The Stern Review on Global Climate Change Once Again

Bill Nordhaus has placed his critique of the Stern Review on Global Climate Change (on the internet at http://www.hm-treasury.gov.uk/independent_reviews/stern_review_economics_climate_change/sternreview_index.cfm) in yellow covers: it is now NBER working paper 12741 at http://papers.nber.org/papers/w12741.pdf (available for free at http://nordhaus.econ.yale.edu/SternReviewD2.pdf). Nordhaus is extremely smart, extremely hard-working, extremely knowledgeable on this issue, and plays it straight. Nevertheless, I find myself dissatisfied.

I am not dissatisfied with where Nordhaus gets: I believe that he is right in assessing that Stern's conclusions depend on assumptions about what we today owe the future that are not obvious, that are at least debatable, and that I do not think I share.

I am dissatisfied with how Nordhaus gets there.

Specifically, the hackles on my back rise when Nordhaus writes:

Suppose that scientists discover that that a wrinkle in the climatic system will cause damages equal to 0.01 percent of output starting in 2200 and continuing at that rate thereafter. How large a one-time investment would be justified today to remove the wrinkle starting after two centuries? The answer is that a payment of 15 percent of world consumption today (approximately $7 trillion) would pass the Review’s cost-benefit test. This seems completely absurd. The bizarre result arises because the value of the future consumption stream is so high with near-zero discounting that we would trade off a large fraction of today’s income to increase a far-future income stream by a very tiny fraction. This bizarre implication reminds us of Koopmans’s warning quoted above to proceed cautiously.... The large damages from global warming reflect large and speculative damages in the far-distant future; the impacts now, as in today, are small; and, as I will suggest below, the 20 percent cut in consumption from global-warming might be reduced by an order of magnitude if alternative assumptions about discounting are used...

The only thing I agree with is the final lines: our conclusions about the steps we should take immediately to deal with global climate change would be reduced by an order of magnitude if alternative (and perhaps, I think, better) assumptions about discounting are used. But the rest:

My first problem is with the framing, which Nordhaus uses to generate phrases like: "bizarre result," "completely absurd," and "bizarre implication." A more neutral way of framing the issue would be to say that the Stern Review estimates that each $1 we invest today in reducing the impact of global warming will improve the state of things in 2200 by $36 (adjusted for inflation) then. Is that a good investment for us to make on behalf of our great-great-grandchildren? Perhaps, perhaps not. 2200 is far away. But a 36-to-1 payoff is a big one. On the other hand, people in 2200 will probably be richer and have better technologies than we do; that is a reason to think that efficiency should not be considered separately from issues of distribution, for we don't usually ask the poor (i.e., us now) to pay to improve the condition of the rich (i.e., them in the future).

The question of whether we today should, or are morally obligated to, make the 36-to-1 two-century investments that the Stern Review is debatable. It is worth doing if we have a hurdle rate for such investments of less than 1.8% per year or so. I think our hurdle rate should probably be bigger than that, but I am not sure. I am, however, sure that Stern's position that we should be making such high-payoff long-term investments is neither "completely absurd," "a bizarre result," nor "a bizarre implication."

My second problem is with Nordhaus's rhetorical attempt to shrink the magnitude of the potential problem by talking about the "large and speculative damages in the far-distant future." The implicit economics underlying this rhetoric is that because investing in controlling global warming is a risky and uncertain proposition the appropriate hurdle rate to apply is greater than the hurdle rate on safe investments like long-term inflation-indexed government bonds. But this economics is simply wrong. As Tyler Cowen puts it, uncertainty is not the friend of doing nothing. Investments in controlling global warming are not risk-increasing but risk-reducing ones: they are more like buying insurance than like speculating on unproven technologies. The appropriate hurdle rate is thus lower, not higher, than that for sure things.

And this leads to my third problem with Nordhaus: his claim that:

The Review’s unambiguous conclusions about the need for extreme immediate action will not survive the substitution of discounting assumptions that are consistent with today’s market place...

I don't see that at all. The 20-year inflation-indexed U.S. government bond interest rate is currently 2.1% per year. That is today's marketplace. The appropriate discount rate to be used for long-term risk-reducing "insurance" investments is less than the risk-free rate, and seems plausibly less than 1.8%. I don't buy the assumption that our judgments should be ruled by the prevailing configuration of financial market prices--I am not confident that the market is without failure along this dimension. But Nordhaus apparently does. And as best as I can see the discounting assumptions in today's marketplace are entirely consistent with the conclusions of the Stern Review.

John Quiggin has an excellent discussion of all these issues and more at: http://johnquiggin.com/wp-content/uploads/2006/12/sternreviewed06121.pdf.

And my not-completely-informed views about the economics of controlling global warming are:

---

What Do We Owe Our Great Grandchildren?

What do we owe our great-great-great grandchildren? What actions are we obligated to do now in order to diminish the risks to our descendants and our planet from the increasing likelihood of significant global warming and its associated climate change?

Everybody--well, almost everybody: ExxonMobil, U.S. Vice President Richard Cheney, and their paid-for servants and deluded acolytes are exceptions or pretend to be exceptions--understands that when human burn hydrocarbons carbon dioxide goes up into the atmosphere, where it acts like a giant blanket, absorbing infrared radiation coming up from below and warming the earth.

Everybody understands that we really do not know how much global warming a given amount of extra carbon dioxide produces. We have models, we have forecasts, we have projections, but global warming might be a much smaller and might be a much larger problem than the central-case projections of climate models suggest. Everybody--well, almost everybody: ExxonMobil, U.S. Vice President Richard Cheney, and their paid-for servants and deluded acolytes are exceptions or pretend to be exceptions--understands that here uncertainty is not our friend, and certainly not an excuse for inaction. Uncertainty about its effects should lead us to do more to guard against global climate change than if we knew global warming would proceed exactly as the central-case projections forecast.

Everybody--well, almost everybody: ExxonMobil, U.S. Vice President Richard Cheney, et cetera, et cetera--understands that the world's governments, non-profit institutions, and energy companies ought to be spending a much bigger fortune than they currently are on research: research into technologies that generate power without adding carbon dioxide to the atmosphere, research into technologies that such carbon out of the atmosphere into forests or oceans, research into technologies that cool the earth by reflecting more of the sunlight that lands on us.

Everybody--well, almost everybody: U.S. Vice President Richard Cheney, et cetera, et cetera--understands that the burden of dealing with global climate change over the next two generations should be carried by the rich countries of the world. They got to take an easy carbon emissions-intensive path to industrialization and riches. It looks like China, India, and company will not be able to take such an easy path, and it would be unfair to penalize them for the loss of the easy hydro-carbon burning road.

Everybody--well, almost everybody, et cetera, et cetera--understands that now is the time to build the international institutions that will manage our reactions to global climate change over the next several centuries. Now is not the time to disrupt these institutions, or to prevent their creation.

What there is real dispute about is what else we should be doing right now and in the next decade. We economists like to think of things in terms of prices. And when we economists see something going wrong in the sense of having destructive side-effects, we like to tax it. Taxing it makes the individuals who are undertaking actions feel in their wallets the destruction they are causing elsewhere. Maybe the action is still worth doing, and maybe not. Imposing a tax--imposing the right tax--on those who are, say, driving low-mileage SUVs is a way of harnessing the collective intelligence of humanity to deciding in which case the bad side-effects are a reason to stop. But it has to be the right tax.

