Betting on the price of Oil

Original Lecture Date and Time: March 26, 2008 at 2PM
Location: School of Forestry and Wildlife Sciences
Speaker: David B. South

About the Speaker

David South is a professor of Forestry at Auburn University. He has received several awards for his research in forest nurseries and plantation establishment. In 1996, he made a 5-year bet on the price of wood with Dr. Julian Simon and in March 27, 1999, he offered a $1000 bet that was published in "The Economist" magazine. The following year, he made a 10-year bet on the price of oil with Dr. Zargos Madjd-Sadjadi.
www.ag.auburn.edu/aaes/communications/highlights/summer99/south.html

About the Lecture

In this lecture, Dr. South introduces the concept of the ZAP religion. He claims that many economists and journalists follow the teachings of Julian Simon (author of "The Ultimate Resource" and winner of a 10-year bet on the price of 5 metals). ZAP stands for the Zero Asymptote Price curve - which suggests that the cost of all commodities will decline in price (i.e. constant dollars) over time. Followers of the ZAP religion believe that 50 years from now, the price of oil, wood, and energy will be cheaper than it is today (e.g. 1 hour of labor will purchase more kilowatts in 2058 than in 2008). South provides several quotes from members of the ZAP religion. He concludes by showing that "experts" can be wrong when they attempt to make accurate long-term predictions.

Category:

Education

Tags:

• auburn
• university
• oil
• price
• prediction
• david
• south

[powerdbyfood1]

You either have not read enough of Julian Simon's work or you purposely misunderstand him.

[Spectre11B]

How ironic. By attempting to illustrate the error in a theory, you were forced to make a counter-prediction. If your prediction doesn't hold and oil continues to drop, you in effect give more credibility to the theory you were trying to oppose. This will, unfortunately, casts doubt on anything you teach if you are wrong.

This is why many professors take a neutral stance to avoid influencing their students one way or another.

[eljefejesus]

In 100 years, even the economist prediction of $5 a barrel may yet be right. China's effects on commodity prices are not an overnight effect, but as the 70's shows, even an oil cartel could not make more than a decades-or-so impact when facing long-term effects of the incentive price enticing human ingenuity.

[eljefejesus]

South, oil was at about $81, when inflation adjusted the target price was $63.29, now oil remains closer to $79. You have your winnings to play with, how about a similar agreement, more time for long-run economic forces to outweight short-term or even cyclical fluctuations from rising economic giants and for technology/ingenuity/substitut­es to catch up with the incentive of a higher price. I say by 1/1/30 inflation-adjusted WTI oil will be below $79. $3,000? or gentleman's agreement option?

[eljefejesus]

Impressive, by wrongly speculating that oil would be used up so much as to cause a rise in prices, he still won. Maybe South actually predicted the rise of China and its use of oil now rivaling that of the US, and he predicted the rise of India at the same time I'm sure. Two billion people in those countries helped in their ability to buy&use oil products by the same economic theories that Sout bet against. Ironic.

[eljefejesus]

Blatant, shameful lie. You "forgot" to adjust for inflation!!!

[southdb]

On Jan. 4, 2010, the price of a barrel of oil was $81.51 (WTI Cushing). As a result, Dr. South won the bet and Dr. Madjd-Sadjadi wrote a check for $1,242 (about $1,000 in Oct-2000 dollars).

[johnknoefler]

I agree with your predictions. However I was not short sighted and I did nothing to cause this problem. Rathar it was planned by IMF, CFR, and other secret societies

[eljefejesus]

Looking at the South Madjd-Sadjadi bet ending in 2010, the price of oil may be below $50 without even adjusting for inflation, which is just a hialrious slap in the face to South.

South Madjd-Sadjadi 2010 just a year and change left.

Where will his name-calling "zap-religion" banding taunts and mocking be when science again wins out over time and in most cases... maybe he will start to respect economic sciences as something more than a religion when he has to pay up some money... read!

[eljefejesus]

Wow, this guys' bias blinds him so blatantly that he does not believe that you can look back at the last 1000 years' trends and believe that any of those trends will maintain predictive power in the future.

In other words, forget Hume, forget the definition of insanity, forget the scientific method, let's just make this planet green!

He has to admit that he chose a shorter time horizon on purpose and focused on just one resource hoping for a lucky break, rather than challenging LTtheories.

[eastwood24]

I predict we will have a collapsed dollar and hyper inflation. Our empire is nearly bankrupt. Im sorry to our younger generations for my greed and shortsideness.