Son of Simon
By Bryan Caplan
In the spirit of the original Simon-Ehrlich bet, people who disagree about the long-run price of oil are putting their money where their mouth is. According to the Laissez-Faire Books blog, energy expert Matthew Simmons has bet NYT columnist John Tierney and Simon’s widow Rita Simon $2500 each that in 2010 the average price of a barrel of oil will exceed $200 – a little more than triple the current price. As far as I can tell, the bet is at even odds.
Here’s Tierney on the background of the bet:
After reading his prediction, quoted Sunday in the cover story of The New York Times Magazine, that oil prices will soar into the triple digits, I called to ask if he’d back his prophecy with cash. Without a second’s hesitation, he agreed to bet me $5,000.
His only concern seemed to be that he was fleecing me. Mr. Simmons, the head of a Houston investment bank specializing in the energy industry, patiently explained to me why Saudi Arabia’s oil production would falter much sooner than expected. That’s the thesis of his new book, Twilight in the Desert: The Coming Saudi Oil Shock and the World Economy.
This bet reminds me of the recent WSJ Econoblog with James Hamilton and Robert Kaufmann. Both of these smart and well-informed economists seemed pretty convinced that world oil production is soon going to peak, even though demand seems sure to keep rising.
I don’t know enough to respond intelligently to the details of their arguments, but I still found them very unconvincing. To my mind, they kept dancing around the elephant in the room: Predictions of increasing natural resource scarcity, including oil, have been around for over a century, and on average they’ve been dead wrong. A big part of the problem is probably that responsible experts like to base their predictions on the visible facts at hand, and feel nervous speculating about the impact of future discoveries and innovations – even in industries where discoveries and innovations are the norm.