Star Parker

In August of 2005, Houston investment banker Matt Simmons predicted in a New York Times feature article that the price of oil, then $65/barrel, would soar.

Simmons, who had written a book arguing that the world is running out of oil, was predicting oil prices “in the high triple digits.”

After reading Simmons’ prediction, John Tierney, a libertarian, who was then an op-ed columnist for the New York Times, telephoned Simmons and called him on it. He asked him if he’d be willing to put money on his prediction.

The two made a $10,000 bet. If the average oil price five years hence in 2010, adjusted for inflation, exceeded $200, Simmons would win. If not, Tierney would pocket the ten grand.

We’re now into the second half of 2010, and the average oil price, in 2005 dollars, is $70. Unless there is a remarkable explosion in the oil price for the remainder of 2010, driving it well above $300, Matt Simmons loses this bet. It was not even close.

The point here is to try and learn something from this that is relevant to what is going on today.

Simmons is an energy specialist. The company he founded advertises itself as “the only investment bank specializing in the entire spectrum of energy.”

It’s reasonable to assume that he knows a zillion times more about exploring for and producing oil than John Tierney. But Tierney didn’t make the bet because he felt he knew more about drilling for oil. He made the bet because he knows something about markets and change.

If markets are relatively free to adjust, it just doesn’t matter how smart you are, or how much you know about a particular commodity or business, you are not going to know what the world is going to look like in five years. Chances are, you are not going to know what it is going to look like in a year.

Now suppose Matt Simmons, instead of being a private businessman making bets on his convictions was, instead, a government official setting policy.

This is what we’ve got today.

Pinheads with power who think they know the last detail of how the world works and what it is going to look like, not just over the next couple years – but years down the road.

For them tomorrow is simply a repeat of yesterday. The idea that life is about surprises and the unknown – that what we know is a small splotch compared to what we don’t know – takes humility. And humility is the last thing on the radar screen of power brokers who feel they know so much that they are comfortable planning and taking over the lives of their fellow citizens.

Doomsday scenarios dominated thinking about energy in the 1970’s. It led to major government interference in these markets that just made things worse.


Star Parker

Star Parker is founder and president of CURE, the Center for Urban Renewal and Education, a 501c3 think tank which explores and promotes market based public policy to fight poverty, as well as author of the newly revised Uncle Sam's Plantation: How Big Government Enslaves America's Poor and What We Can do About It.