Sunday, January 4, 2015

About that memo, Professor Summers...

Let this be the year when we put a proper price on carbon is the theme and headline of an op-ed by Lawrence Summers at the Financial Times. There is indeed a compelling case for a carbon tax, as Summers argues. The case could be even more compelling were it not for the persistence of an "impeccable economic logic" that never was.

That  "impeccable logic" made a cameo appearance in an infamous World Bank memo that went out over Summers's signature some 23 years ago: "the economic logic behind dumping a load of toxic waste in the lowest wage country is impeccable." Take it as given that Summers did not write the memo, that the infamous passage was taken out of context and that the intention of the author, Lant Pritchett, was ironic and not making a serious proposal.

And yet... Satire has an object. The full memo is a chapter-by-chapter commentary on the outline for the 1992 World Bank publication, "Global Economic Prospects and the Developing Countries." Chapter 3 of the outline was presumably the target of the infamous excerpt. Note that chapter 3 in the final version is titled "Interlinkages, human capital and export competitiveness" and has nothing to say about pollution. In fact, the entire document has nothing to say about pollution.

Where is the rest of the infamous memo? Pages one and five of the original memo are posted on the internet but searching phrases from those pages turns up nothing. Daniel Hausman and Michael McPherson used the provocative toxic waste passage as exhibit "A" in their Economic Analysis, Moral Philosophy and Public Policy. But they are silent on the broader context of the full memo and the Global Economic Prospects outline.

Hausman and McPherson do, however, delve into the matter of cost-benefit analysis, which they conclude "is not a scientifically valid or value-neutral procedure for social decision making." This is sort of the argument I have been making here but not entirely. My argument, though, is that the "economic logic" is extraordinarily "peccable" -- its logical fallacy concealed behind an impenetrable veil of incongruity.

Whether conventional cost-benefit analysis is merely "not scientifically valid or value neutral" or is downright incongruous and "unacceptable nonsense," the Interagency Working Group on Social Cost of Carbon relied on it in 2010 to estimate the social cost of carbon to be $21 per ton of CO2 (in 2007 dollars). If Summers is serious about "letting this be the year when we put a proper price on carbon," perhaps he could nudge things along a bit by showing that the "impeccable economic logic" of not doing so is an abysmal sham and a swindle.


Thornton Hall said...

You should check out this fantastic lecture on tackling climate change by anthropology professor Steve Rayner:

When you study human beings rather than markets you learn something about motivating people to solve problems. Turns out cost-benefit analysis (econ style) has nothing to do with actual human thinking.

Sandwichman said...


My perspective -- and I believe Rayner shares this -- is that climate change is NOT a "problem" that can be "solved." It is a condition that we need to acknowledge and reduce the harm from.

Thornton Hall said...

Always so oblique! Whether climate change is a "problem" or a "condition", the fact remains that human beings need to change their behavior. The fact also remains that in the debate between a carbon tax and a trading scheme, economists proceed on the belief that they know something about changing human behavior.

I subscribe to a world view where such a belief is prima facie false given the steadfast refusal of most economists to engage with actual humans. If an anthropologist says we should look how to present the issue in a way that businesses and environmentalists can agree on a way forward, and an economists says, "but look at our success with organ transplants and some auctions you've never heard of", well, then, I'm going to be as rational as I can be and agree with the anthropologist.

Sandwichman said...

When did I ever oppose presenting the issue "in a way that businesses and environmentalists can agree on a way forward"? If such a way actually exists. I'm hardly advocating cost-benefit analysis here, in case you missed the memo.

Thornton Hall said...

I didn't miss the memo. In light of your rejoinder, I think the most important part of my response was:

"Always so oblique."

Which is to say, I'm never quite sure what you are driving at.

As to environmentalists and businesses seeing eye to eye, the answer, as Rayner points out, is to focus on developing new technology. ExxinMobil isn't going to lobby for a carbon tax, but they just might be convinced to diversify into solar if we make an offer they can't refuse.

Sandwichman said...

"Always so oblique."

From Wikipedia:

"Oblique Strategies (subtitled Over One Hundred Worthwhile Dilemmas) is a deck of 7-by-9-centimetre (2.8 in × 3.5 in) printed cards in a black container box, created by Brian Eno and Peter Schmidt and first published in 1975. Each card offers an aphorism intended to help artists (particularly musicians) break creative blocks by encouraging lateral thinking."

There is a scene in the Richard Linklater film, Slacker featuring the "game." One of the cards mentioned was "Not building a wall; making a brick."

My posts are "oblique" because they are bricks, not walls. It is not important to my meaning for YOU to know what I am driving at. If you can use the research and the analysis in some way that is all that matters.

Thornton Hall said...

I guess I should be complimented for my word choice, then.

Sandwichman said...

Apt word choice, Thornton!