Wednesday, January 05, 2011

Let's Double Down: Will Brad DeLong Accept?

I had the distinction of recently being nominated by UC-Berkeley economist Brad DeLong as the "stupidest man alive," but I'm in pretty good company with fellow c0-nominees NY Times science writer John Tierney and George Mason economist Don Boudreaux.  It should be noted that John Tierney might be "stupid," but he is now a little richer thanks to his "stupidity," having just won a $5,000 bet on the price of oil.  Perhaps my stupidity will pay off that handsomely someday?

It should also be noted that the first comment on Brad DeLong's post is "It would be cruel of me to note that Boudreaux, Perry, and Tierney are at least looking at data. Stupidly, but they're looking at data."    

And perhaps also stupidly, Don Boudreaux proposes the following wager to Professor DeLong:
 
"Let’s make a bet very much like the famous bet that Julian Simon and Paul Ehrlich made in September 1980. Because of inflation, I propose that the wager be larger than the Simon-Ehrlich amount.  How about $2,500?  And I offer to you terms similar to those that Julian offered to Ehrlich.  Like Ehrlich, you can choose whichever bundle of five or more raw materials you like, and choose which (professionally respected) means to be employed for adjusting nominal prices for inflation.

The bet will be for a duration of at least ten years, but no longer than 15 years.  (You choose.) If I win (fat chance, I know, given the pinto beans I have for brains) you will contribute $2,500 (tax-deductible!) to the Department of Economics at George Mason University.  If – er, when – you win, I’ll mail you a check for $2,500. Shall we wager?!"

MP: I'll stupidly also agree to this bet for an additional $2,500 if Professor DeLong accepts, and will also donate my winnings to the GMU Department of Economics, or send him a check for $2,500.  

22 Comments:

At 1/05/2011 11:42 PM, Blogger VangelV said...

Like Ehrlich, you can choose whichever bundle of five or more raw materials you like, and choose which (professionally respected) means to be employed for adjusting nominal prices for inflation.

I would pick:

Silver
Uranium
Oil
Sugar
Platinum

 
At 1/05/2011 11:48 PM, Blogger VangelV said...

And do you win if demand collapses and drives prices lower? Tierney won because the US mortgage fraud crashed the global economy, not because there was more oil being produced because of the high prices.

Shouldn't this bet be about total production? If you guys are right the world will adjust and will develop all those unconventional plays that I have been investing in. We should also see the Namibia, Brazil, Iraqi, North Dakota, etc., projects produce enough new oil to offset depletion and add to supply.

My guess is that in ten years we will be down by at least 5 mpbp of production, even when we add CTL, NGLs, etc. The only thing that can prevent a price spike is a catastrophic event that takes economic activity much lower.

 
At 1/06/2011 12:53 AM, Blogger Gale L. Pooley said...

You might want to also adjust these prices to the average wage rate. This would give you the time price, which would reflect the increase in human productivity over this period as well.

The issue isn't how much oil is produced or the money price, it's how much time it takes the average person to buy a unit of energy.

Take a look at William Nordhaus' study on the cost of light and Michael Cox at the Dallas Fed for an example of this technique.

 
At 1/06/2011 4:30 AM, Blogger PeakTrader said...

The Brad DeLong Award:

Given to the hypocrite who calls someone stupid when his own stupidity is many times more costly.

 
At 1/06/2011 7:37 AM, Blogger W.E. Heasley said...

DeLong:

Destitute

Economics

Likened

Oblivious

Naive

Guesswork

 
At 1/06/2011 8:43 AM, Blogger VangelV said...

You might want to also adjust these prices to the average wage rate. This would give you the time price, which would reflect the increase in human productivity over this period as well.

There is no need. The peak oil side only claims that global production will peak. End of story. Mark is saying that price increases will lead to more substitution and that more oil will be found.

The hyped bet was not won because there was a supply response but because the economy crashed.

 
At 1/06/2011 9:13 AM, Blogger Michael Hoff said...

Mark,

The risk you take is that somehow, the global ecomarxists will be thwarted in their jihad against mining, drilling and fertilizing. If they make more progress in their quest, prices of whatever you pick will skyrocket.

 
At 1/06/2011 10:05 AM, Blogger juandos said...

Heasley! Heasley! Heasley! Now that's pretty funny!!

The fisking of Brad DeLong...

 
At 1/06/2011 10:18 AM, Blogger Bill Reeves said...

Poor Prof. DeLong, it's really hard to maintain perspective when you live in Berkeley. I suppose there's something in the water or air that leads one to believe that you are the center of the universe and that those that disagree with you must therefore be impaired.

