Recommended Reading: A New Look at “The Bet”

Human well-being has increased dramatically over the last few decades

In 1980, a famous bet was made that has fascinated economists and environmentalists alike ever since. Paul Ehrlich is a biologist who became famous with a 1968 book called “The Population Bomb.” In it, he predicted imminent megadeath due to the world not having enough resources to meet human needs.

Julian Simon was a University of Illinois economist who went on to associate himself with the Cato Institute. He said, in essence, “Nonsense — people will figure out new ways to obtain needed resources.” Simon challenged Ehrlich to put his money where his mouth was in the form of a bet.

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That bet is the starting point of a new essay by Michael Cox and Richard Alm. Called, “Onward and Upward! Bet on Capitalism — It Works,” the essay revisits the bet and adds a new wrinkle.

As Cox and Alm describe it, Simon believed that the world would enjoy “a future of abundance and higher living standards for more and more people, thanks to almost limitless potential of human ingenuity operating in a capitalist system.”

For evidence, he turned to the academic field of economics and challenged Ehrlich to put up or shut up by predicting the inflation-adjusted price of five industrial commodities over the following decade. To his credit, Ehrlich agreed.

The logic of the bet was simple: If Ehrlich were right, then commodities would become scarcer and more expensive in 10 years. But if Simon were right, they would become more abundant and cheaper. Simon even offered to let Ehrlich and his supporters choose the particular commodities. Ehrlich chose tungsten, chromium, nickel, copper and tin.

Simon won the bet outright. The real price of all five metals fell more than 50 percent during the term of the bet — even as the planet’s human population grew by 800 million souls.

But what if the terms of the wager had been different? What if different start and end dates had been used, for example? What if a different measure had been used to gauge changes in the value of the commodities? And what would have happened had 20 different metals, not just five, been included?

These are some of the questions Cox and Alm explore, starting with the unit of measurement. They converted the commodity cost data into units of human labor. That is, how many hours did the average worker have to work to earn enough to buy some of this stuff?

Then the authors looked at different time periods and more substances. On the original 10-year, five-metal bet, Simon won outright. They note, however, if the original bet were extended, Ehrlich would have won in 2007 and 2011 as prices leapt. Even then, however, the increase would have been only measured in inflation-adjusted dollars. If measured in the number of hours worked to buy a unit of metal, the five-metal basket was always priced lower than it was in the first year of the bet.

Cox and Alm also investigated the full period from 1980 to 2015. It turns out that Simon wouldn’t have won just the original 10-year bet — he would have won the five-metals bet in every year from 1980 to 2015. That is, in any given year, the average worker would have had to work fewer hours to get the same amount of stuff.

Next, the authors expanded the review to a basket of 20 metals. They found that the “work-hour prices of the 20 metals fell nearly 50 percent from 1980 to 2015.”

Of course, people don’t generally shop for a pound of aluminum or a ton of steel. What happened to prices of other goods over this period?

When Cox and Alm looked at the work-hour prices of 15 foods and other popular items, such as housing, clothing and transportation, they found one item that had not gone down in price since 1980 — apples. The rest all saw real work-hour prices drop by 50 percent or more.

Other consumer products, such as cellphones and home entertainment systems, not only saw work-hour price declines but dramatic increases in quality, too.

The lesson is that there are good reasons to be optimistic. Human well-being has reached heights unimagined just 30 years ago (except by Julian Simon). It’s an inspiring story, and the “Onward and Upward” report does a good job of communicating that.

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