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Understanding the Tupy-Pooley Effect

My most exciting moment at FreedomFest was provided by two economists from the Libertarian Cato Institute, Gale Pooley and Marian Tupy. You should remember the Tupy-Pooley effect — it’s going to make history.

Pooley from Brigham Young and Tupy from Saint Andrews (UK) are working to revolutionize the methods and meanings of economic statistics. Using a central concept of the Information Theory of Economics — money is time — they leave in irretrievable ruins all the zero-sum scarcity and “peak energy” theories that dominate current academic economics.

In the Tupy-Pooley formula, the time price of anything is the hours it takes to earn the money to buy that thing. To any ordinary wage-earner in a store or at a gas tank, this is the price that matters. When you run out of money, it is because you ran out of time to make more.

Perhaps even you believe that we are running out of resources. That oil or coal or fish or arable land are somehow growing scarcer. Think again.

When the world fully absorbs the power of the Tupy-Pooley effect, investment and enterprise will never be the same again. Banished for good will be all the fears of the future that inform the movement for so-called “ethical” and “socially responsible” and “sustainable” investments.

The rule will be to shun all the shysters selling shares in ESG (environmental, social and governance) funds, which are mostly just green funds.

Looking at the Inception of this Phenomenon

Intrigued by the famous 1980 bet made by Julian Simon against population catastrophist Paul Erhlich, Tupy and Pooley began with an effort to determine whether Simon would still win the bet today.

If you’re not familiar with the bet, Simon believed that resources would become cheaper and more abundant as populations grew. He boldly let Ehrlich choose any five resources he thought were most likely to rise in price. Unless on average they dropped in price over the subsequent ten years, Ehrlich would win the bet.

Simon promised to buy the five resources at whatever price they reached, while Erhlich would have to pay Simon the amount that their prices decreased. It was a wildly audacious and asymmetric bet.

The most money Ehrlich could lose was $1,000 adjusted for inflation if the prices all went to zero. Inflation from 1980 to 1990 was around 58% so $1,000 increased to $1,580. The price of the basket of five commodities had remained close to $1,000. October 11, 1990 Ehrlich wrote a check to Simon for $576.07. The real price had fallen by over 36 percent.

Simon won.

Vindicating Simon’s thesis in The Ultimate Resource that the key economic asset is free human minds, Tupy and Pooley finally refute all the “sustainability” concerns of academic economics. They show that all the fears of “peak oil” or “peak food production” or “peak fish harvests” are radically and fundamentally wrong.

They show that the time-price of oil has dropped 64 percent, the price of foods of all kinds have dropped by 75 percent or more. Fish? The price of salmon has dropped 85 percent. Shrimp is 76 percent cheaper. The Tupy-Pooley effect says all these items are between four and six times more abundant than they were in 1980.

They prove that far from a burden on the planet, human beings constantly enrich it. Since 1980, GDP per capita per hour has risen by 404 percent.

As the world population has grown 71.2 percent or by 3.18 billion from 4.45 to 7.63 billion. today, Pooley and Tupy show, the population has become more sustainable than ever. All the 50 most important commodities to support human life — from aluminum and bananas to beef and chicken, to coffee and rice, to crude oil and natural gas, to zinc and wool — have become drastically cheaper, and many times more abundant per capita.

Since 1980, when Julian Simon made his famous bet with Paul Erhlich, these commodities have dropped in time-price by 72.3 percent while population has grown by 71.2 percent. Dividing time prices of different years yields a time-price multiplier which tells how much of an item could be bought for the same amount of time at a later date.

For example, with the price of a pound of oranges 21 minutes in 1980 and nine minutes in 2018, the time-price multiplier would be calculated as 21 divided by nine or 2.33. A multiplier greater than one signifies increasing abundance. The average 80 percent drop in prices for most foodstuffs indicates that they are five times more abundant.

An Improved Measuring Metric: Time

Among different countries, the factor most closely correlated with this Tupy-Pooley effect is rankings in the indices of economic freedom and property rights.

Crucial to their breakthrough is their understanding that the real price of any good is its cost in money as time. Time prices incorporate both prices and incomes in one number, calculated by dividing money prices by hourly incomes. Time prices register the time it takes to earn the money to purchase value. Time prices replace dollars and cents and euros and yuan and a hundred other murky metrics with the elegant simplicity of hours and minutes.

They write,

“Unlike money, time is independent and constant. Monetary inflation cannot distort time, nor can money create wealth. Wealth and changes in wealth must be measured in time, not money. That’s why time prices are the real prices.”

Thus, they dispense with all the hopelessly muddled, subjective and politically tendentious inflation indices — the Consumer Price Index, the GDP deflator, the Personal Consumption Expenditures Index — that are lamely used and abused by conventional economists.

Time prices show rates of innovation. Innovation is expressed not merely in rising incomes or in lower prices but in the combination of the two, measured in time.

Pooley and Tupy calculate average planetary income per hour and divide it into GDP to determine real costs and thus real abundance.

They recommend that economists measure values by the one most ubiquitous and scarce resource constraining every economic activity: time. Time is what remains scarce when everything else grows abundant under capitalism.

In the Tupy Pooley vision the function of money is to translate time scarcity into the fungible form of prices.

The effects of this revolution touch every economic calculation. The economic model behind the environmental movement, with its stress on sustainability, becomes itself unsustainable.

Claims of environmental damage from increased atmospheric CO2 clash hopelessly with the evidence of a cornucopian planet that has grown ever more fertile, green and fruitful as CO2 has increased. As CO2 rose by 60 percent, resource abundance increased by 518.98 percent.

These findings document a key rule of entrepreneurship: waste what is abundant — physical resources. This is imperative in order to economize on what is scarce — time and human creativity. The success of this strategy is explained by the Tupy-Pooley effect.

One of the more enigmatic findings of Tupy-Pooley relate to the price of gold, which dropped in time price by nearly 60 percent. But doesn’t the Information Theory of Economics ordain that gold registers time prices? What is the significance of 2.4 times cheaper and more abundant gold?

We will explore that enigma in a later Daily Prophecy.


George Gilder
Editor, Gilder’s Daily Prophecy

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