Significant effects that upset standard economic patterns
It is a significant challenge for environmentalists to understand economic reasoning. One of these contentions between economists and environmentalists can be seen in a bet between Paul Ehrlich (environmentalist) and Julian Simon (economist). According to Ehrlich, the prices of the five metals would increase from 1980 to 1990 based on various reasons. However, Simon thought the opposite based on different reasoning. According to Hoteling’s rule, the price of a depletable resource is supposed to increase exponentially at a pace that equals the interest rate. However, the opposite happened in the wager, and Simon won. There are various reasons why Simon won, and I would have done things differently in the same situation.
There were a couple of significant points that can be noted from materials involved in the original bet namely; copper, nickel, tin and tungsten. Various events affected the price of these materials. For instance, the cost of tin significantly dropped in price. However, the reason for the drop in price was not due to environmental or technological reasons. The International Tin Council, an organization backing tin prices, went bankrupt (Prest, 1987). The corporation was developed after world war II to help stabilize tin prices. The prominent people interested were producers because according to the public choice theory, clients rarely worry about the cost of a particular product (Mueller, 2017). The reason is that consumers use a variety of products, whereas producers are significantly concerned about a single product. As such, these prices will end up rising. The same event occurred, and the ITC purchased a significant amount to be stable and retained the extra production. The organization lost all the money in 1985 when they went bankrupt, causing the price to collapse. The result was beneficial to Simon’s side of the debt.
However, these outcomes were not predicted by Simon as his reasoning depended on an entirely different approach. Simon won because his timing was right. After all, he reasoned based on solvent extraction and electro-winning (Humphreys, 2016). According to him, the advancement in technology would increase the exploitation of materials. The faster exploitation would exceed the demand causing a decrease in price. For instance, before the 1980s, copper was made from copper sulphides. If copper oxide would have been discovered, then it would remain copper oxide. There was no knowledge that copper oxide is not copper ore, just dirt. It would suffice to state that Simon was merely lucky.
If I was betting with Simon, I would have studies other influential events and waited till the 90s before making a bet. The collapse of the Soviet Union affected minor metals, non-ferrous, and the metals in the wager were part of these categories (Emel’yanov et al., 2018). The collapse of the economy meant that there were no clients to purchase the metals that were being produced. As such, these commodities flooded the global markets, thus reducing prices significantly. Aside from that, there was a sequence of stockpiles worth billions. The fall in price affected all metals. These reasons show why the bet would be on Ehrlich side of the bet. However, it is essential to note that price decrease would be due to recovery in prices and not an increasing scarcity as proposed by Ehrlich.
In summary, Simon won because of the timing of significant effects that upset standard economic patterns. The events in the 1980s, for example, the bankruptcy of the ITC led to the fall in tin prices. If I were part of the wager, I would have studied global patterns and opted to invest in the post-1990s where the collapse of the Soviet Union would have caused a reduction of the prices. The results of this famous wager show how catastrophic events can easily upset economic conditions.