In April of 1968, thirty members of the intellectual elite gathered in Rome to contemplate what they considered the single most pressing issue for mankind. The team came from ten countries and a variety of vocations. Some were academics. Some were civil servants. All were anointed members of the intellectual elite.
What they discussed in Rome became a longer-term project and the project eventually evolved into a book written by four members of the team. The book, Limits to Growth, describes how the world was running out of natural resources and reaching the limits on its ability to feed the global population with its limited supply of arable land. The book lists the world’s major natural resources and projects when we would run out of each under various future scenarios of population growth.
The central thesis of the book was that sometime in the subsequent 100 years the world would reach its limits to growth. It would reach the crisis point where mankind would begin running out of natural resources.
The book even describes what the lead-up to the crisis would look like:
“Society will not be suddenly surprised by the “Crisis Point” at which the amount of land needed becomes greater than that available. Symptoms of the crisis will begin to appear long before the crisis point is reached. Food prices will rise so high that some people will starve; others will be forced to decrease the effective land they use and shift to lower-quality diets.”
The Club of Rome, as they called themselves, was fundamentally wrong on practically every premise they made in the book. Thank God almost nobody took action on their crazy remedies.
It has been fifty years since the authors of Limits to Growth issued their stark warning, halfway into their 100-year timeframe. The world has never eaten better. The so-called limits to growth are nowhere to be seen, not even on the far distant horizon. The two milestones they listed – high food prices and declining diet quality – have leapt massively in the opposite direction, despite a world population that has increased 2x.
Despite twice as many mouths to feed, real corn prices are now 35% lower than they were in 1972. Wheat prices are down 40%, egg prices down 28%, ground beef prices down 23%, milk prices down 41%.
Yes, nominal prices for all those items are substantially higher than they were in 1972, but that’s only because other members of the intellectual elite have insisted on pumping more and more money into the economy. Higher food prices today have nothing to do with limits to growth; they are entirely the result of a devalued dollar.
The global death rate due to famine has declined by over 95% since the decade of the 1970s. Yes, that is a 95% reduction since the Club of Rome issued their limits-to-growth warning. Just 3 people in every 100,000 die of famine today versus 95 in the 1970s, which itself was down over 80% from the 1960s.
The world consumes 30% more calories per person today than it did in the 1970s, again despite twice as many people to feed. The “quality of the diet” has massively improved, particularly for what was then the very low income group of the world’s population. The per capita consumption of pork in China, for instance, has grown 20x since the 1970s. That is a population of over a billion people that ate mostly rice when the Club of Rome met in 1968 that today enjoy lots of their favorite protein.
Poultry consumption in the United States is up 5x since the 1970s while its population has increased just 60%. The real price of poultry in the U.S., meanwhile, has declined 35% while the quality of the product has improved.
It takes two pounds of grain to produce one pound of poultry and three pounds of grain to produce one pound of pork. As people move up the quality scale in their diets - as the global population has done on a massive scale over the last 50 years - and consume more protein, the pull on the grain supply gets multiplied: one incremental pound of pork consumption requires three incremental pounds of grain production.
In addition, many developed countries dedicate a substantial portion of their arable land to producing non-food products. In the name of sustainable energy (and to support the farm lobby), much of the corn crop in the United States doesn’t feed anyone; it enters the gasoline value chain in the form of ethanol and gets burned for transportation.
So, despite a world population that has doubled, despite the incremental demand on arable land from people moving up the dietary quality scale, and despite the diversion of corn-based products into ethanol, real grain prices today are 25% to 35% lower than they were in 1972.
How could a group of crack intellectuals from the world’s best and most prestigious institutions get things so fundamentally wrong?
First, they had no real incentive to be right. The signature feature of the intellectual elite is they suffer no consequences for being wrong. While most of the rest of us have a powerful incentive to seek out the truth, the intellectual elite have different incentives. Some want to sell books. Some want to win elections. Some seek tenure at prestigious colleges and universities.
As time passes and their theses proven wrong, their books have already been sold, tenure already received, and elections already won. They don’t care about the truth for the simple reason that being right or wrong doesn’t affect them. The intellectual elite show an alarming indifference to the underlying truth because they can get what they want more effectively by ignoring the underlying truth.
As the great economist and author Thomas Sowell points out, “Intellectuals are on a quest for relevance, not a quest to find out the truth”. Intellectuals desperately want to be relevant. Relevancy sells books. Relevancy wins elections. Relevancy gets tenure.
Limits to Growth went viral the moment it was published. It had five printings in 1972 alone. The Club of Rome was instantly relevant once the book came out, despite being fundamentally wrong. Mission accomplished.
Second, the specific item they got wrong and completely misunderstood was mankind’s ability to innovate and solve problems. The Club of Rome had a shocking and arrogant view of the capabilities of mankind. Here is a quote from the book’s introduction:
“It is the predicament of mankind that man can perceive the problematique, yet, despite his considerable knowledge and skills, he does not understand the origins, significance, and interrelationships of its many components and thus is unable to devise effective responses.”
This is a group of academics and bureaucrats telling the rest us that they have things figured out and we are unable to do so and because of our inability to figure things out, we cannot possibly devise effective responses to the crisis that looms before us.
Massive progress has been made in all elements of the food value chain, from the productivity of arable land (which is up 2.5x since 1972, more than the population growth) to protein production to processing to packaging to transportation to distribution. Enhanced farming techniques and cutting edge equipment are more accessible to more farmers globally today than ever before in the history of the planet.
The very people the Club of Rome berated for not being able to grasp the problem actually knew the problem better than they did. They were busy solving it.
Let’s not forget the role of capitalism. An important element of capitalism is giving people the empowerment to figure things out on their own. While China has a long way to go in the area of personal liberties, a few capitalistic principles - including letting people fend for themselves –have lifted hundreds of millions of people from poverty and have saved a similar amount from starvation. In the 1970s, the Chinese were forced to live on communes and share what they produced. Many starved. Today, Chinese farmers largely keep what they produce. They eat well. The diet quality in China has improved by orders of magnitude.
This, then, is a story of how and why the intellectual elite often get it wrong. Not by a little, but by a lot. It contains three fundamental lessons for investors.
Lesson one: don’t short innovation, especially in places that respect personal liberties and freedom. Innovation in such places will surprise you to the upside every time. Humans are wired to innovate and solve problems.
Lesson two: never believe the intellectual elite. Not for a minute. Their agendas and incentives make them unreliable pursuers of the truth.
Lesson three: position yourself to benefit when the intellectual elite leads the consensus down the wrong path. The link between the intellectual elite and the consensus has never been stronger. Social media and today’s instant global communication systems have given the intellectual elite a much larger megaphone than they had in 1972. The consensus takes notice and sometimes takes action. When the intellectual elite leads the consensus into irrationality, blockbuster investments lurk close by.
