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[Gene GeRue <genegerue AT ruralize.com>]

The $10,000 Question

By JOHN TIERNEY
Published: August 23, 2005

I don't share Matthew Simmons's angst, but I admire his style. He is that 
rare doomsayer who puts his money where his doom is.

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."

I didn't try to argue with him about Saudi Arabia, because I know next to 
nothing about oil production there or anywhere else. I'm just following the 
advice of a mentor and friend, the economist Julian Simon: if you find 
anyone willing to bet that natural resource prices are going up, take him 
for all you can.

Julian took up gambling during the last end-of-oil crisis, in 1980, when 
experts were predicting a new age of scarcity as the planet's resources 
were depleted by the growing population. Julian had debunked these fears in 
"The Ultimate Resource," the bible of Cornucopian economics, which showed 
how human ingenuity had kept driving down the price of energy and other 
natural resources for centuries.

He offered to bet the pessimists that oil or any other resource they chose 
would be cheaper, in real terms, at any date they picked in the future. The 
ecologist Paul Ehrlich, author of "The Population Bomb" and "The End of 
Affluence," took up his offer and chose copper, tin and three other metals 
worth $1,000 in 1980.

When the famous bet was settled 10 years later, the value of the metals had 
declined by more than half. As usual, people had found new ways to get the 
metals as well as cheaper substitutes, like the fiber optic cables that 
replaced copper telephone wires.

After collecting his winnings, Julian expanded his challenge, offering to 
bet anyone on any other resource price or measure of human welfare. Julian, 
who died in 1998, never managed to persuade Mr. Ehrlich or other prominent 
doomsayers to take his bets again. But now we have a braver prophet in Mr. 
Simmons.

I proposed to him a bet using what Julian considered the best measure of a 
resource's value: how it compares with the average worker's wage. I offered 
to bet that the price of oil would not rise faster than the average wage, 
meaning that future workers would be able to afford oil more easily than 
they could today.

Mr. Simmons said he favored a simpler wager, based on his expectation that 
the price of oil, now about $65 per barrel, would more than triple during 
the next five years. He said he'd bet that the price in 2010, when adjusted 
for inflation so it's stated in 2005 dollars, would be at least $200 per 
barrel.

Remembering a tip from Julian, I suggested that we use the average price 
for the whole year of 2010 instead of the price on any particular date - 
that way, neither of us would be vulnerable to a sudden short-term swing as 
the market reacted to some unexpected news. Mr. Simmons agreed, and we 
sealed the deal by e-mail.

The first person I told was Julian's widow, Rita Simon, a public affairs 
professor at American University. She was delighted to see Julian's 
tradition carried on and thought the bet sounded so good she wanted a piece 
of the action herself.

With Mr. Simmons's approval, we arranged for Rita and me to split the 
wager, with each of us putting up $2,500 against Mr. Simmons's $5,000. 
(Note to accounting department: I'm aware that my expense account doesn't 
cover gambling. I'm using my own money.) All the money is being put into 
escrow in a joint account; the winning side will collect the $10,000 plus 
any accrued interest on Jan. 1, 2011.

I realize this isn't a sure thing, because the price of oil has risen 
before - it quintupled in the 1970's. But then it dropped, thanks to new 
discoveries and technologies, validating the Cornucopians' optimism.

So I figure the long-term odds are with me. And while I'm at it, I'll 
extend Julian's challenge and consider bets from anyone else convinced that 
our way of life is "unsustainable." If you think the price of oil or some 
other natural resource is going to soar, show me the money.

Email: tierney AT nytimes.com
http://www.nytimes.com/2005/08/23/opinion/23tierney.html