Note: With permission from a friend at Facebook, I reproduce below an edited conversation on global warming. (The interchange may make more sense when read with my other post on Ronald Coase.)
If Al Gore is right, the beach today will be gone tomorrow. Because the ice will melt, and there is a constant amount of water out there. But wait-a-minuut.. What if the H’s don’t want to date the O’s anymore? And are the amounts of H and O constant? In short, it is possible Al G is dead wrong, yet he gets a Nobel?
A friend of mine thought perhaps I was just peeved, asking what Al G did to me. So I had to continue the thread.
Somewhat seriously: Here’s how a good economist phrased the problem: “To speak sensibly about climate control, you must confront … difficult questions. What are the harmful effects of climate change? What are the costs of avoiding these effects (say by moving New York City inland)? What are the offsetting benefits? How likely is the Earth to suffer some other disaster — an asteroid strike — that will make our carbon emissions irrelevant? What do we owe future generations? How risk averse are we?” – Steven Landsburg, in The Big Questions.
No one has the answer. If we knew, for example, that New York will drown, the price of real estate there will fall (though by how much depends on the market discount rate, and the best estimate of when this will happen). And obviously, the price of the remaining real estate still above water will rise. I suspect the global warming adherents just want to protect their nice beach front properties, which presumably they will bequeath to their heirs.
Even if you can measure a 5-degree (C) warming in 100 years, it doesn’t mean anything until you can quantify with some precision its costs and benefits. The biggest unasked question (because it also has no answer) is: How likely will there be a technological fix that makes all the calculations of the bureaucrats (see the Stern Report) useless? Malthus was right about population growth; but he was wrong when he assumed the technology to grow food would remain the same. The debate today on climate change likewise depends on the unknowable path of technological progress. But I believe we can safely predict that there will be technological progress.
My friend then asked:
So I assume it is not the messenger, but the message. However I have the following points:
1. I assume you are not contradicting the scientific consensus that humans are causing the bulk of the current global warming. Steve Landsburg is putting up red herrings about “other disasters” so let us stick to what are the harmful effects of global warming. I think there is enough literature to suggest what are the consequences and therefore an honest economic philosopher will contribute by doing cost/benefit calculations rather than just asking “how risk averse are we?”
2. Why are “global warming adherents” the only ones who will protect their nice beach? What about the millions in Bangladesh and other poor countries who will not have resources to protect their low lying shacks but can only run inland to avoid being swept away. I have no problem with your “wait and see” attitude, if poor people can sue those who caused the problem.
3. Technological solutions are welcome and I do not think global warming adherents are saying no to that. But who will create the solutions for which there is no economic return since the millions of poor people cannot pay? Obviously, the “common good” must be sustained by investments from some entity – surely for profit companies will not do it – only governments will and should.
4. Malthus will be correct in the long run because the world is finite. There are now studies that show that the “green revolution” and even the “Genetically Modified” farming will not be enough to sustain present population growth. I can agree with you on your faith in “technological solutions” but I do not have faith in humans on how they use it – properly; nor in “imperfect markets.”
To which I replied:
… Yup, pt. 1 is fine. Pt. 2 is known as the thesis, probably correct, that global warming has a much greater adverse effect on poor countries. Pt. 3 is usually taken care of by incentives for creation of intellectual property — patents, etc. Pt. 4, I don’t know. Malthus may well be right after all, but surely, even if the aging Japans, America, and Europe all go into slow growth mode, they are still at a much higher base of technology than poor countries; in short, they’re not subject to the Malthusian problem. And I suppose that population growth is not constant nor readily predictable. And if you don’t have faith in humans, either in markets or in governments, on whom will you put your faith?
Now I know what Al Gore has done to me and you and the rest of the world. It seems that the Al Gore types including the celebrated Krugman want to limit carbon use by the poor countries, even though Americans prefer warm to cold. They therefore advocate a cap or ban on carbon use, or if they can’t get that, they want the poor countries like China or India to pay the rich countries for the right to use carbon. It has thus become a disguised form of “I want it the way I want, and I want the rest of you to shut up and also to pay me if I can’t get it my way.” Is this not amazing?
The good and just answer is a version of cap and trade, where you give the right to use carbon to the poor (the rich are already rich anyway), and perhaps it doesn’t much matter where you set the cap. Then, if the “deniers” are right, there won’t be much trade, because the Americans don’t really want to pay, and “business as usual” may well turn out to be the revealed preference that reflects everybody’s rights and concerns, and is also economically efficient. If the deniers are wrong, then Al Gore should put his money where his mouth is: he should advocate that the Americans, Europeans, and the Japanese pay China and India not to use carbon.
My friend then got back to me saying:
I do not understand your second paragraph. Are you in favor of “cap and trade” as it was being passed in US Congress in 2009? Or are you redefining it? Or are you in favor of a plain carbon tax? Gore and Krugman seems to be in favor of “cap and trade.”
So I said:
The just solution is to give the right to use carbon to the poor, and let them sell the right to the rich. It’s that simple. The Gore/Krugman types want the right given to the rich countries who dominate the world economy, and they want to sell it for an arm and a leg to the rest of the world.
If you did the just solution, the American public will not pay to prevent the poor countries from using carbon, because as Moore estimated, the benefit from preventing CO2 is only 1% of GDP, but the opportunity cost of preventing CO2 is 10% of GDP. The rich countries will not bother to trade. Put another way, there’s actually a 9% net benefit from doing nothing! That’s how I understand the honest literature.
But if we give the right to the rich countries, then they can hijack the poor into permanent poverty, and at the same time, the rich countries would be irrational; they would be giving up 10% of GDP just because Gore/Krugman like it cold.
Is this clear enough?
My thoughtful friend continued:
I thought “cap and trade” means that all countries establish a “cap” and then they need to buy the right to produce more CO2. So if a rich country wants to pollute then they have to buy the rights from a poor country. I thought your free market will benefit the poor countries in this situation.
Or maybe I am misunderstanding this?
And my response:
I’m no wonk on this but I think you got it right. First we have to define the units. If it is in carbon units used per capita, that would seem to be fine. The rich countries use more carbon per capita than the poor so the former will pay on the trade part. But if, say, you start with a zero cap, and auction the rights the way it’s done on wireless frequencies in telecoms , there will be a geopolitical dogfight on where the auction revenues will go. That would still be efficient in an economic sense, but it makes the equity issue too transparent which will probably kill it. If you set the cap per country on the basis of “current” levels, you’re “penalizing” the poor who haven’t been using carbon. I think this is the kind of “cap” most politicians think of, including perhaps the celebrated Al G. That means they want it both ways: cool the earth and make the poor pay for it.
 This is similar to the Colin-Cantwell version of cap and trade in the domestic US context.