Now that nearly everybody (except US Republicans, of course) accepts the scientific evidence on global warming, the problem is to determine the best available response. As I’ve argued before, the main obstacle to action is the belief that we can’t protect the environment unless we are willing to accept a radical reduction in our standard of living.
Category: Economics – General
Anatol Rapoport is dead
Anatol Rapoport has died at the age of 95. Among many contributions, perhaps his most widely-known was the Tit-for-Tat rule for repeated games of the Prisoner’s Dilemma, embodied in a four-line program Rapaport successfully entered in a contest run by Robert Axelrod. Rapoport’s program co-operates inititially, and thereafter matches the other player’s last action, defecting in response to a defection, and returning to co-operation if the other player does so. There’s more here from Tom Slee.
AEI and low-value reputations
The fact that the American Enterprise Institute (currently funded by ExxonMobil, but not for much longer it seems) is offering $10K a pop to scientists and economists willing to attack the IPCC report is all over the press and the blogosphere (a PDF scan of one of the letters has been posted here. I was alerted by David Adamson, who pointed me to this Courier-Mail report citing the Guardian. It’s striking to think that when I started blogging in 2002, the AEI was still widely respected.
Meanwhile Brad DeLong has suggested that he and I should put our hands up for the cash. Since we are closely familiar with all the main denialist arguments, it would be money for jam after all. Sad to say, this appears to be an invitation-only offer and neither Brad nor I is on the list. In any case as radek points out in comments
10K seems like a pretty low amount to pay for a shredded reputation. Unless, I guess, you ain’t got much reputation to begin with. Even market forces, politics and ideology aside, predict that whatever comes out will be of extremely low quality. You get what you pay for.
Of course, this applies equally to anyone willing to hire AEI itself.
In related shenanigans, another recipient of the ExxonMobil cash spigot, the Fraser Institute (whose efforts on this point are headed by the egregious Ross McKitrick) is holding an event on Monday in London, aimed at discrediting the IPCC. The Fraser Institute report has already been leaked and dissected at DeSmogBlog, which suggests that Fraser may be fronting for AEI. Any readers who happen to be in London might want to roll up and join the Rent-a-crowd there. No guarantee that you’ll get paid for attendance only, though.
And on the lighter side, the search engine on the White House website has been rigged to return no results for searches on “global warming”
Prada, princesses, product placement
I watched The Devil Wears Prada not long ago – as the name implies, it’s not short on product placement, though of course this is part of the fun. The central character, played by Meryl Streep, is the editor of a fashion magazine and the heroine/narrator is hired her assistant. Streep’s character is represented as an impossibly demanding princess – the first illustration of this being an imperious demand for Starbucks coffee, delivered in a paper (or maybe even styrofoam) cup. Even allowing for the needs of product placement, and the curiously high status of this coffee-shop chain in the US, this strikes me as way off the mark. Surely she should be demanding her own personal barista, freshly grinding exotic coffee beans, and delivering the product in brand-name china (compare the gangster-movie financier in Mulholland Drive who spits out the coffee with which his hosts have struggled desperately to please him).
But all this comes to the central contradiction of promoting luxury consumption, discussed here not long ago. On the one hand, we want to read about and watch the luxury products of the rich and famous, and advertisers want to exploit this. On the other hand, if we could all afford to buy it, it wouldn’t be luxury consumption. There are ways around this – for example, Gucci makes its name with impossibly expensive clothes, but makes much of its profits by attaching its brand name, and the associated high markups, to lower-priced products like sunglasses.
Of course, I’m using “luxury” in a special sense here. Refrigerators were once available only to the wealthy, but they are valuable because they are useful. Now they are cheap and widely available (note that other items, like university education are going in the opposite direction), but this isn’t a problem. By contrast, the kind of luxury I’m talking about, represented most clearly by high fashion relies on exclusiveness for its value. In the end, this is a zero-sum game, which probably explains some of the oddities of fashion.
Edited in response to comments
The cost of the war
David Leonhardt has a nice piece in the New York Times on the opportunity cost of the trillion dollar Iraq war. Leonhardt does a good job of getting the concept across without actually using the economic jargon. Coincidentally, I have a piece in tomorrow’s (Thursday’s) Fin, making the same point, not for the first time, along with a reference to the work Kahneman and Renshon on psychological biases to hawkishness.
