Guest post on Lomborg
Reader Charles Young has sent me a response to Bjorn Lomborg’s latest outing, pushing yet again the claim of a trade-off between doing something about climate change and increasing aid to poor countries. It’s over the fold.
I’ll just repeat that, as far as I know, Lomborg has never shown any interest in aid to poor countries except as an alternative to Kyoto. The Copenhagen Consensus exercise produced some important and controversial results in the relative ranking of, for example, health and education projects, but I’ve never seen a piece by Lomborg discussing these results and their implications, other than relative to climate change. Feel free to correct me.
Young on Lomborg
Ought I to stop smoking? Or would it be better to donate some money to Oxfam? Certainly the immediate increase in global welfare would be much greater if I were to give some money to Oxfam. So Iâ€™ll have another cigarette.
Most of us will have no difficulty in seeing the flaw in this line of reasoning â€“ and will recognise a type of casuistry at which addicts excel. However, if we substitute â€œtackle HIV/Aidsâ€? for â€œgive money to Oxfamâ€? and â€œreduce greenhouse gas emissions for â€œstop smokingâ€?, and if we get a number of eminent economists to confirm that the first gives more immediate benefits, then we have the message being conveyed by Bjorn Lomborg (â€œClimate Change can Waitâ€?, 2/7/06) â€“ and most of us are too overawed by the Nobel prize-winners to spot the flaw. This message, as Lomborg states it, explicitly suggests that inaction on climate change is acceptable for the present. Moreover it implicitly suggests â€“ to those who are severely addicted, or very stupid, or a bit of both â€“ that it is even misguided to take action on climate change, since doing so might get in the way of the other worthy goals.
Of course, the less money I spend on cigarettes, the more I will have available to give to Oxfam. Equally, if global welfare is increased by some of the steps that can be taken to combat climate change, then taking these steps will make it easier, not harder, to address the other challenges.
The obvious step for tackling greenhouse gas emissions is to tax them. Indeed, the proposal put to the Copenhagen Consensus group in 2004 by Dr William Cline essentially considered various levels of carbon tax. Those who opposed his proposals suggested that the level of tax that he proposed was too high. Neither of the two â€œopponentâ€? papers considered by the Copenhagen group advocated inaction â€“ one advocated a carbon tax, but at a lower level, the other proposed that tradeable carbon permits be used instead of a tax.
In popularising the results of the meeting, Bjorn Lomborg has said that the problem is how best to invest a fixed sum of money â€“ say $50 bn â€“ as between the various desirable goals. But the step being proposed against global warming requires no investment â€“ it merely involves shifting the tax burden from one place to another. Far from representing a budgetary cost, a carbon tax could either raise additional resources for government action on the other global priorities, or could allow other taxes to be cut, or both.
All taxes distort, and a carbon tax will cause a reallocation of spending right now. If it is to be shown that this reallocation represents a net cost to the present generation, the impact of a carbon tax must be compared to the distortions caused by the other taxes which it would replace. As far as I can tell, this issue was not considered in the deliberations of the Copenhagen Consensus. Many taxes â€“ for example payroll taxes, like National Insurance, which reduce the demand for labour and thus cause unemployment â€“ have undesirable side-effects. Replacing distorting taxes with taxes that offset environmental costs (known in the trade as â€œPigovianâ€? taxes) is likely to improve the allocation of resources immediately. One (perhaps unexpected) recent proponent of shifting more of the tax burden onto Pigovian taxes in general, and carbon consumption in particular, is Greg Mankiw, Chairman of President Bushâ€™s Council of Economic Advisers until last year.
It used to be feared that taxes on energy had a uniquely baneful economic effect, since the petrol price increases of 1973 and 1979 both led to global recessions. However, the global economy has adjusted to the high oil prices of the last two years with little difficulty, so this particular fear, which played a major part in previous assessments of the cost of carbon taxes, can now be discounted.
At a more fundamental level, we should question whether the views of economists, even Nobel prize-winners, ought to be decisive. It is certainly useful to have them consider various courses of action on a consistent basis. But global warming raises one issue which economics is ill-suited to answer, and another which is contentious among economists, and between economists and philosophers.
Economics assumes that what people want â€“ their tastes, or preferences â€“ are exogenously given, and do not change. If an economist could set up an experiment to work out the cost of giving up smoking, it would involve offering the smoker, every time he reaches for his pack, whatever sum of money would induce him to forego the cigarette. Altering his preferences is ruled out by assumption. Naturally, the cost of giving up smoking would turn out, on this measure, to be exorbitant, and on the same measure, which is the only one that can be and is used by economists, so is the cost of mitigating global warming. Those who succeed in giving up smoking in practice change their preferences as well as their behaviour. Economics can say nothing about whether the man who craves, and gets, his cigarettes, is better off than the man who does not smoke and does not want to. Yet these lifestyle changes will be needed if we are to cut greenhouse gas emissions. Even if we hope that technical fixes will make our present lifestyles once again sustainable, these fixes will come a lot faster if we incentivise them with carbon taxes.
That is the issue â€“ weighing up mutually exclusive groups of lifestyles and the preferences that go with them â€“ on which economists have nothing to say. The issue which was contentious among the economists at Copenhagen was whether, and by how much, the costs imposed on future generations by carbon emissions should be discounted. Â£100 in ten years time is worth only Â£73 now, if I have the chance of investing it at 3% interest. Because the costs of global warming affect later generations, discounting them at the rates normally used in cost-benefit analysis leads to the conclusion that it is not worth the present generationâ€™s while to bother too much about them. (At 3%, Â£100 in 200 years time discounts to 22p). It is right to discount things that can be produced in growing quantities, wrong to discount the irreplaceable. (Indeed, one of the Nobel prize-winners on the Copenhagen team, despite giving a low priority to Dr Clineâ€™s proposals, has elsewhere proposed that we should use a negative rate of interest for the costs of mitigating climate change. Thomas Schelling has pointed out that although the benefits will accrue later than the costs, the main beneficiaries are likely to be the descendants of todayâ€™s poor, who may be less poor than their parents, but are likely still to be poorer than those in todayâ€™s rich countries who will bear most of the cost of reducing greenhouse gas emissions. In his view, this justifies negative interest rates, though most of the Copenhagen team felt that Dr Cline had used rates that were too low). Weighing up the cost of lifestyle changes now against the gains to future generations is a political decision that cannot properly be hived off to economists, even if they have won the Nobel prize.
I have used the smoking analogy because it is clearly the case that huge savings in greenhouse gas emissions can be made without putting at risk anything that is essential to a comfortable and civilised life. We all love our habits, and if asked to change them, even for the best of reasons, we are all adept at dreaming up, and eager to make use of, even the most specious of arguments that appear to deny the need to change. It is in this category of argument that Dr Lomborgâ€™s use of the Copenhagen Consensus findings belongs.