Blake Clayton writes on the Council on Foreign Relations blog that “It’s Bad News for Pessimists Everywhere: Malthus Was Wrong,” here’s the opening:
There is a tempting intuition to the idea that the real prices of non-renewable goods like coal, iron ore, or oil should rise, more or less, forever. It’s an easy argument to make, and it sounds right: The world’s population is getting bigger and bigger, so more and more goods like metals and hydrocarbons are being consumed. Every year, the sum total of what we’ve taken out of the ground mounts, never to be replaced. Supply of the stuff is limited—once it’s gone, it’s gone. So, this argument goes, as we exhaust our resources, we’ll have to mine, drill, or otherwise get our hands on it somehow but it will get more and more expensive to do so, because we’ll have exhausted the best stuff. Left to exploit ever-greater quantities of ever-more-marginal deposits, prices will rise indefinitely into the future.
Thus, in this line of reasoning, unless we start to consume less of a given non-renewable material, it will forever and ever get more expensive.
The logic appears unimpeachable at first glance. But it’s wrong. The prices of raw materials have not traveled the path this story would predict for any traded commodity once inflation is factored in, over long stretches of time (see chart above). One of the most powerfully counter-intuitive and empirically conclusive findings in economic history is that the real prices of nearly all major resources have actually trended lower over very long periods of time, even if they’re produced at higher and higher rates.” Though non-renewable commodity prices can rise steeply over years or even decades when supply and demand conditions warrant, over the centuries they’ve tended to decline after adjusted for inflation.
To make his case empirically, Blake presents a chart of The Economist’s Industrial-Commodity Price Index on an annual basis back to 1871, and concludes that “Though non-renewable commodity prices can rise steeply over years or even decades when supply and demand conditions warrant, over the centuries they’ve tended to decline after adjusted for inflation.”
The chart above is an updated version of one that I have featured before of US commodity prices over time using the monthly, inflation-adjusted Dow Jones-AIG Commodity Index from January of 1934 to March 2013 (data from Global Financial Data, paid subscription required, adjusted for inflation using BLS data). The DJ-AIG Commodity Index is composed of futures contracts on 19 physical commodities (e.g. crude oil, natural gas, live cattle, zinc, nickel, copper, cotton, aluminum, silver, etc., see the full list and current weights here). The red line in the graph shows the statistically significant (p = .0000) downward trend in inflation-adjusted commodity prices since the 1930s.
In recent years, the DJ-AIG index spiked by 28.5% between early 2010 and the summer of 2011, partly because oil prices increased from $80 per barrel to $110, and gasoline prices increased almost 60% from $2.50 per gallon to almost $4.00. But since the summer of 2011, the commodity index has been trending downward, thanks to falling natural gas prices, and declines in the prices of copper, zinc, silver, nickel, and aluminum. As of March 2013, the inflation-adjusted commodity index is 4% below a decade ago, reflecting a slightly declining commodity price trend over the last decade. The long-term red trend line in the chart shows that real US commodity prices have fallen by more than 50% over the last eight decades, even as the world population has increased by more than three times, from 2 billion in 1934 to more than 7 billion today.
As Blake concludes, the pessimists can at least rejoice in this fact; the future may be bleak, but it’s been bleaker. Much bleaker.