Yesterday I blogged about Paul Krugman’s recent piece on climate control policy. The bottom line: After recovering from a shaky start, Krugman does a good job of laying out the issues and posing many (though not quite all) of the right questions. But I’m not sure he gets the answers right.
A few years ago, writing in Slate, I listed the key questions that the Al Gores of the world mostly fail to address or even acknowledge. (See also the discussion on pages 186-190 of The Big Questions.) Krugman (thankfully) is no Al Gore, and he does address most of these questions. Let’s see how he does with them.
- How much does human activity affect the climate? This is of course a hard question and one where economists have little in the way of special expertise. (We do, however, have some experience interpreting data and some sense of how models work.) Krugman gives substantial credence to estimates along the lines of a 9 degree Fahrenheit increase over the next century. I have absolutely no idea what to believe on this issue, so I’ll go along with Krugman for the sake of argument.
- How much harm is likely to come from that climate change? This is the big one. I think it’s fair to say that virtually all economists believe that the harm from a given temperature increase is likely to be less than most climatologists believe. That’s because economists understand that—in Krugman’s words—”we have an advanced economy, that kind that has historically shown great ability to adapt to changed circumstances”. We will find ways to limit the damage, and those ways will be less expensive than you think.
Suppose for example that the sea level rises to the point where we have to move New York City. Non-economists envision abandoning the existing city and starting over from scratch somewhere else. Economists recognize that most of New York City is going to be rebuilt over the next century anyway (because few buildings last a hundred years) and that it can gradually move inland one building at a time. Non-economists envision massive crop failures and a mad scramble to find new food sources. Economists envision farmers—who are constantly experimenting with new crop varieties anyway—gradually shifting to varieties adapted to an increasingly warmer climate.
Krugman sides with his fellow economists on this (it would be hard to take him seriously if he didn’t) but rests much of his case for climate control policies on his belief that there remains some significant chance of utter catastrophe a century or so down the line. I have no idea how plausible that scenario is, but even if we accept it at face value it means that Krugman’s case for climate control depends on some fairly distant future effects. This magnifies the importance of the next question.
- How much do we—or should we—care about future generations? The famous Stern Report to the British government based its policy recommendations on the assumption that we should care about future generations exactly as much as we care about ourselves. Of course we do no such thing. The fact that we tax capital income (thereby discouraging saving and impoverishing future generations) is pretty good evidence that compared to ourselves, we hardly care about our great-grandchildren at all. If you’re going to make climate policy on the basis of your deep concern for future generations, then consistency requires you to make tax policy on the same basis. But I don’t see the Sierra Club lobbying to eliminate the corporate income tax.
Krugman disavows the extreme position of the Stern Report, but still argues for weighing future generations’ welfare more heavily than private markets do. There’s a good theoretical case to be made for that position, though Krugman does not digress into making that case (and neither will I).
Of course in our concern for future generations, we should remember that they will bear not only the benefits of our climate control polices but also the costs. Krugman suggests that the Waxman-Markey climate control bill might trim the annual growth rate by about .09 percentage points, say from 2.4 to 2.31, and he emphasizes how small that change is. What he doesn’t tell you is that if you trim the growth rate from 2.4 to 2.31, then you’ve cut the incomes of our descendants a century from now by about 10%. That’s not a catastrophe, but it’s not small either.
- How likely are those future generations to be around, anyway? As I said in Slate, if you think the earth is going to be destroyed by an asteroid in the next 200 years, you don’t want to spend money improving the climate 300 years from now. For that matter, if you think the earth is going to be too hot to inhabit 100 years from now no matter what we do, then you don’t want to spend money reducing that future temperature down from 300 degrees to 250. Krugman is quick to entertain doomsday scenarios for man-made climate change, but he never addresses the likelihood of alternative doomsday scenarios.
- Just how rich are those future generations likely to be? If you accept Krugman’s 2.4 (or 2.31) percent growth rate—which I think is probably low—then a century from now, our descendants’ incomes will be about ten times ours. (That’s ten times after adjusting for inflation; in other words they’ll be able to afford ten times as much stuff as we can.) Do we really want to spend money improving the quality of life for our fabulously wealthy descendants when we could spend that same money improving the quality of life for our contemporaries living in rural Africa on $400 a year? Krugman fails to address this.
- How risk averse are we? Here, I think, Krugman has the economics wrong—or at least incomplete. He says that the more risk-averse we are, the more we should spend on climate control policies, because risk-averse people like to prevent catastrophes. But risk aversion cuts two ways. One of the biggest risks we all face is the risk of being born (relatively) poor. The way to alleviate that risk is to make poor people richer. Compared to our fabulously wealthy descendants, we are the poor—and one way to make us richer is to stop asking us to spend so much on climate control.
Krugman is right that risk-aversion creates an argument for more climate control spending. What he doesn’t tell you is that at the same time it creates a counter-argument for less spending. He should have acknowledged this. On the other hand, I’ll cut him slack since I realize a single magazine column can’t go on forever. Neither can a blog post. I have just a little more to add (watch this space later in the week) but I’ll stop here for now.