An SUV going ten miles in the city and burning a gallon of gasoline pumps about 3 kilograms--6.5 pounds--of carbon in the form of carbon dioxide into the atmosphere. Should the extra tax on this--and on all carbon emissions--appropriate for global warming be on the order of five cents a gallon, fifty cents a gallon, or a dollar fifty a gallon? Our views will change as we learn more, but at the moment whether the tax should be five or fifty cents a gallon hinges on a question of moral philosophy: how much do we believe that we owe our distant descendents?

Australian economist John Quiggin has a very illuminating discussion on his website http://johnquiggin.com/wp-content/uploads/2006/12/sternreviewed06121.pdf. The Stern Review on Global Climate Change (on the internet at http://www.hm-treasury.gov.uk/independent_reviews/stern_review_economics_climate_change/sternreview_index.cfm) which comes down more on the side of fifty cents a gallon, immediately, does so because they project that spending today to reduce carbon emissions is a very good investment for the future. If the world grows in per capita income at about 2% per year, a marginal expenditure of roughly $70 today in cutting carbon emissions would be worth it if it were to enrich the world of 2100 by about an extra $500 of year-2006 purchasing power, once all the damages to the world economy and environment from global warming, costs of adjustment, and so on are taken into account. This looks like a very good deal to Nick Stern and his team.

On the other hand, critics point out that the world today is poor: average GDP per capita at purchasing power parity today is roughly $7000. We expect improvements in and the spread of technology to make the world of 2100, at a 2% per year growth rate much richer than the world of today: $50,000 per capita of year-2006 purchasing power. We today can use the marginal $70 per capita, critics say, much more than the richer people of 2100 will need the $500 they would gain from not having to suffer from the effects of global climate change.

What critics don't often say is that the same logic applies to the world today. The U.S., Japan, and Western Europe today have average incomes of roughly $40,000 per capita. The poorer half of the world's population today have incomes of less than $6,000 per capita. I believe that the same logic which says that we today need our $70 more than the people of 2100 need an extra $500 also tells us that we ought to tax the world's rich in the OECD more and more to fund world development as long as each extra $500 in first-world taxes generates even as little as $70 in extra poor-periphery incomes. If we in the world's rich now are stingy toward the (likely to be much richer) future and want to leave them our environmental mess to deal with, we should be lavish toward our poor brothers and sisters today. If we today are stingy toward our poor brothers and sisters now, we should be lavish toward our descendents.

If you protest that distributional considerations militate against our spending a lot today to reduce global warming risks to the future, you had better be enthusiastic about massive programs to reduce current U.S. and global inequality. At least, that is what you had better be if your positions are based on some moral principle--rather than on the principle that what we have, we hold, and nobody is going to pry it from our hands.

Comments

[howard]

prof, it seems to me, by your own analysis, that nordhaus most assuredly does not "play it straight." in fact, i'd say he plays global warming the way the wall street journal plays it: very crookedly indeed.

where's the evidence of him playing it "straight?"

[anon]

How can you say "people in 2200 will probably be richer and have better technologies than we do;" when we know
that at current rate all the easy access oil will be gone in 50 years. even 200 years of supply of coal that us possess would be gone in 40 years with just 2% growth. the EROEI is going from 20 down to 1. On the other hand, US could be great place to grow sugar in 2200.

[Barkley Rosser]

One aspect of Nordhaus's analysis I would applaud, after having finally gone and looked at it, is that he did what I have been suggesting should be done, he used a green golden rule hyperbolic discounting scheme, at least in his initial analysis. He began with 3% for the near term future and then lowered it to 1% as of 200 years, the focus of this discussion, and for the time thereafter.

The point about the future being better off is not an irrelevant one, and at a minimum may well justify a long term rate around 1%, not a bad guess at a long term rate of annual productivity improvement, which would leave an effective net rate of the Ramseyian morally proper rate of zero.

[Oliver Morton]

Anon -- The depletion of fossil fuels is not, on this timescale, a deep worry. The idea that photovoltaics can't be brought down in price by an order of magnitude or two in the long run seems frankly implausible. The problem is transferring from this technology to that one.

[Bupa]

The insurance policy argument seems to be the most sane and persuasive given the uncertainties we face.

John Quiggin (but few others) note that the discount rate discussion zones in on the cost of doing something.

There is little discussion on the benefit of avoiding the economic damage caused by climate change. This potential economic damage could be far worse than Stern assumes.

I also join others in protesting the assumption that folks in future will be richer and better off than we are today.

Humans have been around for a few million years. The overwhelming majority of generations were not significantly better off than their ancestors. The industrial revolution started a new trend of increasing prosperity. Is it wise to extrapolate from the tail end of history and ignore the 99 percent of previous generations which did not grow wealthier than their ancestors? The industrial revolution has relied on exploiting fossel fuels which are finate resources with externalities which have never been priced in. We know that the externalities are coming back to haunt us. We don't know the extant of the haunting, but it could very well wipe away your optimistic assumption that increasing prosperity is nearly inevitable.

Anyway, its worth taking out some insurance.

[John Emerson]

I have argued this at length in Crooked Timber comments. I will restate them here.

1. Not said there, but I agree that some are using "the poor" as decoys in this argument, since the biggest sacrifices will be asked of the rich. I also agree that present-day distributional considerations should be taken more seriously in general.

2. The reason I object to discounting is that any discount rate higher than zero tells us that we should put some time limit on our concern for the future (Radek suggested seven generations.) Our power to influence the far future diminishes almost to vanishing, our concern for the far future need not diminish. In the hypothetical case that my actions today woud have a catastrophic effect in 2500 A.D., or 3000 A.D., I would still be concerned. (Our knowledge of long term outcomes diminishes too, so this hypothetical -- the real point is our relationship with the next two or three generations.)

3. Analyzing this as a relationship between one group of individuals (people of today) and a second group of individuals (people of some future, say 2106 A.D.) is misleading. It's a relationship between people of today and all subsequent humans in any generation. We're not talking about the relative wealth of two groups of people at different times, but of the possibilities of life on earth for the whole future. Another reason why discounting is the wrong way.

4. Economics normally discusses exchanges and contracts between actually existing individuals. I don't see how we can owe anything at all to people who don't exist during our lifetimes or the lifetimes of anyone we could possibly know. (The cutoff point for that would be 220 years from now, granting a maximum lifespan of 110 years). Economics is actually very poor in describing non-exchange obligations of any kind (e.g. the distribution question). This problem and the rather odd suggested possibility of a zero discount rate tells me that presently-existing economics is actually a very poor tool to use when discussing long-term environmental effects.

5. I think that it is wrong to assume that future generations will be wealthier than ours. It's odd for me to see tough-minded, skeptical economists extrapolating so blithely. But there a bigger problem than this. When we talk about "the environment", we're talking about essential productive capital: clean air, clean fresh water, topsoil, fisheries, and a livable climate. These especially impact agriculture, and agriculture is a small part of today's economy from a finance point of view. It is, however, an essential part. The more we degrade the topsoil now, for example, the relatively more valuable topsoil will be in the future, so today's land prices or commodity prices aren't really relevant. A world in which global agricultural productivity is reduced by a third will be a much worse world, with a smaller, poorer population. Agriculture may only be 10% of today's economy, which would seem to mean that if we diminished the agriculture by a third the economy would still be 97% as big, but that would be an enormous error. (This is one of the reasons why we can't assume that people of the future will be richer.)

