exponential curve whereas it has actually been trending downward since 1986. Also the rate of increase should increase, whereas, of the increase between the early 1950s and today, five-sixths occurred in the 1950s and the first half of the 1960s (presumably attributable to the Green revolution); it then rose to a peak in 1989 and has since declined to levels approaching those of 1970. " quoted from [3]