In medical research the game of chance can be illustrated when comparing the (so-called) placebo effect with the normal cycle of disease. That is, if you run a test long enough, a positive placebo effect will most often line up with feeling OK in the normal progression of a disease – some days you feel better than others. If you measure the placebo patient and they say they feel better, statistically, this will likely match the control patient at some interval – each will cycle good and bad over time. A better outcome is often a matter of when, in a window of time, you stop the test (See, Is the Placebo Powerless? — An Analysis of Clinical Trials Comparing Placebo with No Treatment).
In a 12-28-2010, New York, Science Times article by John Tierney, John bets $5,000. with Matthew Simmons that 5 years from 2005, the barrel price of oil will be less than $200. – Tierney being the energy optimist, and Simmons the peak oil pessimist. John won and presumably collected the $5,000.
John notes that within that 5 year period the barrel price got as high as $145. , but then returned to just above $70. when the bet concluded. John then offers that, “It’s true that the real price of oil is slightly higher now than it was in 2005, and it’s always possible that oil prices will spike again in the future. But the overall energy situation today looks a lot like a Cornucopian feast…” A feast he says, of new African and Brazilian oil, Canadian oil sand, and natural gas. John concludes the article, “You can always make news with doomsday predictions but you can usually make money betting against them.”
I won’t even touch on the problems associated with access to free-flowing oil, and the necessary resources and environmental issues connected to oil sand and hydrofracking, but as I said in the title, John still cheated. Just as some medical researchers unwittingly do when they publish positive placebo effects using trials that are not long enough to capture normal cycles, and when the reaserchers do not compare the cycles with the non-treated control group.
John Tierney really took advantage of two issues :
1. With good luck, catching the price cycle to benefit his prediction.
2. The fact that, as John himself pointed out, “When the global recession hit in the fall of 2008, the price plummeted below $50…” And then as economics changed, crept back up. Just not to $200.
Actually, John has published the facts, he just misses the point and draws an incorrect conclusion – that energy is plentiful and likely to remain this way for some time, and that the price of energy will reflect the supply. Sounds reasonable, but as I said, misses the point.
OK, so there is the cycle thing – Simmons just did not select a long enough time period, and/or Tierney got lucky. But what about my #2 point? Oil price is certainly influenced by supply – that’s basic economics. But also basic is that since energy is a, or the main driver of industry, oil price is also affected by industrial and consumer demand – lose your job, and you buy less, and drive less. And less is made, all contributing to lower demand, greater available supply, and at some point a lower price. John even states, “In a finite world, with a growing population, wasn’t (sic) it logical to expect resources to become scarcer and more expensive?” Relative to one’s ability to pay (and it should be isn’t it logical), yes it is.
John cheated by virtue of lining up the facts to suit his side, probably innocently enough, but not very thorough for a journalist. John actually put the counter argument very clearly – that the oil supply is finite, and that increasingly, either you will have money to spend but oil prices will be high, or you will not have money to spend and oil prices will be lower. Either way, oil becomes scarce. Sooner or later, John must lose – the facts are clear.