6. The above is a version of the diamond/water paradox. It may also have something to do with Joan Robinson's qrguments about the definition of capital. It has a lot to do with the obsession of economists with dealing only with abstract quantities, rather than anything concrete like topsoil or porr peope.

7. It is my assumption that air, water, and topsoil are not substitutible by anything else. We have a fixed stock of these (and their value is conditional on climate). Thus, rather than discounting costs and benefits, we should be concerned with preserving a fixed stock of these non-substitutible capital goods.

8. I propose this as an ethical axiom: each generation should pass down the "environmental capital" in as good or better state than it recieved it, and in a state making it possible for the next generation to do the same for the succeeding generation, indefinitely into the future. This axiom for me should be a primitive: stating it in terms of economics or metaethics is a later stage of the argument, and is not immediately necessary.

9. There have in fact been cases when environmental destruction damaged civilizations. In other words, to say that we may be reducing our capital and making the future worse is not millenarian, Chicken Little hysteria. The Middle East, the Mediterranean region, the Yucatan, and Central Asia all used to be more productive than they are. We can not say that environmental degradation was the cause in every case, but it's certain that it was the cause in several cases.

8. Suppose a populist were to say "Let's quit investing in capital improvements, expansion and maintenance, and concentrate all our resources on getting food to the people who need it most right now". No economist would support him. But that sounds very much like what the discounters of the future are saying. (And I should repeat, it's really very rich consumers who are being protected here.)

[John Emerson]

That was long enough. But I should add: the above did not talk at all about energy costs. Energy IS substitutible and replaceable, and new sources might be found. Ehrlich made a similiar error talking about stocks of minerals -- new sources of minerals can been found, new technologies developed, and substitutes used. A key assumption of my argument is that air, water, topsoil, and a favorable climate are not substitutible. These factors tend to be neglected by economists, I think, because only topsoil is a tradeable commodity, and even there economists treat it as "land" and are indifferent to the conversion of agricultural land into something unproductive.

[Ken Houghton]

Admitting sympathy with John Emerson's arguments, I ask the obvious question:

Gary Becker has made a career (a rather nice one at that) arguing that we should concentrate on policies that produce legacies for the next generation, that being the way to create "sustainable growth." (I believe we are all sympathetic to that Great Idea.)

Sustainable growth is based on many inputs, human capital being one of the primary ones. (If you don't believe me, look at the growth in the U.S. economy against high school graduation rates from ca. 1946-1967).

To create human capital, we need healthy human beings who are able to be educated (cannot be working [on the farm] all day every day; have to be fed well enough and clothed appropriately enough that they are not ill extended periods of time, or unable to concentrate due to lack of nourishment; are enhancement by proper prenatal care [and therefore parents have access to same] so that they are not born with health issues; are sustained well through their preschool years especially nourishment, clean water, temperature controls to prevent extremes, and protection against diseases that would debilitate [including dysentery] until their bodies have developed basic skeletal and muscular protections; and, finally, economic opportunity.

It should be intuitive, though many economists either glide over the issue or ignore it completely, that the last of those is only optimal if the preconditions are met.

So if we were to turn "sustainable growth" into a function, it would look roughly like:

F(food, clean water, environmental protection [here meaning clothes and the ability to protect from external temperature extremes], medical care, leisure [development] time)

To the extent that those are suboptimally managed now, the Bequest (legacy) provided, and the amount of Sustainable Growth, is clearly BELOW where it should be.

Hence, when we declare that future generations will be richer than the current one, we are neglecting that we are LIMITING the extent to which that is true by producing suboptimal human capital.

Brad DeLong appears to be arguing (see draft of paper below) that not having direct exposure to the equity markets limits the bequest that is available to the next generation. Surely, limiting it by eschewing current activity on the basis that "future generations will be richer" is no more desirable an outcome.

[anne]

And so it was that we came to worry about the poor today beyond the poor tomorrow, and we have evidently been worrying truly and well. For the $8 billion a month in direct spending on Iraq in fiscal 2005 turned to $10 billion in fiscal 2006, and will be more than $14 billion a month in 2007. This marks a 25% spending increase in 2006 and a 40% increase for 2007. Just so we really understand, and just so we know when the $8 billion figure is used, "it ain't so," for we are worrying about the poor today beyond the poor tomorrow.

And so we know, we are spending $3 billion a year on research and development of technology to counter global warming, which is less than a week of spending for Iraq while we worry about the poor today.

[anne]

So, to be clear, in worrying about the poor today we choose a low discount rate, while in worrying about the poor tomorrow we choose a high discount rate.

We directly spend $14 billion a month on Iraq now, insuring ever so much more to be spent indirectly later, for we have a low discount rate for the poor today.

We directly spend $3 billion dollars a year on global warming now, in hope of spending ever so much less later because we have a high discount rate for global warming.

Understand? We are in looking-glass land, sweet Alice.

[anne]

'I'm sure I'll take you with pleasure!' the Queen said. 'Twopence a week, and jam every other day.'

Alice couldn't help laughing, as she said, 'I don't want you to hire ME - and I don't care for jam.'

'It's very good jam,' said the Queen.

'Well, I don't want any TO-DAY, at any rate.'

'You couldn't have it if you DID want it,' the Queen said. 'The rule is, jam to-morrow and jam yesterday - but never jam to-day.'

'It MUST come sometimes to "jam to-day,"' Alice objected.

'No, it can't,' said the Queen. 'It's jam every OTHER day: to-day isn't any OTHER day, you know.'

'I don't understand you,' said Alice. 'It's dreadfully confusing!'

[Kathryn from Sunnyvale]

In the overall blogosphere discussion of the Stern report, it seems as if the people of 2100 are referred to only as "future generations." Why not as "future generations and the very young today"?

The people of 2100 in the US are likely to include (at least) a few hundred thousand people who are alive today in the US. Based on our family history, there's a member of 2100 playing with her Christmas toys in the other room.

She's still a few years, but only just a few years away from being able to answer "are you willing to reduce your allowance by $1 this week in order to influence your life when you're 90 like your great-grandmas?"

By 2020 some people of 2100 will be in your classrooms, taking your tests. By 2025 they could be grad students.

[Bruce Wilder]

If humans are richer in 2200, it is because of investments we make today.

But, that assertion is not equivalent to the assertion that any investment we make today will have a discernible payoff in 2200.

We are as rich as we are, today, because of the work, say, James Watt did on the steam engine in the 1760's. But, not because his steam engine designs are of any particular use to us, today. The company he founded with Matthew Boulton has long since disbanded, the patents expired, the knowledge he created has passed into obsolescence, even the carbon he put into the atmosphere has been fully recycled.

Does it make sense to say that he transferred income to us, his distant heirs? Or, that he erred in doing so, because he was poor?

[anne]

Then for Kathryn for Kathrun's daughter, there should be a low discount rate and caring for the environment now since the future is already the future of Kathryn's daughter. But Kathryn's daughter is already having here future spoken for, since the discount rate for protecting the environment is placed high and the discount rate for the tragic lunacy of occupying Iraq is lower than all else. The choice has already been made.

There are stories of trillions of dollars spend for countering global warming, when we are spending 60% less now than in 1979, and the trillions are, for a year, a mere 5 or 6 days in Iraq.

[anne]

http://mariewin.server304.com/marieblog/uploaded_images/Eagle-782544.jpg

Ah, and thinking of Kathryn and daughter, here is an eagle and striped bass soaring magically over Central Park and along Fifth Avenue this very week. The eagle was carrying the striped bass, but you knew that.

