With oil at $140 a barrel, can you still love Julian Simon?

Remember Julian Simon, the guy who argued that resource prices would fall, fall, fall in real terms? I loved spending time with him and to this day he remains an underrated economist. (By the way, the very first piece I ever wrote was a guide to using Julian Simon for high school debaters.) But can we still advocate his major thesis?

The possible belief space includes the following:


1. There is still a good chance that future resource and oil prices will fall dramatically, so Simon should not be dismissed. Still, the single best estimate today can be inferred from the current market price, which implies a good chance that resources will get more expensive.

2. Simon is right and futures markets currently indicate that the price of oil is expected to fall dramatically.

3. Simon is still right, the rest of the world is wrong, and betting on this is how I will get rich.

4. Simon is right but current markets don’t allow us to bet on his major claims. Futures markets extend for only a few years’ time, not for say the twenty years or so that are needed to validate his prediction.

4b. The deliverance of plenty is truly far away and no one is willing to take those margin calls for the next 187 years; in this scenario the present expected value of the future improvement is pretty low.

5. Simon is right but nominal interest rates will soon fall so low that successive short selling of oil in the futures market won’t yield supernormal returns. (This can mean, for instance, that you’d rather lock up all your money today at the higher rates, rather than short selling.)

Marginal Revolution