Yet more on Stern (quicklinks and brief summaries)
Megan McArdle has a generally sensible post on the main issues, though I disagree on some points as I note in comments, and I still don’t see that this has any bearing on the rights and wrongs of abortion (except relative to the obviously silly position that we are morally obliged to have as many children as possible).
Arnold Kling makes it clear that he doesn’t understand the mathematics of discounting. The first comment, by Michael Sullivan gets it right, but there’s no response or correction so far from Kling. Kling has now corrected his post.
James Annan links to this piece by Paul Baer,. Baer puts the view (with which I have some sympathy) that Stern underestimates the costs of the melting of the Arctic ice cap, which could happen even with stabilisation at 550ppm.
I definitely need to come back to the issue of the costs of global warming. My general view is that, while Stern’s choice of discount rate is at the low end, the Review badly underestimates the social cost of the damage to natural ecosystems that will inevitably arise from global warming.
Non sequitur (Crossposted at CT)
In the Monday Message Board, Michael Greinecker points to a truly strange response to arguments for a zero rate of social time preference.
Crucial quote
I found myself becoming very curious whether economists who support Sir Nicholas’s social discount rate of zero, such as econ bloggers John Quiggin and Brad DeLong, identify themselves as pro-choice or pro-life, and whether they had considered the Stern Report from this angle.
My response has been anticipated by a commenter who observes
Strange as it may seem to Economist writers, there are phenomena in the world that aren’t particularly illuminated by applying economic concepts. Attitudes towards abortion have nothing at all to do with discounting rates.
Others in the comments thread spell this out.
One odd feature of the Economist blog is that contributions are anonymous. I know that Megan McArdle (aka Jane Galt) has something to with the site. While I’m used to pseudonymous commenters, most economics bloggers are (as Matt Yglesias puts it) proudly eponymous, or at least easily identified, and I find this a more satisfactory mode for arguing about issues like the Stern Review, though can’t exactly say why.
Discounting and impatience with overlapping generations (Crossposted at CT)
During the discussion of discounting and the Stern Review, I got an email raising a point that I had already been worrying about. In discussing costs and benefits in 2100, I and others routinely refer to future generations, and in a sense that’s right, since the people involved in the discussion won’t be around then. But, children alive now have a reasonable chance of living to 2100 – quite a good chance if life expectancy keeps rising. Economists often deal with this kind of thing by modelling a series of overlapping generations, but I haven’t seen much discussion of this in relation to benefit-cost analysis, though no doubt it’s in the literature somewhere.
I finally got around to thinking about this, and in particular the following question. Suppose we accept an ethical framework in which everyone now alive matters equally. Suppose also that as individuals we have a consistently positive rate of time preference, preferring to have higher utility now at the expense of less in the future, that is, more when we are young and less when we are old (this isn’t obvious by the way, but I’m assuming it for the sake of argument) . What is the appropriate pure rate of time preference for society as a whole?
My preliminary answer, somewhat surprisingly to me, is “Zero”. I’ll set out the outline of the formal argument over the fold, but the simple summary has two parts. First, since generations overlap, if, at all times, we treat all people now alive as equal then we must treat all people now and in the future as equal. Given this equality, positive individual rates of time preference translate not into a social preference for the present over the future but into a social policy that consistently puts more weight on the welfare of people when they are young than when they are old.
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Flexibility as a zero-sum game
If you want to see the new flexible workforce, go to Walmart (hat-tip Tim Dunlop). As Tim’s title suggests, there’s nothing new about workers being told, from day to day, whether they’ll be wanted and for how long – look at any old movie about the waterfront for illustrations. All that’s new is that it’s being done by computer now. And flexibility, in cases like this, is a zero-sum concept: the more flexibility our bosses have to direct us, the less we have to run our own lives.
Relative prices
Obviously, I’m not the only one who gets annoyed by pieces pointing to purchases of consumer goods as evidence that rising inequality isn’t really a problem. But, as an economist, it particularly annoys me when this claim is put forward by people who claim to understand markets. I’ve been going on about this for yearsand years.
The most important thing that happens in markets is that relative prices change. If prices change, but income and preferences don’t, what we expect is that people will consume more of the goods and services for which prices have fallen and less of those for which prices have risen. So, when Jeff Taylor tells us that
With price points dropping below the $1000 mark, high-end TVs are moving down-market fast with Wal-Mart leading the way.
we can all cheer this renewed verification of the Law of Demand. But, of course, this tells us precisely nothing about what’s happening to inequality.
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John Quiggin 