In the early 1970s, I was convinced that the world was running out of natural resources. I debated this with my college friend Bob Cunningham, who, in the end, tapped the side of his head and said, “This is the only resource that counts.” He turned out to be right, as was demonstrated most famously by Julian Simon’s bet with Paul Ehrlich. Ehrlich was a doom-sayer of the time who convinced people like me that scarcity was just around the corner. Simon challenged Ehrlich to pick any five metals he wanted; Simon bet that the cost of those metals would decline over the following ten years, Ehrlich that they would rise. (It should be noted that Ehrlich was aided in his selection by fellow hysteric John Holdren, now Barack Obama’s science advisor.) Simon won the bet, as the minerals grew more plentiful and therefore cheaper over time.
Simon’s bet was recently mimicked by John Tierney, as Tierney reports in the New York Times:
Five years ago, Matthew R. Simmons and I bet $5,000. It was a wager about the future of energy supplies — a Malthusian pessimist versus a Cornucopian optimist — and now the day of reckoning is nigh: Jan. 1, 2011.
The bet was occasioned by a cover article in August 2005 in The New York Times Magazine titled “The Breaking Point.” It featured predictions of soaring oil prices from Mr. Simmons, who was a member of the Council on Foreign Relations, the head of a Houston investment bank specializing in the energy industry, and the author of “Twilight in the Desert: The Coming Saudi Oil Shock and the World Economy.”
I called Mr. Simmons to discuss a bet. To his credit — and unlike some other Malthusians — he was eager to back his predictions with cash. He expected the price of oil, then about $65 a barrel, to more than triple in the next five years, even after adjusting for inflation. He offered to bet $5,000 that the average price of oil over the course of 2010 would be at least $200 a barrel in 2005 dollars.
The average price of oil in 2010 was $71 in 2005 dollars. Once again, the optimist won.
The case of petroleum is especially significant, as it is by far the best and most efficient source of energy that we have on this planet. The United States, the only country in the world that has decided, as a matter of policy, not to develop its own energy reserves, hasn’t contributed much to the world’s growing supply. Fortunately, other countries have not acted with similar irrationality. Canadian sands now supply us with more oil than Saudi Arabia. Brazil and other nations have made enormous petroleum discoveries, generally in deep ocean waters. And huge reserves of natural gas are being developed; here, the U.S. has not been quite so backward.
It is too bad that the United States is ceding economic leadership to others, but the fact that energy costs are being kept down by other nations’ development of their resources is an unqualified good.