[anne]

http://www.palemale.com/december272006.html

What I wondered, seeing as how it was Fifth Avenue, was whether she had been shopping. For the eagle who has everything.

[dale]

I see eagles overhead sometimes- but not with striped bass. Just last week I did have a hawk land on my patio- about 6 feet from my computer- with a very startled starling in its talons. but my camera wasn't nearby.

[Bruce Wilder]

"Everybody understands that we really do not know how much global warming a given amount of extra carbon dioxide produces. We have models, we have forecasts, we have projections, but global warming might be a much smaller and might be a much larger problem than the central-case projections of climate models suggest."

My understanding of global warming science is that we do have a pretty narrowly estimated effect for the increase in the CO2 in the atmosphere.

There some economic uncertainty about how much additional CO2 we will add.

But, the big uncertainties have to do with the positive and negative feedback loops involved. Our production of greenhouse gases is a "forcing". The evident stability of the climate is due to the fact that negative feedback processes dampen the effects of small forcings. The alarm of climatologists is due to the realization that a large enough forcing will carry the climate beyond the power of negative feedback to maintain equilibrium, and beyond that threshold, positive feedback processes take over, the earth's climate will move toward another equilibrium, which is an order of magnitude change from our present climate. My understanding is that the geological record indicates that such abrupt changes in climate equilibrium do occur with geologic suddenness, and are accompanied by broad extinction of species and ecological collapse.

So, a non-linearity in our expectations is critically important. The degree of warming, which the earth has experienced over the last century or so, has had costs, to be sure, but small net costs because there have been (arguably) benefits as well as costs (if you consider English wine a benefit; opinions vary), and another degree or two of warming will have net costs, with which we can cope and which can be ameliorated, PROVIDED that the warming forced by greenhouse gas emissions does not carry us over a threshold, where positive feedback climactic processes take over, carrying the climate away from the neighborhood of its present equilibrium, and inexorably toward a much hotter planet, which cannot support established ecosystems. Humans may not have sufficient power to reverse the climate's course, once positive feedback processes kick in, past the theshold, nor will humans be able to adapt and amerliorate sufficiently to prevent a general die-off of species, including our own population crash.

[Ralph]

It turns out that only a few States have subsidized solar panels and I believe Reagan scuttled Carter's attempts to include subsidies for the solar industry in the Budget. Given the dire predictions for global warming is there any economic reasons against subsidies for expansion of solar energy?

[Bruce Wilder]

A Central Bank of Global Climate -- in other words the institution or institutions, which we eventually put in charge of determining and maintaining the global climate at global temperature levels, which keep the earth away from the positive feedback processes, which might carry it toward catastrophe -- will have to operate under some kind of rule or policy, and pay attention to some kind of feedback.

Just like a monetary Central Bank, which tries to steer away from runaway deflation leading to a Great Depression.

What kind of time horizon, would a Central Bank of Climate be using in judging the feedback available to it?

The economics of control, and the time horizon of control, are sensible objects of study, for economists.

[John Emerson]

I think that the objectionable thing about this whole argument is that economists seem worried that too much effort will be directed toward protecting the long-term environment, whereas the real and present danger is that too little effort will be made. I'll reiterate my belief that sometimes it is very important to learn not to think like an economist. It really seems to me that economics doesn't have the right tools to handle this kind of long-term, intergenerational situation. Any effort to bring the science up to speed should be welcomed, but it also will have to be examined skeptically.

[John Emerson]

I think that the objectionable thing about this whole argument is that economists seem worried that too much effort will be directed toward protecting the long-term environment, whereas the real and present danger is that too little effort will be made. I'll reiterate my belief that sometimes it is very important to learn not to think like an economist. It really seems to me that economics doesn't have the right tools to handle this kind of long-term, intergenerational situation. Any effort to bring the science up to speed should be welcomed, but it also will have to be examined skeptically.

[anne]

http://www.calvorn.com/gallery/photo.php?photo=4221&u=11085%7C99%7C...

Sharp-shinned Hawk
New York City--Central Park, The Ramble.

Likely, when seeing a hawk with a starling, you are seeing a sharp-shinned for starlings are hard to catch for broader tailed hawks. Which brings us round to shopping and discounting, which was where we started and the trades we should be thinking of.

[anne]

http://www.nytimes.com/2005/04/05/science/earth/05mill.html

April 5, 2005

Report Tallies Hidden Costs of Human Assault on Nature
By ANDREW C. REVKIN

For decades, scientists have been warning that human activities were extinguishing species, altering the climate and degrading landscapes. Now a group of experts has reframed the issue, releasing a sweeping report that measures damage not to nature itself, but to the things nature does for people.

In the report, part of a continuing project called the Millennium Ecosystem Assessment, more than 1,300 ecologists and other researchers from 95 countries focus on the capacity of ecosystems to perform valuable functions like filtering water, providing food and pollinating crops.

Their conclusion is bleak: over all, 60 percent of those functions are being degraded by human activities, both through direct actions like overfishing and through indirect ones, like the tendency of deforestation to raise the risk of floods.

The report - which was released last week and online at www.millenniumassessment.org - lists some instances in which destructive practices have changed and damage has been prevented, but says far more action is needed in the next several decades.

"We must learn to recognize the true value of nature - both in an economic sense and in the richness it provides to our lives," said an accompanying statement by the board of scientists who led the project.

"Above all," it continued, "protection of these assets can no longer be seen as an optional extra, to be considered once more pressing concerns such as wealth creation or national security have been dealt with."

Under the current method of measuring progress, the report said, "a country could cut its forests and deplete its fisheries and this would show only as a positive gain." And in too many instances, it said, that is exactly what is occurring.

The study considered various kinds of "ecosystem services": simple provisioning, like supplying water and protein; regulatory functions, including a forest's ability to store and filter water and to cool and humidify the air; cultural services, like providing a place for recreation; and life-support services, including photosynthesis and soil formation.

Many of the regions where such natural assets are being most rapidly degraded are also the world's poorest, the scientists said. And as a result, deteriorating environments are likely to hamper efforts to stem poverty, disease and hunger in developing countries....

[Kathryn from Sunnyvale]

To rephrase my comment as a question:

How does the discussion on the Stern report take into account that "the people of 2100" include people alive today?

The language used in the discussions I've read so far seem to make the people of 2100 no different than the people of 2200, both equally "future generations."

For example, the term "Great great grandchildren" by definition makes the people of 2100 hypothetical. I'll bet a large cup of coffee that none of of us* have great-great grandchildren.

If instead we wrote about "Today's nursery school children when they're in their 90's," the discussion would have a different feel.

Have comments and followups on Stern explicitly covered that some of the very young today will be alive in 2100?

* any blogosphere commenter on Stern, because the even count of g-grandparent bloggers seems tiny. Alternatively, what's the count of practicing g-grandparent economists?

[Slocum]

"Everybody--well, almost everybody: U.S. Vice President Richard Cheney, et cetera, et cetera--understands that the burden of dealing with global climate change over the next two generations should be carried by the rich countries of the world."

Really? Do the various populist Democrats advocating 'fair trade' accept this? What happens when Chinese, Indian, Mexican, and other 2nd and 3rd world manufacturers have not only advantages in labor costs but also in energy and greenhouse-gas costs? Does DeLong really think his own party will accept this with equanimity?

