Will ingenuity save us from doom?

Chris Farrell Dec 17, 2009

Will ingenuity save us from doom?

Chris Farrell Dec 17, 2009


Bill Radke: The debate in Copenhagen suggests an ancient question: Is humanity doomed, or will our ingenuity provide? You could ask that about the environment, our food supply, our natural resources. Marketplace’s Economics Correspondent Chris Farrell has been thinking about this debate. Hi, Chris.

Chris Farrell: Good morning.

Radke: Now you have a story to set this up.

Farrell: Well we have to go back to 1980. Now remember, in the 70’s, oil prices went up, food prices went up, and the population pessimist, Paul Ehrlich, made a bed with the eternal economic optimist, Julian Simon. Ehrlich picked five metals that he thought would rise in price, and he figured that there would be this Mathusian squeeze that would just send natural resource prices soaring throughout the decade.

Radke: Now let’s explain Mathusian, this is the theory that humanity’s threatened by disappearing resources.

Farrell: That’s right. So Ehrlich was a Mathusian, and he bet Simon, the optimist, that metal prices would rise over the next decade after you adjust for inflation, that’s the right way to make a bet. Well, the 1980’s came, and the price of metal fell. So Ehrlich had to pay Simon almost $600

Radke: And why did the prices of the metals drop?

Farrell: Well for one thing, do you know what a high price does? It attracts every minor in the world to start drilling and find some more metals. Also, as some metals got more expensive, people would come up with alternatives that could do the same thing, or maybe do something better, ’cause a lot of metals are used in machinery, for example.

Radke: OK, so this is the anti-Mathusian idea, right? That humans innovate our way out of these shortages?

Farrell: That’s right, and this is real practical implications for how you think about your investment portfolio. And this newsletter writer that I liked, he called it the battle between the Shumpertarians and the Malthusians.

Radke: And, wait, who are the Shumpertarians?

Farrell: The Shumpertarians believe in that famous phrase, “creative destruction.” That you always come up with some new and better way of organizing life, there’s technological innovation. So, high price of commodities is going to attract a lot of innovation. Think about the high price of oil and everything that’s going on with alternative energy. The Malthusians, they’re far more skeptical.

Radke: Who’s right, Chris?

Farrell: Ah, well the true answer is no one knows. But I’m the kind of guy that believes the glass is always half full, and also since the Industrial Revolution, the right bet to make is to be on the side of innovation.

Radke: OK Malthusians, if you want to take him up on his bet, his name is Chris Farrell, he’s Marketplace’s economics corresponsdent. Chris, thank you.

Farrell: Thanks a lot.

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