What is Cornucopia? Boudreaux vs. DeLong
Blogger and GMU economics professor Don Boudreaux has challenged blogger and Berkeley economics professor Brad Delong to a bet. Brad has turned down the bet and proposed his own bet, a bet that Don has not accepted. It seems to turn on the issue of what “cornucopia” means.
It started out when DeLong, in his January 2 blog post, nominated Don, Mark Perry, and John Tierney for DeLong’s “Stupidest Man Alive” award. This is a typical DeLong attack. Parenthetically, I don’t think this is a good way to educate, to put it mildly. I haven’t ever tried calling my students or colleagues stupid when I think they make mistakes, but hey, what do I know?
Tierney had written a piece in the New York Times arguing that there was an energy cornucopia and DeLong disputed this. He quoted from a James Hamilton post in which Hamilton pointed out that the increase in world oil supplies in the last few years was more than matched by simply the increase in demand by oil users in China. Of course, if this were the end of the oil story, there would be no basis for expecting oil prices to fall. But given that all DeLong did, other than add a snarky comment or two, was paste in Hamilton’s analysis, you might think that DeLong was simply saying that he didn’t expect oil prices to fall. I’m guessing that’s what Don Boudreaux thought DeLong was saying also. So Boudreaux offered DeLong a version of the famous Simon-Ehrlich bet, with it being DeLong’s option of which five or more raw materials prices to choose. At the time, I thought this offer overly broad, as DeLong was discussing oil prices, not raw materials prices in general. It would have been reasonable for DeLong to counter with a proposed bet on the future price of oil. If, inflation-adjusted, it is higher in x years, DeLong wins and if it’s lower, Boudreaux wins.
That’s not what DeLong did. Instead, he moved the goal posts. He claimed, in “Betting on an Energy Cornucopia,” that a cornucopia in oil means that the price of oil will fall to $20 a barrel. He gave first-rate analysis to explain why such a fall in price is unlikely but he didn’t give a particularly good basis for thinking that cornucopia means $20 oil. Not that he gave no analysis. He pointed to the post-World War II era when oil prices, adjusted for inflation, were $20 a barrel.
So what is cornucopia? Does it mean that prices will be as low as they were just after World War II? To assess this, let’s go back to an author who wrote a wonderful article in 2000 on cornucopia. In it he wrote:
Comparing the prices charged in the Montgomery Ward catalog with prices today–both expressed as a multiple of the average hourly wage–provides an index of how much our productivity in making the goods consumed back in 1895 has multiplied.
He showed an illuminating table giving the number of hours a worker had to work at the average wage in 1895 and in 2000 to buy a bicycle, a set of the Encyclopedia Britannica, a chair, etc. For all the items he listed but one, the number of hours in 2000 was a fraction of the number in 1895. This seemed, given the title of the author’s paper, to be “Cornucopia.” It seems like a reasonable standard. We’ll never have cornucopia in the literal sense of no scarcity: TANSTAAFL. But it seems reasonable that the number of labor hours required to purchase a barrel of oil will fall. So I propose that Boudreaux and DeLong vote on that. If DeLong accepts, I will bet him also.
Oh, yes, I neglected to say that the author of the excellent article on cornucopia was . . . Brad DeLong.
NOTE: If you wish to comment on this post, pro or con, please follow standard rules of decorum even if you dislike, and have strong grounds to dislike, one particular party in this dispute. Insults are cheap and, unless very clever, show intellectual shallowness.
Update: Thanks to Bob Murphy for pointing out that my link to DeLong’s January 2 post was mistakenly a link to his January 5 post. It’s fixed.
Jan 8 2011 at 1:03pm
Oh how elegantly done, how elegantly.
Jan 8 2011 at 1:22pm
I think this is precisely the bet to put on the table as it matches DeLong’s own definition. I’ll get in on this action too if it happens.
Jan 8 2011 at 4:45pm
I always wondered why labor hours weren’t a more widely used metric. I think, when trying to get a handle on how much things “cost” at different times and in different places, it’s far more useful than trying to correct for inflation or exchange rates.
If one makes, say, ten bucks an hour, one can easily see that a typical fast food lunch costs a half hour of labor. That’s how I think of it. Maybe once I graduate and get a real job, individual expenses will make such a small fraction of my pay that I won’t think of it that way? (except maybe larger expenses like rent and cars)
Anyway, it’s one of those areas where economists have a chance to communicate a concept better to the public than they have been doing. Many lay people have the idea that things “cost less” a long time ago, because of inflation. Discussing the opportunity cost of goods in terms of labor hours is a far better way of showing how things have gone down in cost over the years.
David L. Kendall
Jan 8 2011 at 4:50pm
Bravo, Prof. Henderson. Simply marvelous.
Jan 8 2011 at 4:59pm
It seems to me they are both making claims that the other is claiming more then they are. Don is claiming natural resource prices won’t go up over long periods of time. Brad is claiming oil prices won’t crash.