And what happens when those energy cost differentials ends up pushing virtually all energy-intensive industries to countries exempt from greenhouse gas limits? We may end up shifting the emissions sources around from the developed to developing world without changing the global situation at all.

[anne]

What Kathryn is doing is simply bringing the Stern Report conclusions closer, making the conclusions real for those already linving who will be living in 2100, if not now choosing abstractly, which is really the intent. There is another reason for a low discount rate, while I am arguing and Brad DeLong is worrying that we have in fact already chosen a high discount rate.

We are actively choosing against the future interests of existing children.

[anne]

Oh, and in case, just in case, my grandmother should read this, do not, under any conditions, be getting any ideas. Good grief.

[anne]

Again, I am taking a different tack though agreeing with Brad DeLong from my tack. I am arguing that we have almost mindlessly, and with an astonishing quietude, given the lowest possible value to the present in allowing a $2 trillion war and occupation. While, the present and only the present is valued in terms of a mere $3 billion a year spending on countering global warming.

We chose the lowest of discount values in occupying Iraq, and the highest discount value in turning from attending to the environment. Well, the choice was made from us.

[Bernard Yomtov]

"I'll reiterate my belief that sometimes it is very important to learn not to think like an economist. It really seems to me that economics doesn't have the right tools to handle this kind of long-term, intergenerational situation."

I think John Emerson's point is sound. What troubles me about all this is the translation of the issue into financial terms. The kinds of physical changes the Stern Report (among many others, of course) discusses are dramatic, to say the least. Can we really say that this translation has much meaning, especially when applied to events a century from now? It is hard for me to believe that it does. All the talk of growth rates of consumption and percentages of GDP and the like seems to me to be based on very little in the way of actual information.

Of course we need to consider tradeoffs between present and future, and all this discounting business provides an analytical framework for doing that. But if the numbers going in are shaky, and I think they are very shaky indeed, then that framework is not so valuable, and arguing over discount rates doesn't look like the best way to go at the questions involved.

Ultimately, we have to deal with real quantities, real costs, real effects, present and future. Perhaps thinking in those terms, though difficult and superfically less precise, will lead to better answers.

[gordon]

Anne has just beaten me.

The only thing Nordhaus has reduced to absurdity is himself. The NYT (30/12/06) notes an upcoming Defence request for more money: "The $99.7 billion request, detailed in a 17-page internal Defense Department memorandum dated Dec. 7, would be in addition to $70 billion appropriated in September. The request would push the total for the 2007 fiscal year to nearly $170 billion, 45 percent more than Congress provided for 2006".

The US Congress also has a fine sense of jam today: "At last count, the 109th Congress handed out over $50 billion in earmarks to lobbyists who bundled campaign contributions on their behalf. This congress also spent billions more in corporate welfare for Big Oil, Big Pharma, Big Telecom...Also feeding at the trough this year were defense contractors like Haliburton [sic], who were found to have been wasting tens of billions of taxpayer dollars in Iraq and Afghanistan..."

[vadim]

"Everybody--well, almost everybody, et cetera, et cetera--understands that now is the time to build the international institutions that will manage our reactions to global climate change over the next several centuries. Now is not the time to disrupt these institutions, or to prevent their creation."

Surely the et ceteras are not the only exceptions to this alleged consensus. Surely the idea that international institutions (i.e. any particular existing international institution) have been helpful in solving the problems they were created to solve is not universally shared. People of various political persuasions consider the UN, IMF, WTO, etc. to be failures or malignancies. So perhaps a little more justification is due on this point: how exactly would international organizations be helpful.

[anne]

http://www.calvorn.com/gallery/photo.php?photo=4330&u=12%7C57%7C...

Eastern Phoebe in Flight
New York City--Central Park, The Pool.

Ah, but who is competing, Gordon :) We have though explained thoroughly how to dicount discounting when discounting happens and we hadn't even known.

[radek]

"I have argued this at length in Crooked Timber comments. I will restate them here.

1. Not said there, but I agree that some are using "the poor" as decoys in this argument, since the biggest sacrifices will be asked of the rich."

I think the sentiment is right here. I think that Stern's discount rate is too low partly because his "eta" is too low - but a higher eta also implies that it's the rich countries which should pay for it.

"2. The reason I object to discounting is that any discount rate higher than zero tells us that we should put some time limit on our concern for the future (Radek suggested seven generations.)"

I didn't say that, the Mohawks did. And as pointed out at CT a pure time preference of zero almost means that any sacrifice today (no matter how great) is justifiable for any benefit in the future (no matter how small). But delta>0 does not mean that we stop carrying about the future at some point. It means that the further in the future you go the less we care about that generation - conceptually different then just stoping at some arbitrary generation.

"3. Analyzing this as a relationship between one group of individuals (people of today) and a second group of individuals (people of some future, say 2106 A.D.) is misleading. It's a relationship between people of today and all subsequent humans in any generation...Another reason why discounting is the wrong way."

But that's exactly what discounting is! Your objection seems to indicate that you don't understand the subject matter.
(Stern picks some particular year just for illustrative purposes)

"4. Economics normally discusses exchanges and contracts between actually existing individuals. I don't see how we can owe anything at all to people who don't exist during our lifetimes or the lifetimes of anyone we could possibly know...Economics is actually very poor in describing non-exchange obligations of any kind"

You're right on this but this is exactly why people are saying that the choice of delta is a moral, not an "strictly economic" issue. And seriously, it's not just economics thaat is very poor at this - the problem doesn't go away when you ditch utilitarianism, or economics and try different approaches. As Michael said at CT, this is a very very hard problem no matter how you look at it.

"5. I think that it is wrong to assume that future generations will be wealthier than ours."

I think any reasonable forecasts, even the most pessimistic ones predict that this is likely to be the case. The only argument here that could possibly be made is "by how much"?

"6. The above is a version of the diamond/water paradox."

In what sense? The diamond/water paradox is about why water, essential to life, is cheap and why diamonds, a luxury, are expansive. If you're a marginalist you answer that water is more abundant than diamonds hence the marginal utility (though not average or absolute) is lower hence it is cheaper. If you're an Labor Theory of Value type of guy you would say that it's because "producing" water requires less socially necessary labor than "producing" diamonds. But this is relevant how?

"7. It is my assumption that air, water, and topsoil are not substitutible by anything else...rather than discounting costs and benefits, we should be concerned with preserving a fixed stock of these non-substitutible capital goods."

Well, I think your statement is at the very least debatable (the more narrowly you define a good the less substitutible will it be by definition - there's only one good "Radek" and he is not substitutible!). But whatever. The thing is that "discounting costs and benefits" and being "concerned with preserving a fixed stock..." are not mutually exclusive endeavors. In fact discounting can inform the best way to preserve these stocks. So again, somewhat irrelevant to the debtate at hand.

"8. I propose this as an ethical axiom: each generation should pass down the "environmental capital" in as good or better state than it recieved it, and in a state making it possible for the next generation to do the same for the succeeding generation, indefinitely into the future."

Even if future generation's technology can be used to improve the environment far more efficiently then ours? Even if future generation's are filthy rich, there's no poverty, etc.? Shouldn't then we at least consider that some depletion of this environmental stock which benefits today's poor (say, in India and China) is morally justified? I mean, I'm exaggerating here somewhat but only to illustrate that your proposition is by no means axiomatic. It may be true and maybe you can derive it from more basic premises, but axioms are generally things which are taken to be self-evident. And the above ain't.

Ok, I'm running out of steam here... so on 9; Yes.

