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Business Prof: Stop It! The World is NOT Running Out of Stuff!

A famous bet between two top thinkers settled that a long time ago

Recently, Jay Richards interviewed Dr. Gale Pooley, Professor of Economics at BYU-Hawaii, on the myth that we are running out of resources and doomed to future scarcity. Even though media pundits often claim it is true, the numbers say it is a myth. The story begins with a famous bet between two professors…

From the interview: The bet was whether basic commodity prices would rise between September 29, 1980 and September 29, 1990. The professors who made the bet were Stanford insect biologist Paul Ehrlich (1932–), author of bestseller The Population Bomb (1968), and economist Julian Simon (1932–1998) Ehrlich bet yes and Simon bet no.

Gale Pooley: First of all, what was interesting about Julian Simon, he reads Ehrlich’s book and he initially agreed with it. He said, “Your theories, it looks like it’s straight math.”

Then he said, “But I’m an economist. I should go look at my data.” And the more that he looked at his data, he said, “We’re not running out. In fact, what the data is indicating is we’re becoming more and more abundant.”

So, they had this discussion into the Seventies, and finally, in the early 1980s, Simon said to Ehrlich, “Why don’t we bet?”

Simon and Ehrlich decided on five non-renewable metals. Ehrlich got to pick the metals. He picked copper, chromium, nickel, tin, and tungsten and the two professors waited to see what would happen to prices over the next ten years.

Gale Pooley: Ehrlich said, “Fantastic. I’d love to take your money.” At the end of 10 years, they had fallen by 36% in real terms. And the consequence of that bet was that Ehrlich had to pay Simon $576 because the prices had fallen for these five non-renewable metals.

Jay Richards: This is, of course, really counterintuitive initially, right? Because, of course, there’s a fixed volume to the earth, obviously. It’s got a fixed area, so presumably, there’s a fixed amount of gold and tungsten and all these things… What did Simon think was happening?

Gale Pooley: Simon said, “Yeah. For every person that’s born, we add another mouth, but we also add two hands and we add 10 trillion brain cells.” And that ability to create and turn things that are just here into resources. And once again, there’s nothing that’s not a natural resource…

We’re not getting more atoms. What we’re getting is the ability to make these atoms smarter. Find them, make them smarter. That ability far exceeded the ability of populations to increase.

Jay Richards: Yeah. So, more people, more creators, essentially.

Gale Pooley: Exactly.

The Simon Abundance Index

The discussion turned to the Simon Abundance Index, named by Pooley and his co-developer Marian Tupy of the Cato Institute after Julian Simon (pictured). It seeks to measure the changes in abundance, as innovation continues.

Gale Pooley: So, we really liked what Julian had done. He was one guy that stood up and said, “Hey, there’s an issue here.” So, we really respected his integrity and courage at the time. Then, he wins the bet, which we’re happy about. And then, a lot of people at that time just said, “He was lucky,” or “It was only for 10 years.”

So, we said, “Well, let’s extend it from 5 items to 50 items.” So, we add food to it, we add energy to it, we add materials to it. So, we get this index that’s got 50 foundational commodities, and then we go from 1980 when the original bet was, and we just go to today. So, it’s a 38-year period of analysis.

Then, the second thing we did is, we said, “We’re not just going to look at the prices and try to adjust them for inflation.” We felt like a more appropriate way would be to say, “When innovation occurs, it’s true that prices will go down. But the other thing that innovation does is, we see it show up in higher incomes. So, people make more money”… So, if you look a price of things and then you divide it by hourly income, you’re capturing the innovation on the income, as well as the innovation that happens when the price declines. So, we call that the time price.

So, let’s go back to the year 2000 and say, “What did it cost you to buy a gallon of gas?” “Oh, it was $2 a gallon.” “Well, how much were you earning per hour in the year 2000?” “Well, I’m earning $6.” Well, what’s that ratio? That ratio will tell you how much time it took you to earn the money to buy that gallon.

Jay Richards: So, it’s a gallon of gas bought in 1980 versus a gallon of gas but compared and determined by how much of your time is used or needed in order to buy that?

Gale Pooley: Right. So, there’s two ratios. Here’s the gas price in 1980. Here’s how much you were earning in 1980, and that tells us that’s how many hours it took you to buy that gas. Now, let’s fast forward and say, “Today, here’s the price, but here’s how much you’re earning.” What’s that ratio? And then we compare those two ratios.

Jay Richards: Okay. So, what’s the trend?

Gale Pooley: Well, the trend has been, for these 50 foundational commodities, the price. The time price has dropped about 70%. Yeah. Zinc dropped about 22%, uranium has dropped 87%, crude oil has dropped about 60%, 62%.

And what happened to population in the meantime?

Gale Pooley: From 1980 to date, we’ve gone from 4.5 billion to 7.6 billion. So, we’ve increased over 3 billion. It’s about a 70% increase in population. But at the same time, you have a 70% decrease in time prices. So, one of the conclusions we were able to make is, it looks like every time you increase population, 1%, your time prices go down 1%. …

Jay Richards: So, this seems to me to be a better way to measure what’s actually happening because some of our old ways of measuring economic growth from the 20th century, I think in some ways we just don’t quite capture everything that’s happening. That’s what I think is exciting.

Knowledge as the true source of wealth

The discussion turned finally to the way knowledge differs from material commodities and why that difference is key to the production of new wealth.

Gale Pooley: … knowledge has this other characteristic that when I share it with you, I don’t lose it.

Jay Richards: Yeah. It’s non-rival, as economists say. You didn’t use it up.

Gale Pooley: Yeah. Both of us can enjoy it at the same time. In fact, when we do that, a lot of times we both are better off.

Many population growth doomsayers have compared Earth to a lifeboat onto which we can’t admit more people (and from which we may need to eject some).

Gale Pooley: Julian Simon also argued, “Look, you’ve got these people that have this creative ability. If they have the freedom to create, they’re going to solve these problems of putting people on the boat… One of those people, when you put them on the boat, they actually figure out how to make the boat bigger.”

Jay Richards: Or build more boats.

Gale Pooley: Right. And we’re making the boat bigger much faster than we are adding people to it. Yeah, population is growing, but our ability to actually create these things, create resources almost out of nothing … it’s out of knowledge that we create them.

Note: Dr. Pooley’s workshop at COSM 2019 was “Killing Thanos – Defeating the Ideology of Scarcity”

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Business Prof: Stop It! The World is NOT Running Out of Stuff!