An economist and a biologist walk into a bar. After the usual uproarious banter you’d expect, the conversation turned to more serious subjects such as life and death. The biologist asked the economist if he believed in the economic Law of Scarcity. Julian, the economist, replied that he did indeed, and that it was the basis for the Law of Supply and Demand. Biologist Paul then commented that the finite resources provided by planet earth, the ones necessary for life, are depleting while the earth’s population is increasing rapidly. This will be disastrous Julian! Don’t you care about the planet?
Julian asked for an example and Paul replied, my cocktail is Vodka Tonic with three elements – alcohol, water and a lemon slice. Yours is a Bloody Mary and it contains my three plus tomato juice, Worcestershire sauce, horse radish, salt, pepper, olives and celery. Paul continued by saying that the price of Julian’s cocktail would rise much faster compared to his because of this increasing scarcity. Julian shook his head, so Paul asked, care to bet? Julian replied, your problem is that you are a biologist, you think like a bureaucrat or politician. You think in terms of quantities, you count things in a static world and project. Like an objective and confident optimist who understood the capacity of the human mind, Poetic Justice Warrior Julian Simon took the bet.
The Simon-Ehrlich Wager
Of course the story above is allegorical, but such a bet did take place between economist Julian Simon and biologist Paul Ehrlich in September 1980. Ehrlich had achieved fame in environmentalist circles for his 1968 book The Population Bomb that began by saying “The battle to feed all of humanity is over. In the 1970s hundreds of millions of people will starve to death in spite of any crash programs embarked upon now. At this late date nothing can prevent a substantial increase in the world death rate.”
The time frame for the wager was ten years, and the stakes were the price change on $1000 invested in certain commodities. Regarding the commodity prices to be measured, Simon’s only demand was that they would be non-government controlled raw materials. Instead of cocktail ingredients, Ehrlich chose five metals that might be used in the machinery that harvests them (the ones he thought would have the biggest price increases) – copper, chromium, nickel, tin and tungsten. The winner of the bet would be determined by the price change over the ten year period adjusted for inflation. Ehrlich bought $200 of each of the five metals, and in September of 1990 he mailed Simon a check for $576.07. This is a 58% decline in real prices during a ten year period when the world’s population grew by 876 million, the largest increase in history at the time.
While many economists have debated the lessons to be learned from this one ten year experiment, the overwhelming advantage Simon had over Ehrlich was a romantic understanding of human nature and history, or as Simon puts it,
The most important economic effect of population growth is the contribution of additional people to our stock of useful knowledge. This contribution is large enough to overcome all the costs of population growth.
The Simon Project
All Poetic Justice Warriors inspire future generations to continue and elaborate on their work, and Julian Simon is no exception. Humanprogress.org has created The Simon Project. They do not think in terms of quantities, they think in terms of value. The Simon Project “aims to continue to explore the relationship between population growth and resource availability using four new concepts: Time Price, Price Elasticity of Population, the Simon Abundance Framework and Simon Abundance Index.”
The Time Price calculation combines the money price changes for a commodity with changes in average hourly wages. By measuring the price changes of a basket of 50 basic commodities and average hourly wages from 1980 through 2018, the Simon Project discovered that the average Time Price fell over 72%. What took an hour of labor to buy now takes 16 minutes. Compare this with the hoard of politicians who bemoan stagnant wage growth and tout their inane prescriptions.
According to the Simon Project’s Price Elasticity of Population (PEP) measure, their basket of commodities had a PEP value of -1.06 between 1980 and 2018. This is calculated by dividing the change in population into the change in Time Price. A negative number is considered superabundance, as it is now. The only metric that was positive was the cost of human labor, or as Simon explains in his signature 1981 book The Ultimate Resource:
There is only one important resource which has shown a trend of increasing scarcity rather than abundance. The most important of all—human beings.
Human Flourishing and the Law of Causality
The Law of Causality is the Law of Identity applied to action – everything has a unique nature, everything behaves according to its nature. Because of human nature, the root cause for human flourishing is political and economic freedom. People are vastly more creative when they are free to produce, keep and dispose of what they produce (it’s also Say’s Law). Julian Simon knew this, “The world’s problem is not too many people, but lack of political and economic freedom.”
According to HumanProgress.org, worldwide political freedom has increased 55% since 1966, average calories consumed have increased 22%, and personal income has increased 372% adjusted for inflation. Of course every country will have much different results depending on public policy, their institutions, and culture. Commodity resources have nothing to do with it, Israel (after democratic socialism) and Scandinavia (before democratic socialism) are wonderful examples. Speaking of democratic socialism, their latest scheme to eradicate political and economic freedom is predicated on government forced environmentalism. After all, don’t you care about the planet?
Julian Simon was a founder of the free-market environmentalism movement. It holds that markets, property rights and tort law reform provide the best means for a clean environment. The economic way over the political way, the latter being the existing ham-fisted central planning laws and subsidies that are in the way of locally derived solutions. The former is well explained by Hunter Hastings in his recent article whose thesis is “profit is the only route to sustainability, it is up to entrepreneurs to save the world.” Or as Simon observed,
Not understanding the process of a spontaneously-ordered economy goes hand-in-hand with not understanding the creation of resources and wealth.
To paraphrase Marian Tupy of HumanProgress.org, environmentalists and bureaucrats count the keys on the piano, Poetic Justice is entrepreneurs and economists like Julian Simon who create the music that feeds the world.
