Some of my readers are probably old enough to remember the famous 1980 bet that supply-side economist Julian Simon made with doomsaying Population Bomb author Paul Ehrlich about whether resources were becoming increasingly scarce or not.
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. … 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.
The Wikipedia article about the bet notes that a short-term rise in commodity prices is not inconsistent with Simon’s thinking:
The price of raw and other natural commodities such as oil, gold, and uranium 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.”
The key assumption, of course, is: “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.” I’d be more comfortable with this claim if the cornucopians would provide more examples of where key industrial commodities became scarce and were then replaced by other materials or processes, leaving us better off.
Right now the short run seems to be piling on the bad news. Here are a couple of interesting charts. Bismuth and molybdenum seem to be getting scarcer. Will we be able to replace them?
Rising food prices are also in the news. I like this chart because it is adjusted for inflation and takes a long view. We see some significant pain in the early 70s, followed by a drifting down to less than half of 1970 prices, and then a jump in the past two years. The recent spike represents a tripling in prices, but we can see that current prices aren’t way out of line with what was seen between 1975 and 1998. Still, the sudden jump is troubling; will it continue on at the current rate, or turn out to be just one more unusual spike in the graph?