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Simon Says: Meet the Smith School Economist Who Took on the Doomsayers and Won

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Jan 13, 2016
World Class Faculty & Research

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By DARYL JAMES

Julian SimonTime had run out in 1980. An earth capable of sustaining only a limited number of hungry consumers had been pushed too far, and “The Population Bomb” described by conservation biologist Paul Ehrlich would soon explode.

“America’s economic joyride is coming to an end,” Ehrlich proclaimed. “There will be no more cheap, abundant energy, no more cheap abundant food.” Already, two crises in the 1970s had left U.S. motorists waiting in line for gasoline, and more shortages of all types were assured as the world’s population careened past 4 billion.

Most in academia accepted the dire warnings about overpopulation and resource depletion. But the late Smith School economist Julian Simon listened to the arguments and recognized a flaw.

ULTIMATE RESOURCE

Ehrlich and his allies viewed people merely as takers and destroyers. Simon saw people as producers able to imagine and create.

“The ultimate resource is people — skilled, spirited and hopeful people who will exert their wills and imaginations for their own benefit, and so, inevitably, for the benefit of us all,” Simon wrote in one of his 30 books and 200 articles.

He argued that forecasts based on the assumption of unchanging conditions ultimately fail because people use their minds to adapt. New York City planners in 1880, for example, might have worried about manure from horse-drawn carriages clogging the streets. They could not have imagined the transportation solutions that would emerge by 1980.

“Minds matter economically as much as, or more than, hands or mouths,” Simon wrote.

For his evidence, he pointed to the entirety of human history. “The standard of living has risen along with the size of the world’s population since the beginning of recorded time,” he wrote elsewhere. “There is no convincing economic reason why these trends toward a better life should not continue indefinitely.”

While Simon had observation on his side, Ehrlich had the media. One evening while Simon sat at home in obscurity, he turned on his television and watched Ehrlich spread his gloom on The Tonight Show Starring Johnny Carson.

“It absolutely drove me out of my skull,” Simon told Wired magazine in 1997, one year before he died of a heart attack at age 65 in Chevy Chase, Md. “Here was a guy reaching a vast audience, leading this juggernaut of environmentalist hysteria, and I felt utterly helpless. What could I do? Go talk to five people?”

Paul Erlich

Instead, Simon challenged Ehrlich to a bet in 1980 that people still talk about 35 years later. Forbes, NPR, The New York Times and Slate have published recent updates on the wager. And Yale University history professor Paul Sabin published a 2014 book called “The Bet,” which documents the episode. Even Ehrlich, 83, whose career at Stanford University has bridged seven decades, continues to comment on the not-so-friendly rivalry.

Simon “was somebody who attracted a lot of attention from pundits and press and policymakers,” says Smith School logistics professor Robert J. Windle, one of Simon’s former colleagues and friends.

Terms of the wager were simple. “Ehrlich was allowed to select any five natural resources whose prices should have risen during the next 10 years if shortages were, in fact, a problem,” the Washington Post wrote in Simon’s quarter-page obituary.

Ehrlich and his partners put their minds together and chose copper, chrome, nickel, tin and tungsten. “Simon contended that any high prices would be self-correcting because excessive costliness would lead to a search for new supplies and alternatives,” the obituary says.

Interest in the wager grew, and in 1990 Simon received a check from Ehrlich for $576.07 — the amount prices had fallen on the five commodities during the previous decade. Simon had won. Fortune magazine listed him as one of the “150 great minds of the 1990s.” Washingtonian magazine called him one of the 25 “smartest people” in Washington. And Wired magazine dubbed him the “Doomslayer.”

Ehrlich preferred other names, such as “imbecile,” “flat earther” and “fringe character.”

DEBATE, ANYONE?

Windle and others at the Smith School say Simon welcomed the contrarian role, which continued to mark his career at the University of Maryland following his 1983 transfer from the University of Illinois.

“He wasn’t afraid to take the opposite side if he believed he was right,” Windle says. “He looked at the facts. And when you take a long-term view, it’s hard to dispute his facts.”

Windle says Simon was naturally inquisitive, a trait that took conversations down unexpected paths when faculty candidates came for job interviews. “The conversations would get exciting,” Windle recalls. “Whatever the person’s dissertation topic was, he would start asking questions about the research and debating the methods.”

Smith logistics professor Curt Grimm, the Charles A. Taff Chair of Economics and Strategy, says the same thing happened when Simon invited faculty members to lunch.

He would steer the discussions toward his colleagues’ latest research. “He had a lot of ideas and reactions,” Grimm says. “And he would debate and discuss.”

No matter the topic, Simon would cut through the clutter and identify the key issues. “He was a superb debater,” says former Smith School dean Rudy Lamone. “It was not uncommon to see Julian out in the hallway debating some student or faculty member or anybody who would talk to him about important issues.”

During one debate sponsored by the World Future Society in 1996, Simon challenged the claim that London's Clean Air Act of 1956 had benefited the environment. His opponent presented data showing a drop in pollution over the 40 years of enforcement, but Simon responded with his own chart tracing the decline to the 1920s.

“If you look at all the data,” he said, “you can’t tell that there was a clean air act at any point.”

