Vincent Geloso – March 11, 2021 @ American Institute for Economic ResearchIn the 1960s and 1970s, environmental scares were rampant. Multiple books, such as Ernst Schumacher’s Small is Beautiful and Paul Ehrlich’s Population Bomb, forecasting a dire future were published. The connection they made was simple: the rapid pace of economic development of the West came at high environmental costs. The depictions of these costs fell into two categories. The first was rising pollution which would reduce quality of life. The second was imminent limits to growth due to the fact that population growth was outpacing the finite quantity of resources available on the planet.
While the former category is still a subject of debate, the latter no longer is thanks to a famous bet between economist Julian Simon and biologist Paul Ehrlich. Simon had, since the early 1970s, been one of the few consistent academic voices (alongside Herman Kahn) arguing that population and economic growth were key methods of providing solutions to environmental problems. For Simon, more people meant more ideas and innovations which, in turn, meant more value created and a greater ability to solve environmental problems.
To make his case, Simon published an article in Social Science Quarterly that taunted Paul Ehrlich, the main proponent of imminent doom, into taking a bet on their respective views. If population growth was outpacing the finite quantity of resources, the prices of key resources should (theoretically) be rising. If prices increased, then Ehrlich would be vindicated. If not, Simon would be. Ehrlich chose five resource prices and bet on their trends over a decade. Simon won the debate, as all five commodities (copper, chromium, nickel, tin and tungsten) declined in the wager period of 1980 to 1990.
Since then, the bet has become a bludgeon that conservatives have been using against environmental activists. Indeed, the bet is frequently referred to argue that claims of doom are overblown and that proposed remedies are thus unnecessary.
However, like most political memes, the bet actually says much less than what those who use it to bludgeon suggest. The bet only quashed the latter category of claims regarding the connection between economic growth and environmental indicators. Indeed, the evidence regarding agricultural productivity, farm yields, transport innovation, energy efficiency and dematerialization (the use of smaller and smaller quantities of natural resources to produce 1$ of GDP) conclusively point in that direction: humanity does have a tremendous ability to eliminate the problem of limits to growth due to the finiteness of natural resources.
But the former category remains as there are signs that economic prosperity is tied to greater pollution. The bet does not deal with this type of environmental concern. However, there was a second bet between Ehrlich and Simon which is not very well known and which allows us to see that Simon’s optimistic worldview deals with that second category of concern.
After losing to Simon, Ehrlich proposed a new wager. Alongside Stephen Schneider, Ehrlich challenged Simon to bet on 15 environmental trends that related to global temperatures, carbon dioxide, nitrous oxide, ozone concentrations, sulfur dioxide, cropland, wheat and rice output, oceanic fisheries, firewood, virgin forests, deaths from AIDS, sperm count in human males, and wealth gaps. The bet spanned ten years (from 1994 to 2004). Simon, however, rejected that bet.
He was right to do so as Pierre Desrochers, Joanna Szurmak and I point out in an article (in two parts) in Social Science Quarterly. Simon would have lost 11 of the 15 indicators. Even when the time frame is extended to the most recent estimates of each indicator, Simon loses to Ehrlich and Schneider (who win 9 out of 15). However, for two interrelated reasons, we point out that the terms in this second wager allow a much richer understanding of the views of Julian Simon than the first bet.
First of all, Simon argued that many of the indicators that Ehrlich and Schneider proposed had very little to do with human welfare. In fact, Simon frequently argued that losing these indicators would be a sign of vindication of his views. Consider the portion of the second part of the bet that related to oceanic fish catches per capita. Simon pointed out that aquaculture (fish farming) had a great potential for higher productivity than oceanic fisheries.
Thus, while it is technically true that there are fewer oceanic catches per capita, it is also true that the world witnessed a continuous increase in the quantity of fish and seafood products supplied per capita (+27% since 1994) thanks to aquaculture. This has allowed many wild fish populations, which international organizations had deemed to be in danger, to recover from decades of oceanic overfishing. In other words, Simon argued that environmental outcomes only make sense when they are connected to the consequences for human welfare.
Secondly, the counter-wager allows us to see how important institutions were to Julian Simon’s claims that markets could provide solutions. Under the terms of the first bet, the logic was relatively unconditional: markets provided solutions or they did not. To make sure the first bet reflected this (then) debated view, one of the conditions that Simon asked for was that the resources selected needed to be free of government interventions.
Yet, throughout his career, Simon recurrently argued that governments could hinder the ability of markets to provide solutions by failing to secure property rights, distorting prices, subsidizing pollution and taxing innovation. Simon always explicitly stipulated that his claim that markets could provide solutions was conditional on whether there was an institutional environment that permitted them to work. Because of the prominence of the first bet, which internalized this condition implicitly, that statement of Simon is completely ignored. All that people remember is a form of naïve cornucopian outlook.
Many of the indicators of the second bet reflect this view. Consider only the case of the indicators that relate to climate change (global temperatures and carbon dioxide emissions). Many governments across the planet subsidize fuel consumption. These countries, representing more than a quarter of world oil consumption, keep prices artificially low by using tax revenues to finance the additional consumption. The problem is that it incentivizes few investments in energy efficiency or new forms of energy. Numerous studies have thus found that eliminating these subsidies would reduce worldwide greenhouse gases (GHG) emissions by somewhere between 5 and 36 percent.
Do not underestimate the value of this point. Governments have been providing these subsidies for close to five decades. Since eliminating them would mean fewer emissions in the future, never having had them in the past means much smaller concentrations of greenhouse gases in the atmosphere. In other words, avoiding five decades of subsidized consumption could have made the current problem of climate change a much smaller one than we face today. In considering how governments fuel environmental problems such as climate change, Simon’s free-market arguments are vindicated in spite of the wager’s outcome.
Now that some four decades have elapsed since the first bet, it is easy to remember Simon as a cheerful optimist whose view can be summarized as “more people, more innovations, more value created, more abilities to deal with environmental problems.” But, in reality, Simon was a much deeper thinker who connected markets and economic growth to solving environmental problems through institutions. As Simon died prematurely in 1998, he is no longer able to make this clear in his own words. Nevertheless, it is worth remembering how rich his outlook was.
Vincent Geloso
Vincent Geloso, senior fellow at AIER, is an assistant professor of economics at King’s University College. He obtained a PhD in Economic History from the London School of Economics.
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