The problem is that reality - she's a bitch. And she couldn't care less that you're tender and sensitive, from all that time in the leftist fantasy house.

 
At 1/06/2011 10:30 AM, Blogger niknaknoo said...

He should have bet 10 ounces of Gold.

If he had, he wouldn't have won a $5,000 pouund bet but a $14,000 pound bet.

Sometimes people get lucky.

 
At 1/06/2011 10:31 AM, Blogger Junkyard_hawg1985 said...

Mark,

Congratulations on your award (being called an idiot by DeLong is a badge of honor)! You are in excellent company. I would offer one piece of historical advice: "Do not argue with a fool. People might not tell the difference."

 
At 1/06/2011 1:23 PM, Blogger Benjamin said...

I disappointed that Brad DeLong would speak of people with a different point of view as "stupid," and I admire Dr. Perry for the way he laughed it off.

Jeez, when will people learn that we have high-IQ types on all sides of every issue?

Even I have been wrong--I think it happened in 1974 once.

 
At 1/06/2011 2:00 PM, Blogger Gale L. Pooley said...

This comment has been removed by the author.

 
At 1/06/2011 2:10 PM, Blogger Gale L. Pooley said...

Congratulations on your award (being called an idiot by DeLong is a badge of honor)! You are in excellent company. I would offer one piece of historical advice: "Do not argue with a fool. People might not tell the difference."

Don't argue, bet.

 
At 1/06/2011 2:40 PM, Blogger Che is dead said...

Minerals on the Ocean floor could provide resources for over 60 centuries

"Using reasonable metal deposition efficiencies, we conclude that the ocean floor is a giant VMS district with metal resources over 600 times the total known VMS reserves on land and a copper resource which would last over 6,000 years at current production rates."

 
At 1/06/2011 2:43 PM, Blogger Ron H. said...

VangelV said...

"I would pick:

Silver
Uranium
Oil
Sugar
Platinum
"

The others I understand, but why sugar?

 
At 1/06/2011 4:00 PM, Blogger NormanB said...

Its the mentality of the liberal mind to have limits on what humankind can do. The reason for this is because without that proposition they cannot design stifiling programs and laws to 'save' us. The liberal mind envisions their role of saving mankind from themselves and of course only they because they are superior can accomplish this. Thus, they HAVE to see danger just around the corner.

 
At 1/06/2011 4:13 PM, Blogger VangelV said...

"Using reasonable metal deposition efficiencies, we conclude that the ocean floor is a giant VMS district with metal resources over 600 times the total known VMS reserves on land and a copper resource which would last over 6,000 years at current production rates."

I agree with the potential and have invested in an outfit that has been trying to mine smokers on the ocean floor. Once the permitting and assessments are done we will see how things work out. Some of the major players are interested but we are still a long way from being able to produce sufficient volumes of minerals at this time.

 
At 1/06/2011 4:15 PM, Blogger VangelV said...

The others I understand, but why sugar?

Sorry. I must have slipped up. I am far more interested in coal than sugar. Sugar is one commodity that will work the way Mark expects as a price increase is easy to take advantage of by increasing production.

 
At 1/06/2011 4:21 PM, Blogger VangelV said...

Its the mentality of the liberal mind to have limits on what humankind can do.

I agree.

The reason for this is because without that proposition they cannot design stifiling programs and laws to 'save' us.

I don't really know about this. While I may share the sentiment and make the same argument it is not exactly valid. If you can't figure out why you do things trying to claim that you know the motivation of others is somewhat foolish.

The liberal mind envisions their role of saving mankind from themselves and of course only they because they are superior can accomplish this.

Most liberal types that I know are just busybodies who are somewhat insecure. They have faith in some higher power because they are not really as confident of their own ability as you (or they) imagine.

Thus, they HAVE to see danger just around the corner.

Perhaps but sometimes there is danger around the corner. The problem with most liberals and conservatives is that they do not know (or forget if you want to be generous) is that it is dealing with dangers that leads to robust system and advancement. In many ways the optimists are just as dangerous as the Malthusians. (Malthusian is a better choice than Liberal.)

 
At 1/06/2011 10:55 PM, Blogger Buddy R Pacifico said...

Update: Delong weasels on the bet!

 
At 1/06/2011 11:34 PM, Blogger pkenans said...

According to EMH, shouldn't the prices already reflect the current available information on these commodities? So the market should have already priced the increase in demand coming from China for example in addition the prospects of innovation and everything else that was mentioned in these blogs that are publicly available. So given that, the future price should be dependent on the revelation of new information which is unpredictable. I just dont understand what the point of this bet is because whoever wins it's not because he was right but because he was lucky unless he knows something that speculators with billions of dollars at their disposal to get information couldn't get.

 

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