"8. Suppose a populist were to say "Let's quit investing in capital improvements, expansion and maintenance, and concentrate all our resources on getting food to the people who need it most right now". No economist would support him."

In the "all or nothing" scenario you present above probably not. But if some quasi-populist were to say "Let's invest 10% (or 20%, or 30%...) LESS in ...... to get food to......" then I think you might find quite a few economists who would support'em.
Of course the two are not necessarily substitutes but may very well be complements.

Ok.

[Randolph Fritz]

"...a wrinkle in the climatic system..."

"The large damages from global warming reflect large and speculative damages in the far-distant future; the impacts now, as in today, are small..."

I've been hearing versions of this argument, even from major figures like Nordhaus, about all kinds of social problems, for decades. (It's minor, it's a blip, it's...killing people. Except we seldom hear the last clause; the denial just continues.) Are we to call Katrina a small impact? The huge insurance payouts in the past decade for climate-related claims, bigger than the entire previous hundred years, IIRC, small? And we have every reason to believe that these are only the beginning.

As to the main issue: doesn't the economic growth projection tacitly assume that the project of industrializing the planet is going to continue forever? Yet sometime in the next century, or even sooner, the project will be complete, and the economy will be different afterwards. (And there is more to say here, but I don't want to spend a more hours figuring out what that would be. I will let this stand.)

[radek]

For John E, from the Nordhaus paper linked to above:

"The (Stern) Review argues that fundamental ethics require intergenerational neutrality using an additive separable logarithmic utility function. Quite another ethical stance would be to hold that each generation
should leave at least as much total societal capital (tangible, natural, human, and technological) as it inherited. This would admit a wide array of social discount rates."

So your "axiom" above is quite consistent with a positive rate of time preferance.

[christofay]

The pansy president Carter said that energy security is the moral equilavent of war close to three decades ago. Now we are seeing that he is right. Still the debate continues between the man who honors the oval office by always wearing a suit and a tie and the man who besmirched the office by carrying his own luggage.

[piotr]

How about that: environment consists of irreplacable items for which it is hard to assign monetary value.

If we cannot assign monetary value --- barring some monumental intelectual calistenics --- the proper questions are: do we want it --- avoid the destruction of the climate as we know it --- and can we do it.

It is also easy to see that most of the humanity lives in places which are already warm enough.

[christofay]

From "While You Were at War...," by Richard A. Clarke, Sunday, December 31, 2006; B01, http://www.washingtonpost.com/wp-dyn/content/article/2006/12/29/AR2006122901238_pf.html

"Without the distraction of the Iraq war, the administration would have spent this past year -- indeed, every year since Sept. 11, 2001 -- focused on al-Qaeda. But beyond al-Qaeda and the broader struggle for peaceful coexistence with (and within) Islam, seven key "fires in the in-box" national security issues remain unattended, deteriorating and threatening, all while Washington's grown-up 7-year-olds play herd ball with Iraq.

"Global warming: When the possibility of invading Iraq surfaced in 2001, senior Bush administration officials hadn't thought much about global warming, except to wonder whether it was caused by human activity or by sunspots. Today, the world's scientists and many national leaders worry that the world has passed the point of no return on global warming. If it has, then human damage to the ecosphere will cause more major cities to flood and make the planet significantly less conducive to human habitation -- all over the lifetime of a child now in kindergarten. British Prime Minister Tony Blair keeps trying to convince President Bush of the magnitude of the problem, but in every session between the two leaders Iraq squeezes out the time to discuss the pending planetary disaster."

[christofay]

I judge the soundness of an environment by the state of the local golf courses, "Camp Justice" is a good one, I heard.

http://www.guardian.co.uk/comment/story/0,,1317945,00.html

[Doug]

Today there are 6 billion people on planet earth. By 2200 there will be less than 1 billion so in a sense...it will be a richer world because there will be less human beings sharing in what remains of the natural resources.

[Barkley Rosser]

Regarding the discount rate, it is a sum of elements. One of those is the pure rate of time preference. Even if that is zero, and there is a strong moral/philosophical argument for that, allowing for certain other elements, such as expected long term per capita growth of the economy, gives a positive number even in the long run.

Also, I get very annoyed when people start giving out these very definite statements about what will or will not be happening in 200 years. We have no goddamned idea. I do not wish to get the scientific debate going again here, but in fact while global warming is clearly happening, and human activity is clearly contributing to it (and I fully support doing something about it, and something serious), the amount of that warming that is due to the human input is not all that precisely well known. And projections about what either the climate or the economy will be doing in the future rather rapidly lose much certainty rather rapidly as we mover out into the future.

Now, there is a huge debate about how one deals with risk and uncertainty, especially Knightian-Keynesian-Rumsfeldian uncertainty of the "unknown unknowns" variety. Traditional approaches say that risk should increase the discount rate. I am not a fan of this in this sort of social benefit-cost analysis situation. An alternative is to build in some measure of the risk or uncertainty into the projections. Hence be a bit more pessimistic about the climate and economy projections, but do not screw around with the discount rate too much. Again, I am more and more in agreement with how Nordhaus treated that, a green golden rule one starting at 3% for the near term going down to 1% for the long term, although I think I would support getting it down to 1% by 100 years from now rather than the later 200 years he selected, partly again on the idea that we really have no idea what the hell will be going on 200 years from now. We might get smacke by an asteroid or kill ourselves with a nuclear war, and there will be no future generations anyway.

[Ralph]

Just after the midterm elections Demvctory, Sen. Hillary Clinton promised vigorous and extensive hearings on global warming next year. She is a member of the Senate committee on the Environment and Public Works. Hopefully, CSPAN will broadcast some of the hearings.

[John Emerson]

This is a dead thread, but I'll answer for the record. I've been off the net for two days.

Diamond / water paradox: diamonds are not a necessity, water is a necessity. If water becomes scarce, it is more valuable than diamonds. Likewise topsoil is a necessity, and a livable climate is a necessity. Present prices are compeltely irrelevant because under certain possible circumstances the value of water and topsoil could could explode exponentially.

Disciplines like economic geography and climatology should be front and center in this debate. Radek's opinion that air, water, and topsoil might arguably be substitutible cannot just be asserted, it has to be expressed knowedgably in terms of agronomics, etc. Rosser's opinion that the future 400 years from now is too uncertain to say anything about needs to be expressed knowledgably in climatological terms. Opinions of econmists on questions they are uninformed about should be discounted at 95%+.

The idea that people of the future will be wealthier than people of today is entirely dependent on whether we ar seriously degrading the envitronment now. If we are, then the people of the future will be poorer and fewer than the people of today.

Discounting is just a poor tool. Discounting at 0% is not discounting. It preserves a sort of nod to economics, I guess. Any positive discounting approaches zero quickly. Economists seem eager to find that zero point, which to my mind is a point against them.

Environmental stewardship does not require calculating the infinite future. It just requires handing down the capital stock in as good condition as we found it to the next succeeding generation, on the assumption that they will be willing and able to do the same for their successors.

I think that the big question here is whether air, water, topsoil, and a livable climate are substitutible or replacible. (I have generalized from global warming). This is not an economic question. If they are not substitutible or replacable, then they should not be merged with commodities of other kinds but should have a special status.

As I've said, I'm sympathetic to a degree to the argument that poor people should not make the sacrifices. The real argument on the table,however, is with rich people, Americans, who don't want to make the sacrifice. To degree it is also with the wealthy people in the poor nations. The poor are being used as decoys, at least to some degree.

