As we await the official Simmons–Tierney Bet results announcement, environmentalists (and Malthusians) should take a moment to reflect on the kinds of bets they should be making.  To recap, Matthew Simmons of Texas bet John Tierney of New York that the year-end average of the daily price-per-barrel of crude oil for the entire calendar year of 2010 would be $200 or higher. Technically, we already know the results since the resulting average price was around $80 for the year, far short of $200.  This is probably the highest profile public resource wager since the grandpappy of them all, the Simon–Ehrlich Wager, in which a similar bet was made on the price of five metals (chromium, copper, nickel, tin, and tungsten).  Ehrlich, the environmentalist, lost that one.

A smart Malthusian is a Neo-Malthusian. And smart Neo-Malthusians would not make or take simple single resource supply and price bets.  Not because it would protect them from bad publicity when they lose, which would be often, but because the real Neo-Malthusian knows that human systems, in particular markets, don’t work exactly like ecosystems.  Here are three ways markets are different than ecosystems.

I) Humans are better at substitution.  When a single element becomes expensive, we invent a new way to allow our device to do the same thing with a different element. Or we invent a new device that accomplishes the same thing.  Or we solve the problem so that we no longer need the newly expensive device.  We find a way ad infinitum.  We constantly innovate our way out of the most constrained of situations.

Even when prices are consistent, a good businessperson will look for ways to lower costs of the same item.  A fold here and nip there and the widget has the same strength that the previous one did, while using 20 percent less stuff and earning a few cents more per widget.

Often because of cost, we substitute one product for another (this is called elasticity of demand in economics).  If beef gets too expensive, chicken will do. This substitution gets even more complicated and interesting if significant qualitative changes are added to price signals.  If my cable television package has gone to over $80 dollars a month (and doesn’t even include HBO) WHILE Netflix has introduced an $8 a month streaming plan, I might decide to cancel my cable subscription and jump on the Netflix bandwagon.  Millions of Americans are making choices like this annually.

This exact kind of calculation happens in the energy realm with companies moving between coal, oil, and natural gas as one is perceived to have advantages over the others. These advantages include not just cost, but public perception and concern about supply stability.

II) Humans are better at resource hunting and gathering. We travel across ecosystem lines in ways that other organisms generally do not.  Our ability to locate, extract and transport our desired resources from further, deeper, in lesser concentrations, in lower qualities and in new innovative ways allows us to do the same thing for longer even the most optimistic imagine.  Sometimes these measures cost more, but innovation and the constant hunt for new supply do remarkable things to keep costs down.

III) Humans are better at adaptation.  This is not the slow evolutionary process of adaptation that organisms make over generations but the process of man accepting a new lot in life.  If your caviar habit becomes to expensive for you when your business contracts, the sane person cuts back until fortunes reverse. We can live on too few calories for long periods of time. We can live in small living quarters crammed with other individuals.  If our job is eliminated, we find a new one or educate ourselves into a new one. We share, we cooperate, we innovate, and we find a way to make it.

On a daily basis, the vast numbers of living organisms filling niches in ecosystems globally generally have, or take, little discretion. They generally do not vary what they consume, nor the amount.  Many are more sensitive to environmental changes in moisture, weather, shelter, habitat, and other variables than humans and cannot change their environment as readily.

When their environments are changed or damaged too drastically or rapidly such as when their preferred source of food or shelter is lost, most of a population will not be able to adapt quickly enough to survive.  Often, populations will appear to resist the onslaught, but actually be surviving in spite of a significant impairment.  At other times, populations are declining but advancing human technology and effort allows the harvest to continue at high levels in spite of declining populations.

Let the Simon–Ehrlich Wager and the Simmons–Tierney Bet be your cautionary tales, your warning buoys, to inoculate you against making or taking single resource price bets.

In fact, these bets perpetuate the misconception that ecosystems and human systems work the same way and lead us to a false senses of security.  We all know what false alarm after false alarm did to Peter and his wolf warnings.  Lost bets about single resources are not just false alarms, they were alarms set on the WRONG PROBLEMS in the first place.

Environmentalists care about the environment.  Being an environmentalist means that you are up against a system which is designed to consume without regard to environmental sustainability.  But individuals, companies and countries are extremely cognizant of the sustainability of the markets. The vast majority of power, influence and – no surprise here – money is on the side which puts the future of the market over that of ecosystems.  This is simply the nature of the invisible hand as currently implemented.

If a resource is constrained in a market, the market simply sidesteps and moves on.  However, once sustainable ecosystems relied upon by the market before it moving on to greener pastures are often damaged.  They may continue to “exist” for years in a zombie like limbo before perishing, although they do occasionally recover. Markets are not damaged, ecosystems are.

The consequences of markets over ecosystems are just distant enough, physically and temporally, and mankind himself adaptable enough, that problems generally fall short of creating true alarm.  Thus, in an environmentalists (and Malthusians, I suppose) desperation, they play the lottery and make a bet. “Once I win the bet, I will have a platform for making my important points known” they think.  The problem is, they seldom win.  And even if they did, they would still be wrong in that they are making the mistake of equating the function of markets with ecosystems. Victory or loss, the result is pyrrhic to your educational goals.

The bets environmentalists should be making would be complicated and to narrowly focused market advocates, seemingly written in a different language of futures lost. To paraphrase Yogi Berra, man has a hard working with predictions, particularly about the future.  Man’s temporal and geographic horizon is woefully short.

Instead of bets, environmentalists can mature the discourse about the real environmental destruction being unleashing onto the world in other ways. One of the most important is by teaching:

  • Teach cause and effect
  • Teach about the consequences of actions
  • Teaching children about the benefits, wonders and uses of the environment

Environmentalists have gotten much better at these.  But we need to do more.  We need to connect people to the future; not just their future, but that of their children, and their children’s children.  Tell the counterfactual stories of what will be lost, the tale of two planets.

Debating, publicly, openly and truthfully what our responsibilities are geographically and temporally will almost certainly result in the extension of the time horizon of the average citizen.

Role models are crucial.  But in order to demonstrate the benefits of less consumptive lifestyles, environmentalists will need alternatives to bearded hippies wearing overalls (no offense to hippies intended).  They may make for amusing television, but the role models need to speak to the masses.

Finally, learn, redesign and use markets.  Learn them because they are causing the problems you are fighting, redesign them because we have the power to shape markets, and use them to achieve your goals.

And for goodness sake, when you are offered that next bet, don’t take it.