Malthusians wrong again — this time on oil prices

The New York Times' John Tierney explains why those who predict doom and gloom on commodity prices and scarcity are almost always wrong:

Five years ago, Matthew R. Simmons and I bet $5,000. It was a wager about the future of energy supplies — a Malthusian pessimist versus a Cornucopian optimist — and now the day of reckoning is nigh: Jan. 1, 2011.

The bet was occasioned by a cover article in August 2005 in The New York Times Magazine titled “The Breaking Point.” It featured predictions of soaring oil prices from Mr. Simmons, who was a member of the Council on Foreign Relations, the head of a Houston investment bank specializing in the energy industry, and the author of “Twilight in the Desert: The Coming Saudi Oil Shock and the World Economy.”

I called Mr. Simmons to discuss a bet. To his credit — and unlike some other Malthusians — he was eager to back his predictions with cash. He expected the price of oil, then about $65 a barrel, to more than triple in the next five years, even after adjusting for inflation. He offered to bet $5,000 that the average price of oil over the course of 2010 would be at least $200 a barrel in 2005 dollars.

You can probably guess who won the bet. But Tierney's column is both a delight to read and a good reminder that human innovation is perhaps our most abundant resource. It's amazing how many smart people forget that when they're trying to predict the future.

Beltway ConfidentialcommoditieseconomicsUS

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