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Economists and climate change

July 19th, 2010

Ross Gittins repeats the criticism he, Ken Henry and Martin Parkinson, have put forward previously, that economists were either missing in action or actively unhelpful in the climate change debate. I disagree – I think academic economists as a group look a lot better on this issue than do economic columnists, and (on the limited available evidence) at least as good as public servants.

The views of the profession were stated pretty clearly back in 2002, when Clive Hamilton and I organized a statement calling for ratification of Kyoto which got 250 signatures (about 40 per cent of the entire academic economics profession at the time, which is huge given that many people never sign anything, or don’t get round to answering their email). A second pro-Kyoto statement in 2007 got 270 signatures, including 70 professors.

Against that, there are a handful of rightwingers who accept the delusional anti-science line that is required as a totem of tribal loyalty on the right. Not only is this group numerically small but, AFAIK, it doesn’t include anyone with substantial standing in the profession[1]. That’s certainly what the public record suggests. In 2002, John Humphreys and some others announced a counter-statement, but it never appeared, presumably because of the embarrassing quantity and quality of those willing to sign.

There are also a few people who have been so committed to particular policy formulations that they have been unwilling to support anything else, even though the similarities between different carbon price policies outweigh the differences. This is ultimately a matter of political judgement. The choice between supporting an imperfect policy and waiting for a better one isn’t a simple one. I supported the CPRS as an imperfect compromise right up to the final failed deal with Turnbull, which I thought was worse than starting again from scratch. Others judged, earlier on, that the scheme had been hopelessly compromised. On the whole, I don’t think any of this had any impact on the outcome.

If we compare this to Ross’ colleagues among economic columnists, I’d say the majority are either outright delusionists or “delay and doolittle” types. Alan Wood, who was generally well-regarded as economics editor for the Oz bought the IPCC conspiracy theory (full black helicopter version). Terry McCrann is much the same, and others (Alan Kohler for example) have pushed Abbott’s anti-economics line on the subject.

Public servants rarely go on the record, but discussions of the Greenhouse Mafia suggest that there are plenty who have worked hard to sabotage any action. My run-ins with ABARE in the Howard years certainly support this view.

Looking at the most recent debate, economists mostly supported the Garnaut Report and lots of us worked hard on developing detailed proposals for implementation of various aspects of it, only to see them traded away by the government in the ultimately futile search for a deal with the opposition. Given the speed with which the whole policy collapsed, it’s hard to see where academic economists could have intervened effectively. Whatever the strengths of the academy, rapid reaction times are not among them.

Looking forward, I predict that the majority of economists will back any coherent policy that involves an early shift to pricing carbon, and that the economics profession will be more unified in this respect than almost any other group.

fn1. I can’t rule out the possibility – eminent people can say silly things, particularly in their declining years. But the kinds of nonsense that delusionists are required to go along with (eg “no statistically significant warming since 1993″) make it hard for any self-respecting economist to be part of this movement.

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  1. August 2nd, 2010 at 12:39 | #1

    @Gaz

    The problem with the demarcation between market and non-market is that the arrangements people tend to call “markets” exist in close connection with arrangements that people thionk of as outside of markets.

    All markets are a response to the demand and supply of particular resources. The factors bearing upon the structure and operation of these markets may be more or less transparent, drive more or less timely supply, or vary the quality or alter the transaction costs but hwoever markets operate the solutions will all be capable of being described as “market” solutions once one realises that no market is the pristine iteration of consensual exchange between all stakeholders envisaged in the idealisations of the Hayekianistas.

    Regulation is the sine qua non of functioning markets. A market without regulatory oversight is one which will necessarily have huge risks of trading loss, passing off, and huge transaction costs — at least if one is speaking of something amounting to more than barter amongst primitive hunter gatherers.

    It’s worth recalling that the currency we use has integrity precisely because it is the creature of a serious and robust regulatory framework. Securities markets failed during the GFC because the framework was far too loose. Emissions permits fall into the same paradigm. If they refer to a commodity that is measurable in real time and by the same standards everywhere, then securities can be created in it. To get that rigour though you need regulation that is independent of those on either side of a trade.

    Trying to decide which part of that is “market” or “non-market” is about as silly as trying to work out whether someone is their mind or their body. What we have is a system in which each of the components plays a part in serving some end — in the case of bodies it is the reproduction of tissue through intake of nutrients and in the case of economic systems it is the conversion of resources into goods and services of value to human beings.

    Rational economic systems seek to ensure that goods and services are delivered in adequate supply at acceptable cost in human labour and risk on timelines that are consistent with the capacity of the system to keep perfomring that role. Well regulated trade lowers transaction costs, avoids collective action problem and allocates benefits, burdens and risks where they are best borne from the standpoint of the goals of the system as a hole.

    Those of us who are egalitarians regard the system as functioning best when it tends towards equality in settling these, benefits, burdens and risks while ensuring that everyone’s basic needs are met.

  2. Gaz
    August 2nd, 2010 at 13:41 | #2

    @Fran Barlow

    Take it easy, Fran, I was just trying to work out WTF Ernestine meant when she said cap-and-trade was “strictly speaking, not a market solution “.

    I wasn’t trying to get Hayek canonised, just trying to get Ernestine to specify what a market solution was and provide an example of one.

    In retrospect, Saint Friedrich may have been a less ambitious goal.

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