Saturday, August 2, 2008

What Economists Should be Doing about Climate Change

It’s good to see that Paul Krugman is channeling Marty Weitzman on the urgency of preventing catastrophic climate change. Here is what the Weitzman analysis means for economists.



Weitzman argues forcefully that in the face of extreme risk and great uncertainty, the quest for “optimal” policies is futile. The point is simply to insure against the worst, and that will mean very aggressive programs to stabilize greenhouse gases at a tolerable level. (Bill McKibben wants us to memorize 350 ppm.) It turns out that stopping runaway climate change is at heart an ecological problem, not an economic one.

Meanwhile, a whole industry of economists, financed by clueless foundations, are barking up the wrong tree. They assemble and run dubious CGE models estimating marginal costs and benefits, as if anyone in a position to make decisions really cared. In fact, not only is there no reason to believe this line of research has anything to offer, there is no evidence that the advice of economists, even heavy hitters like Nordhaus, have or will have any effect on the main policy parameters, like carbon targets and timetables.

So what should we do with all the economists freed from the quest for the true dollar value of a ton of carbon? Put them to work anticipating the impact of an impending carbon cap and coming up with measures to adapt as painlessly as possible. What regions and industries will be most affected? What policies can smooth their transitions? How much of the capital stock will be written off before amortization and with what affect on employment and the financial system? What are the most cost-effective ways to increase the elasticity of demand for carbon-intensive goods? That is, how can we foster substitutes, fast?

Why are hundreds of economists laboring night and day to answer questions no one with any sense asks any more, while the critical issues of economic adaptation are almost completely ignored? Why are we about to walk blindly into a carbon-constrained world?

9 comments:

Anonymous said...

Can someone PLEEEEEEEZZZEEEEE tell me what the "perfect" temperature of the earth is?

If not, then shut the hell up about it already. The cycles of the solar system are in constant change...and there is NOTHING, you, me or AL Gore can do about it.

CMike said...

The Anglo-American alliance is in the midst of responding to the "precautionary principle." It doesn't seem to be going too well.

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From the BBC series "The Power of Nightmares" episode 3:

What Blair argued was that faced by the new threat of a global terror network, the politician’s role was now to look into the future and imagine the worst that might happen and then act ahead of time to prevent it.

In doing this, Blair was embracing an idea that had actually been developed by the Green movement: it was called the “precautionary principle.” Back in the 1980s, thinkers within the ecology movement believed the world was being threatened by global warming, but at the time there was little scientific evidence to prove this. So they put forward the radical idea that governments had a higher duty...

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You can watch Part 3 of this documentary here. Maybe take a look from 48:20 to 52:47. The above passage is at 50:21.

Peter Dorman said...

CMike, your point is well taken in connection with the mainstream view of the PP. But there are other approaches to precaution that don't imply invading Iraq, etc. Weitzman's doesn't, neither does mine. In fact, I could make a very solid argument, based on my version of the PP, that precaution would have added to the case against invasion, all else equal.

CMike said...

(I'll paste from an off topic post which I found by googling with the punch line in quotes.) Here's the problem:

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Interviewing applicants for a new accounting position, the businessman asks a simple question, “What is one plus one?” Each puzzled candidate answers correctly, “Two,” and is summarily dismissed. Finally an interviewee comes up with the answer that lands him the job, “How much do you want it to be?”

This tired old accounting joke illustrates a point; creative accounting can make numbers meaningless.

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In defense of our democratic republic, I don't think China is any more likely to take the right steps in the matter of Global Warming than we are. Know any governments run by qualified Philosopher Kings?

Robert D Feinman said...

I've decided that world-altering social changes are neither economic nor ecological issues, they are moral ones.

Our generation does not have the moral right to ruin the planet for future inhabitants.

Once this is understood then the issue becomes one of immediate sacrifice. Obviously the wealthiest countries will have to scale back consumption so that the overall world level is within sustainable bounds - it isn't now.

At the same time we have to foster growth in the bottom billion, again as a moral issue - no one should live on $1 per day or slightly more.

This leaves the implementation problem, how do you get people to sacrifice for benefits that they will never see? The prior arguments about good works affecting your life in the hereafter no longer carry any weight.

Shag from Brookline said...

Economists should give up air conditioning so as not to compete with their rhetoric.

Eleanor said...

There is a graph in the current issue of Science News illustrating a poll asking people which areas of study as most scientific. Medicine and biology do best, followed by physics. (I find this interesting, since physics is usually considered to be the hardest of hard sciences. But superstring is pretty weird.) Sociology is next after physics. Economics is seen by those polled as the least scientific.

Anonymous said...

heavy hitters like Nordhaus

Nope. Rue the day public relations professionals are the heavy hitters. Nordhaus is not an economist, and he blames the wrong people for the problem. Forget Nordhaus.

media said...

aren't there 2 nordhaus? one at Yale and one who thinks global warming can be solved by advertizing and funding his market research firm? if it turns out that california is simply due to a reflection symettry, then i guess they are the same one.

i too take a moral position and as with most moral questions (e.g. trolley problems) different people actually may differ on what the moral of the story is, after all, is said and done. sometimes these are gender specific, studies have shown.

if one takes a less anthropocentric view and holds that morally all species are equal in the eyes of the Creation, then there is no a priori reason to demand that economists give up their air conditioners because they are competing with their hot air. This is based on a patriarchal competition model, which D Foley has shown is implicit in the suckcess of capitalism and Krugman. But another model, the 'partnership' or 'feminazi' model (Riane Eisler, godess theory, female african tree apes etc.) holds that air conditioners and rhetorical hot air are complementary and actually synergistically develop. Indeed the order parameters for the two systems are coupled via stochastic resonance. From such a perspective rhetoric is simply the translation of air conditioning into 'econospeak'.

global warming becomes simply an illustration of the sapir-whorf principle; the second law of thermodynamics shows that hot air cannot create anything but itself---unless of course one actually has an open system. one could test the theory by trying the air conditioning with the windows open.
'somebody knocking on the window?'