There isn’t a whole lot of direct conflict.
Personally, both seem right. Natural resources will get easier to extract and will decrease in value over time. However taken as a group, in general they will slowly drift down over time only being noticeable when averaged over decades. I see it highly unlikely supply will jump without a jump in demand. If prices fall, I see suppliers at the margin ready to stop.
Jan 8 2011 at 5:01pm
This post could not be better!
David R. Henderson
Jan 8 2011 at 6:25pm
Tim Worstall, Steve Horwitz, Jacob Oost, David L. Kendall, and physEcon,
Thank you so much. Your compliments are gratifying.
Good point. I agree with you. Indeed, you’ve motivated me to blog further today or tomorrow on the next step in this way of thinking, which involves thinking on the margin.
Ed Bosanquet writes:
“Don is claiming natural resource prices won’t go up over long periods of time. Brad is claiming oil prices won’t crash.”
True. That’s what I said. But it’s important to remember the original context–Brad’s denial that there will be a cornucopia–and then go to his own work to see what he means by cornucopia. So what this means is that even though he denies cornucopia, he won’t put his money where his mouth is.
Michael J. Green
Jan 9 2011 at 3:50am
Hah, I thought the same way when I was working in college, Jacob. I’d sit behind my desk and think something like, “Buying that book means spending five of the hours I’ve worked today.” If I wanted to treat myself to something, I’d figure out how many extra hours to sign up for. Though I’d often forget to consider taxes.
I agree that labor hours should be cited more often, as it is a better way to convey the cost of a good. Part of what Matt Ridley’s The Rational Optimist so persuasive is that he repeatedly refers to the amount of hours worked at the average wage necessary to buy a good or service.
Jan 9 2011 at 8:53am
I disagree he moved any goal posts, and I’m not sure they’re ever going to agree on a bet. I said as much very early on and I feel pretty vindicated about that.
Look, DeLong said nothing in any post about any trend in prices up or down. He’s discussed the Simon-Ehrlich bet in earlier posts and he’s criticized both positions as being too dogmatic, given the time frame their discussing. He saw no reason to expect a trend then and he gave no indication he expects a trend now.
He took the time to critique one thing – the idea from Tierney that demand constraints aren’t really a major issue currently. Tierney himself used the word “cornucopia” to describe it. Maybe $20/barrel wasn’t the best way to operationalize it, but that was his critique.
Don took the discussion in a whole different direction that DeLong never challenged him on. It’s no wonder DeLong didn’t take the bet. It was Boudreaux who moved the goal post by even talking about price trends.
I think your bet moves the goal posts too. Look up DeLong’s earlier post on the Simon-Ehrlich bet and tell me you don’t think he would take the same position on productivity that he did in the Britannica article.
I 100% agree with you on DeLong’s approach with these “stupidest man alive” posts, but I disagree on the bet itself. As long as people misread DeLong’s claim no bet is going to be made.
Jan 9 2011 at 8:56am
Ed Bosanquet is exactly right.
People want to see an enormous difference of opinion here and they want to see a huge fight. There isn’t one.
I should have added this – remember, DeLong was addressing what Tierney presented as a “cornucopia”. I imagine DeLong agrees with his own definition of cornucopia in the case of oil (he practically says as much in his updated bet), but he doesn’t agree with Tierney’s optimism.
Jan 14 2011 at 11:48am
Nice post. One slight point of correction.
Tierney used the term “Cornucopia” very specifically to refer to the Julian Simon school of thought. “Cornucopians” are basically the alternative school of thought from Malthusians — they believe that market and technological forces will create a world of generally increasing wealth and decreasing constraints over time.
Tierney’s article never once used “Cornucopia” without capital letters, and it certainly never argued that oil would drop to 1/4 of its current price. Tierney introduces the article by characterizing his bet that oil would not EXCEED $200 a barrel as “Cornucopian”, and he links to articles that argue that because of newly discovered energy supplies, oil prices will rise, but not as much as predicted.
DeLong is creating a straw-man when he argues that by using the term “Cornucopian,” Tierney necessarily meant that oil would drop to $20 a barrel. The term doesn’t mean that by necessity (as shown by DeLong’s own use of the term), and there’s nothing in Tierney’s article that implies that Tierney is using it in the odd way that DeLong interprets it.
Jan 14 2011 at 11:51am
To David Kuehn: Did Tierney write more than one article?
As far as I can tell from the piece David linked to, Tierney never said “cornucopia,” he said “Cornucopian.” As Tieney explains in his article (accurately), that’s a specific term for the school of thought associated with Julian Simon that stands in opposition to Malthusian thought.
Jan 14 2011 at 11:53am
Obviously, preview is wasted on me.
I apologize for the triple post, but if anyone is reading this, I meant “Daniel Kuehn” and “Tierney.”
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