Update on the "Stupidest Man Alive" Kerfuffle; We'll Never Run Out of the Ultimate Resource
Here are the latest posts from Brad DeLong and Don Boudreaux on the "Stupidest Man Alive" kerfuffle. While Brad and Don work out the terms of their possible upcoming bet on the future trends in the inflation-adjusted prices of natural resources or petroleum products, let's do a quick review of the historical record of real gas prices over the last 92 years (this series goes back to 1919, which is the longest historical price record I could find for oil or gas).
The chart above shows the inflation-adjusted retail price of regular gasoline on an annual basis back to 1919, using data from the EIA. Here's what we know for sure:
1. The real price of gas is cheaper today in the U.S. than in the early 1920s, even though:
a. The U.S. population has increased by about three times from 104 million to 308 million.
b. We produce about 17 times more output today (real GDP) than in the early 1920s.
c. There are more than 30 times as many automobiles today (250 million) in the U.S. compared to 1920 (7.5 million).
2. Despite the OPEC-induced artificial shortages around 1980, the 2008 spike, and the recent upturn, the long-term trend in real gas prices going back to 1919 has been significantly downward (see trend line in graph).
Bottom Line: The significant downward trend in real gas prices over the last century seems to generally support Julian Simon's cornucopian view that the human resources of innovation, discovery, and substitution will always be strong enough to overcome and offset increases in population and the accompanying rising demand for natural resources like oil and gas, which will be reflected in stable or falling real prices of natural resources over time, e.g. gasoline since 1919.
And even if the downward trend has now reversed, and real oil and gas prices are headed upward in the near future, that will certainly lead to: a) increased exploration and discovery to find more oil (e.g. North Dakota) , b) increased substitution to alternative fuels like natural gas and nuclear, and c) reduced demand. In other words, supply will increase and/or demand will decrease, which will moderate price increases, or lead eventually to falling prices. This is just basic ECON 101, and is why "peak oil" is "peak idiocy."
If we look beyond the Ehrlich-Simon, Tierney-Simmons and DeLong-Boudreaux bets on resource prices, the bigger Simonesque lesson is clear: the "ultimate resource," i.e. the human mind, human capital, human ingenuity, and human innovation, are infinitely abundant, and will meet, address and overcome any scarcity in natural resources. The bottom line as I understand Julian Simon is this: we'll never run out of the ultimate resource. And that is why limited or finite supplies of natural resources have never, and will never, result in any significant binding constraints or limits on human progress, economic growth, or the continual increases in our standard of living, wealth and abundance.