Lamone says Simon won most of his debates. “He didn’t just say something,” Lamone recalls. “He proved it. He had the numbers.”

This is why Lamone worked to bring Simon to Maryland. “Julian Simon was one of my star acquisitions,” Lamone says. “Having a world-renowned economist like Julian Simon who set the bar on a number of key issues of the day — population, immigration, environmental concerns — brought a great deal of visibility to this school.”

SWIMMING UPSTREAM

Grimm, who arrived at the Smith School the same year as Simon, says recent energy advancements seem to support his former colleague’s cornucopian views.

Concerns about oil scarcity and environmental impact have driven innovation in wind, solar and battery power, along with advancements in oil extraction and fuel efficiency.

“If you look at the bigger picture, he clearly was right about the power of market forces and innovation in dealing with potential shortages of energy,” Grimm says. “No one talks about running out of oil anymore, which is pretty remarkable versus where we were 30 or 40 years ago.”

Simon gained notoriety for his views on resource depletion, but he also challenged conventional wisdom in other areas. One example was Simon’s push to shake up the way business schools taught economics. “He was taking on the whole economics profession,” Grimm says.

Smith Logistics, Business & Public Policy department chair Martin Dresner, who came to the school in 1988, says Simon believed in simplicity and favored teaching methods grounded in real-world application. “He didn’t like overly complicated models,” Dresner says.

Simon also ventured into the national conversation on immigration. “He was a believer in opening the borders,” Dresner says.

Earlier in his career, Simon even challenged the way airlines handled overbooking. “He was very broad in the subjects in which he did research,” Grimm says.

Simon’s career path reflects these broad interests, which ranged from how to start a mail-order business to ways of coping with depression. He served in the Navy from 1953 to 1956, operated an advertising agency for another three years, and doubled as a Cato Institute senior fellow during his Maryland years.

What stayed consistent throughout Simon’s career was his willingness to speak up on topics that mattered to him. “He was swimming upstream and willing to take on conventional wisdom in these other major areas,” Grimm says.

LESSONS FROM DAD

Evidence of Simon’s flair for the unconventional abounded at home, where he often worked.

To cope with the distraction of three young children playing nearby, Simon found a pair of large green airport-style noise-canceling headphones — the only kind available in the early 1970s. “They were very funny looking, but highly effective,” recalls one son, Chicago-based attorney David Simon.

The Simon patriarch also rearranged his sleep schedule to take advantage of quiet times. He often took naps in the evenings and then worked from 1 a.m. until sunrise.

“My dad had a similarly pragmatic approach to raising children,” David Simon says.

When the future attorney was 6, a schoolteacher insisted he not solve math problems by counting on his fingers. “My father thought that was silly, as that approach worked for me,” David Simon says. “He was completely supportive of my continued use of my fingers — under the table where the teacher could not see them.”

Years later, the father-and-son duo collaborated on two published papers analyzing the effects of “fair trade” laws on liquor stores.

Working with his father, David Simon says he learned to challenge his own conclusions and to expect others to challenge them. “I learned that one should apply several different methods of analysis to the same data,” he says.

Another son, Smith School alumnus Daniel Simon, PhD ’99, says his father prodded the three children to think critically.

“He liked to say that a little confusion was good for you, and he would delight in challenging us by answering our questions with more difficult questions,” says Daniel Simon, a psychology professor at the University of Illinois at Urbana-Champaign.

For example, if the children asked their father how many people lived in New York City, he would ask them if they meant all five boroughs or just Manhattan — and if they were including commuters into the city who did not sleep there at night. “We rarely got the answer we were looking for,” Daniel Simon recalls.

Generally, he says his father allowed his children to experiment and make mistakes. The same philosophy guided his career as an economist.

“He was a great believer that in the long run people would make sensible decisions, and people should be able to make their own decisions,” Daniel Simon says.

LASTING LEGACY

Guests gathered June 11, 2015, to celebrate these principles of economic freedom at the Competitive Enterprise Institute annual dinner in Washington, D.C.

Presidential candidate Carly Fiorina, MBA ’80, delivered the keynote address. Then Nobel laureate Vernon Smith accepted the 2015 Julian Simon Memorial Award. The prize, established in 2001, recognizes someone who promotes Simon’s vision of people as the ultimate resource.

“If you think about human beings not first and foremost as consumers, but as producers, then your understanding of economics changes,” says event attendee Rajshree Agarwal, the Rudolph P. Lamone Chair and Professor in Entrepreneurship at the Smith School. “The primacy is on production, not on distribution.”

Agarwal says Simon’s vision aligns well with the mission of the school’s new Ed Snider Center for Enterprise and Markets, which she directs.

“Julian Simon respected markets at work,” she says. “You cannot have the individual be free to choose if they don’t have the freedom to move upward or sideways — or whichever way they want to go — and if they don’t feel that their entrepreneurial spirit is being encouraged and rewarded.”

Once people experience that freedom, then enterprise follows. Agarwal says costs come down for everyone as people discover solutions — not just in copper, chrome, nickel, tin and tungsten, but in many products that make people’s lives better.

“One mind is capable of creating the productivity of millions of hands through technological improvements and innovation,” Agarwal says.