One of my great joys is going to lunch with Bryan Caplan and torturing him with my contrarian opinions. I will even make up a temporary view toward this end.
Tuesday I told him that most commodity prices are, in real terms, higher than they were a decade ago. Furthermore in many cases both the futures and the spot prices have been rising.
Many MR readers will know that Julian Simon won his famous bet with Paul Ehrlich. Simon challenged Ehrlich to name five resources of his choice. At the end of the time period, those resources had fallen in real price, so Simon won the bet. But Ehrlich probably would have fared better had the bet expired today.
To be sure, most resources are still cheaper in real terms than in much earlier eras. But has the time passed when real resources will get cheaper every period? Is ever-increasing resource plenitude a thing of the past? Market prices seem to indicate so.
Of course you might expect real price declines to resume for most resources. You might cite a similar and premature commodity price scare from the early 1980s. Or you might claim that the special circumstances of Chinese economic growth have led the demand for raw materials to rise faster than the supply, but only temporarily. But would this be betting against market prices? Could we still cite market prices as a sign of Simon’s triumph over Ehrlich? And could we become rich by selling commodities short?
Isn’t it simpler to believe that market prices speak the truth and that the demand for raw materials will continue to outstrip the supply?
Now I am trying to decide whether this was a "contrarian, made up for lunch with Bryan" opinion, or a real opinion…And here is my earlier post on resource prices…
Addendum: Alex points out that the commodity price spike is less than ten years old. Four years would be a better estimate, but this does not change the logic of the argument. If one cites market prices as "sufficient statistics" of resource value, why not apply this logic consistently when real prices rise?