[albatross]

Re John Emerson's #8:

I don't think this rule (each generation must pass along equivalent or better environmental capital to what it received) is possible to follow, for two reasons:

a. Quite a bit of the environment is inherently irreplaceable, in the sense that resources we mine today aren't there tomorrow, forests we cut down won't grow back in the same form tomorrow (even if the trees grow back, they won't be the same for many, many years, if ever), etc. These are necessary uses of the environment, and they are irreversibly making the environment poorer. There appears to be no way to compensate for those losses.

b. There's no obviously correct way to weight tradeoffs between different environmental costs and benefits. When you cut down a forest and build a city, is the environment better or worse? How about when you clear trees off land so you can farm it? When you turn prarie into a park?

This rule can't be followed in a consistent way, because we still need oil, coal, crops, roads, railroads, cities, factories, etc. It's possible and worthwhile to minimize the environmental cost of those things, within reason, but not possible to leave more capital for the next generation.

[albatross]

christofay:

Was that story as disturbing to you as to me? The decisionmaking processes in the white house are so lousy that no issue can be considered unless there are no more important issues on the table, and unless that issue has a powerful advocate? (And this isn't apparently just *this* especially poorly run white house, either.) We have enormous resources as a country. We ought to be able to handle many issues at the same time in an intelligent way. Sometimes, we'll handle them wrong--like trying to solve the genuine problems with public education in the US via NCLB. But just dropping the packets because the war in Iraq and internal partisan battles are too time consuming is just creepy.

[John Emerson]

Albatross, that's partly why I didn't mention forest cover or minerals. I was especially militating to count topsoil, air, water, and climate as finite stocks not to be depleted. Small deviations from the ideal of perfection are inevitable, but just interpreting the question in terms of finite non-renewable stocks of necessary capital, rather than intergenerational financail transactions between groups of individuals, would be a better way to go.

[Jonathan Goldberg]

Ken:

About:

"To create human capital, we need healthy human beings who are able to be educated (cannot be working [on the farm] all day every day; have to be fed well enough and clothed appropriately enough that they are not ill extended periods of time, or unable to concentrate due to lack of nourishment; are enhancement by proper prenatal care [and therefore parents have access to same] so that they are not born with health issues; are sustained well through their preschool years especially nourishment, clean water, temperature controls to prevent extremes, and protection against diseases that would debilitate [including dysentery] until their bodies have developed basic skeletal and muscular protections; and, finally, economic opportunity.

It should be intuitive, though many economists either glide over the issue or ignore it completely, that the last of those is only optimal if the preconditions are met."

Just for the record, Sen is good on these points.

[Barkley Rosser]

John Emerson,

So, are you a climatologist? Although I am an economist, I have been working on and off with climatologists on combined climatology/econmics models for over 30 years. I heard about chaos theory from climatologists before the term was even invented. And when I was first working with them it was at the time that much of the huffing and puffing was about the danger of global cooling, not global warming. So, please, do not tell us about climatologists knowing what is going to be happening in 400 years.

As far as that goes, the IPCC report has a pretty wide range of possible outcomes even by the end of this century. Projecting that widening range forward pretty much gives the lie to any definitive statement about what will be going on in 400 years.

I like in principle the idea of handing down an unchanged natural capital stock. However, this would entail not consuming any nonrenewable, depletable resources, none. Is this even remotely a realistic option? Or perhaps you are entertaining some more specific definition of natural capital. For the record, I am not in favor of destroying ecosystems or wiping out species. and I have said I think we should do something serious about global warming.

Of course economic growth may slow down in the future due to resource shortages or environmental problems. We just do not know if it will or when or by how much. However, we have for quite some time had about a 1% improvement in productivity due to technological change. I would submit that at least for some time to come it is not unreasonable to bet that we may continue to experience something like this, and that this will include improvements in our ability to deal with environmental problems. I would say that this likely rate of technological change would justify something like that 1% above a zero pure rate of social time preference.

BTW, imposing a discount rate of actually zero in an infinite time horizon implies a blown up solution that goes to infinity with an implication that we should consume zero today in order to save for all those infinite generations in the future. This is simply absurd. I see some people saying, "well cut it off at some point," but this then implies jumping suddenly from zero percent to 100%, which is also absurd and immoral for that matter. Better a low rate that takes it down slowly, like maybe 1%. Of course the Stern group went for a rate lower, 0.1%, which maybe is better. I did earlier defend that rate in some of these discussions, but now have backed off, given what seems a not unreasonable near term projection of technological change and economic growth.

[John Emerson]

I am not proposing a zero discount rate. I am saying that discounting is not a usable tool in this case.

I am also not proposing that we know climatologically what will happen 400 years from now. What I've talked about is an obligation to each generation visavis the next immediate generation. Our obligation to the next generation would include the obligation the we make it possible to fulfill their obligation to their next generation. This leaves out the question of what our particular obligation is to particular later generations, while not ever discounting down to an eventual zero obligation. Our longterm obligation is included within our immediate obligation, but we don't have to talk about infinity or the like.

Economic progress in the future is completely dependent on the absence of serious environmental degradation. Furthermore, the assumption of continued progress is strictly seat-of-the-pants. There have been cases of long-term rise followed by decline in the past, or changes in direction of progress. It does strike me as odd that this key point is assumed so casually be scientists otherwise rather obsessed with rigor. (Some economists seem also to assume the possibility of substitutibilty or replacibility of topsoil, air, and water, which is a big assumption).

The indeterminacy of climatology strikes me as more frightening than reassuring. It's also true that long-term trends can be more predictable than immediate events. And planning the long term on the basis of "we all may be dead in 400 years anyway" strikes me as reprehensible. It's a clear case of the economists' short-term perspective vs. environmentalists' long-term perspective.

I agree that no environemental degradation at all to the irreplacable capital stock is impossible to reach, but to me that should be the framework we think within. I also agree that we should not sacrifice everything for the sake of the future, but I think some other method than discounting should be used to avoid that not very threatening possibility.

[TX]

The recent data is murky. However, there is evidence that China will pass the U.S. as the largest producer of CO2 in the next year or two. In 10 or 20 years, China will dwarf U.S. CO2 output.

[anne]

Having read John Emerson's argument several times, I am completely taken with the points. The idea that we should or can properly discount the future in the matter of environmental protection allows us to miss the point entirely that we are not properly caring for the environment. So, what can be done?

When the federal budget for research and development of global warming or energy conserving technology for a year is less than 6 days spending for the destructiveness of Iraq, we have after all implicitly chosen self-destructive discount rate. So, enough.

[anne]

Also, John Emerson should combine and edit his fine comments for they will be important to expand on.

[dale]

John Emerson said: "I'll reiterate my belief that sometimes it is very important to learn not to think like an economist"

Or at least we might look for economic thinking that has something other than a utilitarian moral rationality. (I think it was Brad who descrbed this sort of reasoning as applied utilitarian ethics.)

So- who out there uses a more Kantian type moral reasoning in their economic work?

I'm doing my best to not comment on things I know little about. But I found John's comment above quite provocative.

[James Killus]

I believe that John Emerson has made most of the points that I would make (and several that I might not have thought of). I will make a few notes of emphasis to his remarks.

There is cerainly a degree to which atmospheric science and climatological modeling is uncertain, so the given effect of adding x amount of greenhouse gases to the atmosphere is uncertain.

