Read Online The End of Doom by Ronald Bailey - Free Book Online

commodity prices rise and fall over periods lasting between thirty and forty years. In 2013, Jacks analyzed the price trends for thirty different commodities during the past 160 years. He finds that fifteen of the thirty commodities he tracked over the past 160 years are in the midst of super-cycles that started in the mid-1990s. In other words, the expansionary phase of the current super-cycle has run nearly twenty years so far.
    Jacks also frames a useful distinction between “commodities to be grown” and “commodities in the ground.” The astonishing fact is that as world population since 1850 grew sixfold and the world’s economy expanded more than hundredfold, Jacks found that the prices of commodities that are grown—grains, cotton, wool, and so forth—have generally been falling. On the other hand, commodities that come out of ground—oil, tin, iron, chromium and so forth—have remained flat or have been slowly rising.
    Price is determined by supply and demand . Between 2002 and 2007, global economic growth was the strongest and longest lasting since the 1970s. The huge boom in the prices for all sorts of resources in the current super-cycle have been chiefly generated by rising demand in fast-growing emerging economies in countries like China and India.
    In their 2012 study “Super-Cycles of Commodity Prices Since the Mid-Nineteenth Century,” economists Bilge Erten and Jos é Antonio Ocampo, from Northeastern University and Columbia University, respectively, confirm that the recent price increases in commodities are the result of a super-cycle upswing. Parsing real price data for nonfuel commodities such as food and metals from 1865 to 2009, they find evidence of four past super-cycles ranging in length between thirty and forty years. The cycles they identify ran from 1894 to 1932, peaking in 1917; from 1932 to 1971, peaking in 1951; from 1971 to 1999, peaking in 1973; and the post-2000 episode, which is ongoing. The increases in commodity prices during these cycles are driven largely by increases in demand arising from strong periods of industrialization and urbanization such as those experienced by Great Britain, Germany, and the United States in the nineteenth century, Japan in the twentieth century, and China and other emerging economies at the beginning of the twenty-first century.
    The super-cycles are driven by periods of accelerating economic growth that boosts demand for commodities, thus pushing up their prices. Rising commodity prices in turn encourage the development of more supplies and the invention of resource-conserving technologies. As economic growth slows down during the second part of a super-cycle, the real prices of the now copiously supplied commodities fall. In fact, the researchers find that the prices for nonoil commodities do not generally recover to their preboom averages. Before the recent fourth super-cycle upsurge, nonfuel commodity prices had fallen by a cumulative 47 percent over the past hundred years.
    The Economist magazine has developed a widely cited commodities index that tracks the real prices of an extensive variety of mineral and agricultural goods. “Since 1871, the Economist industrial commodity-price index has sunk to roughly half its value in real terms, seeing annual average compound growth of –0.5 percent per year over the ensuing 140 years,” pointed out Council on Foreign Relations energy adjunct fellow Blake Clayton in 2013. He added, “Even after the boom years of the 2000s—in 2008, for instance, as commodity indexes soared, the Economist index never climbed more than halfway above where it stood 163 years earlier, in real terms.”
    Figuring out when a super-cycle has topped or bottomed out is a fraught exercise. Nevertheless, many researchers believe that the current super-cycle in commodity prices has peaked and will soon move into its downward phase. By February 2015 the International