International Trade 309to higher and higher tariffs steadily diminish imports, increase deadweight
losses, and ultimately raise little revenue. In the present example, as the tariff
is raised toward 20 percent, the price of watches approaches $15, and imports
fall closer and closer to zero. Obviously, tariff rates that eliminate nearly all
imports generate very little revenue.Betting the Planet
RevisitedSimon’s bet rested on the simple economics of supply and demand. If ecologists were
correct in their assertion that the world was running out of essential resources, then the
prices of these scarce resources should rise. Basing his opinion on his own research, Simon
was confident that the ecologists were wrong and that resources would be more abun-
dant tomorrow than today so that their prices would fall.
Who was right? When the bet was settled in 1991, the prices of all five metals had
declined over the decade. The same quantities of the metals that were worth $1,000 in
1981 had a total market value of only $618 in 1991. The explanations? Increases in sup-
ply kept up with increases in demand; mining companies found new deposits and used
more efficient methods to recover and refine ores; the metals often were replaced by
cheaper substitutes; and the tin cartel collapsed and tin prices collapsed with it. Ehrlich
wrote Simon a check for the difference between the prices then and now—$382 plus
accumulated interest over the decade. Using price as the market test, the “boomster” had
won his bet with the “doomster.”
Of course, the result of such a bet hardly settles the larger debate about the deple-
tion of resources.^16 Although supplies of many resources are more abundant now than in
the past, this does not mean that resource supplies will outstrip demand indefinitely.
Indeed, dramatic economic growth in the developing world has greatly raised demand for
essential resources. The emergence of high-consuming middle classes in China and India
means exponential increases in food consumption, automobile purchases, and energy
use per capita. Higher living standards per capita constitute a greater demand on resources
than population growth per se.
Are we entering an era of markedly higher resource prices and greater scarcity?
The last few years have seen significant price increases for oil, food, and many com-
modities. Financial expert Paul Kedrosky points out that had the same bet been made
in any year from 1994 on, Ehrlich—not Simon—would have been the winner. In no
small part, the surge in commodity demand by China, India, and other fast-growing
emerging nations contributed to commodity price increases. (This effect reflects the
increased valueof commodities as engines of growth, rather than a sign of increased
scarcity.)(^16) For discussions of the resource debate, see J. Lahart, P. Barta, and A. Batson, “New Limits to
Growth Revive Malthusian Fears,” The Wall Street Journal, March 24, 2008, p. A1; J. Diamond, “What’s
Your Consumption Factor?” The Wall Street Journal, March 24, 2008, p. A19; K. Arrow et al, “Are We
Consuming Too Much?” Journal of Economic Perspectives(Summer 2004): 147–172; and P. Kedrosky,
“Re-litigating the Simon/Ehrlich Bet,” Infectious Greed Blog (February 18, 2010).
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