There is also a degree to which economic theory and the forecasting of the future wealth of mankind is uncertain. Anyone who holds that predicting the future wealth of humanity is more certain than climatological predictions has access to much better drugs than I do, and I want to know where I can get some of them.

And the idea that the future state of the natural environment, including world climate, is somehow merely a minor factor in the future wealth of humanity is idiotic. Any analysis that treats these as independent variables is fatally flawed.

[radek]

*Sigh*
John E, all your comments really prove is that you don't really understand the concept of discounting, how it is applied, and are not interested in actually finding out. Rather you want to get your usual kicks at economics in and this is more paramount than the whether and how of discounting.
As I pointed out above and as Barkley alludes to, many of the objections you raise are irrelevant to the idea of discounting or are in fact forms of discounting themselves.

For example, to reiterate (since you seem happy to argue some minor point or a throw away word in a sentence rather then address the substance of your opponents' arguments - a tactic, having argued with you before, I'm way too familiar with) - the idea that we should preserve the "natural capital" and hand it down to the next generation is not incompatible with discounting. It essentially amount to a very low, but positive discount rate.
The quote above exemplifies this.
Anyway.

[John Emerson]

OK, fine. What I've been seeing here is people trying to decide at which point our concern for future generations effectively disappears.

What I have not seen is an awareness by economists, except after I brought it up, that air, water, climate, and topsoil have an enormously greater importance than various other commodities of equal present value.

I also have not seen much attention to the physical actualities of long-term climate change, or of the actualities of long term changes in supplies of air, water, and topsoil. Or to the question of whether the present problem is too much investment in warding off global warming, or not enough.

Several times I've seen the assertion that continued economic growth which will make our descendents richer than we are will obviously happen, when it is something which various sorts of environmental change could make impossible. This is really the nub of the whole argument, and it's being assumed.

[Ralph]

I am with JE on the issue of whether global warming will have a deleterious effect on future prospects for the biosphere and human welfare. All of this discussion about discount rates and the economic impact of climate change is moot at this point. We need better understanding of the long term effects of global warming on climate change but doesn't it make more sense to plan for the long term since climate change will be irreversible if it comes at all? All of the discussions by the experts (climatologists) that I have read suggest climate change is real and foreboding for mankind. As I have said above, the Senate committee on the Environment and Public Works will hold important hearings on this topic this year. The hearings will likely publicize and even dramatize the dire predictions many scientists have made on this important topic.

[Barkley Rosser]

This will be my last comment on this thread as I fear it could turn into a long and unpleasant and fruitless and pointless exchange such as I have had here previously on this topic. So, those who disagree or dislike, you will get your chance to fire back unanswered. But, a few further remarks.

John E.,

A positive discount rate applied into the future does not push anything to zero ever, although clearly the farther out one goes the closer to zero one gets. Cutting things off arbitrarily at some point in time does put it to zero, and very suddenly. This is especially absurd if one has been running a zero rate (or something very near zero) up to that point. So, the 200th year is highly valued, but the 201st is actually zero. Duh. I think I'll take some not too high positive discount rate over that.

anne and others calling for not discounting at all, whether on Kantian grounds or whatever.

The problem is then, what becomes the criterion? No change? Not possible. No reduction of natural capital? Not possible. No change in climate? Not possible. Or, if some of these things are to be attempted, they will require economic inputs that exceed what we have available, although this brings up the evil of thinking economically.

I am not against imposing some kind of absolute constraints, but these need to be done thoughtfully, and in a way that involves input from around the world. What if the high-minded constraints are rejected by the Chinese and the Indians as imperialist impositions on their right to grow after the high income countries have already trashed the planet? This, combined with the arrogant selfishness of the US (by both Dems and GOPs, remember the 95-0 vote in the Senate on Byrd-Hagel), was what limited the reach of the Kyoto Accords to any of those countries.

Also, I think any reasonable benefit-cost analysis would suggest that we in the US should be spending a lot more on environmentally related R&D than we are. I certainly support doing so.

Finally, to those who say we should know more about future of the physical, climatic, and other situations, I agree. But this does not just happen because we call for it. No matter how much we know, the farther out into the future we go the more there are all kinds of things that we cannot forecast (future sun emissions, future volcanic eruptions, future meteor strikes, future rates of resource depletion, future rates of technological change, future rates of population growth, etc. etc. etc.) that simply overwhelm all these wonderful models.

It remains a hard fact that once we get more than a century out, any forecast of pretty much anything is a pile of crap. There are just too many factors that intereact with each other that can do all kinds of blooey things that we cannot forecast or anticipate, some of them in that nasty Knightian-Keynesian-Rumsfeldian zone of the unknown unknowns. However, this is not an excuse for doing nothing, and I certainly do not support doing nothing.

Finally, I would seriously warn that one should be careful about citing "the opinion of climatologists." A lot of the people parading themselves around as "climatologists" are not in fact climatologists. Their Ph.D.s are in "environmental science" or physics or something else. The community of actual climatologists is pretty small, and in much less agreement with itself about many of these matters, with many of them quite pissed off about how this debate has been handled. The set of them that argues that there is no global warming has now just about reached zero, but there remains considerable disagreement about exactly how the human input operates to global climate change. It is there, but by how much and in what ways? Everyone agrees this needs more study, and there has been some real convergence on aspects of it. But nobody should go around making definitive statements about exactly what it is. You will simply reveal yourself as being ignorant of the scientific literature.

[John Emerson]

With discounting the value approaches zero asymptotically without ever reaching it. It does become negligible.

If we cannot know the future beyond a certain threshold, OK. That doesn't mean we shouldn't be concerned beyond that threshold; we don't need to add discounting indifference to our ignorance of consequences.

I think that our responsibility is to the continued existemce and relative prosperity of the human race idefinitely into the future, not just to some carefully-delimited group of near-future generations.

I am working on a more organized statement of my views.

[dale]

"I think that our responsibility is to the continued existemce and relative prosperity of the human race idefinitely into the future, not just to some carefully-delimited group of near-future generations."

Add to that a remembrance and recognition of the achievements and the unnecessary and preventable sufferings of those who came before us(our debts and inheritance from the past)and we're on the way to a more expansive and humane understanding of how we are to live our lives and organize our collective efforts.

[anne]

The exchange has been thoroughly valuable and should leave no sense of frustration for lack of resolution. The intent of those commenting around John Emerson's fine argument does not really contradict, so reconciling towards policy adoption is readily possible.

[Ian Parker]

Nelson planted Oaks in the Forest of Dean which would be mature trees in 1914. Jutland was fought with steel ships. arn't we doing the same thing with predictions of sea level rises in 2050 and 2100. By then we are certain to have a Von Neumann machine. In fact a flatpack assembler is scheduled for 10 years and a VN machine a short time after that.

The climate in 2050 will be controlled by mirrors in space, just as during the Civil War both the Confederate and Union navies were using ironclads.

[John Emerson]

It's a darn shame those unnecessary trees got planted at such enormous cost. I presume that they've already been cut down so that they don't do any more damage than they've already done.

Hoping that something will come up is not a good way of dealing with the future. I, too, expect enormous technical progress to be made, but I don't think that we should expect that every bit of progress we need will show up right on time when we most need it.

[John Emerson]

I have posted an extended version of my comments here on my site. T my URL, or here:

www.idiocentrism.com /warming.htm

[dale]

"The climate in 2050 will be controlled by mirrors in space"
I sure there won't be any unintended consequences from that. Happy world.