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    Are economists erring on climate change?

    Wed, 02/09/2011 - 17:18 EDT - The Economist - Free Exchange Blog
    • RDF10

    IN AN interesting piece at the environmental publication Grist, David Roberts looks at the way in which climate scientists and economists often butt heads over policy recommendations. The scientists, he says, continue to pull in new data on the pace of change and suggest that catastrophe may loom if the world doesn't make drastic cuts to emissions by the middle of the century. Economists, on the other hand, tend to be more optimistic about humanity's ability to weather (pardon) change and adapt. The analyses of an economist like William Nordhaus indicate that climate change will only slightly reduce growth rates over the long run, and so only minimal steps are justified now to mitigate the impact of greenhouse has emissions.But how does one square such a sanguine take with the apocalyptic findings from those studying the earth's climate? Mr Roberts highlights a couple of factors. One is the economist's assumption that growth will continue, such that future populations will be much richer than we are right now and will therefore be better able to handle the impacts of climate change. Of course, for this to be true, one has to assume that climate change itself won't disrupt growth by too much. And one has to shrug off hypotheses like Tyler Cowen's, which suggest that growth rates have slowed since the 1970s and may continue to underperform the expectations we developed during the 20th century.But the profession isn't united behind the view that everything will be ok. Mr Roberts goes on:[Economists] will admit that their models aren't very good at incorporating large short-term shocks. The "long tail" possibilities in climate science -- the low-probability, high-impact stuff like ice shelves collapsing or thermohaline circulation shutting down -- completely borks the models. You start seeing wild, arbitrary swings in model projections based on small adjustments in input assumptions. The models start saying, in essence, "hell if I know!" (Economist Martin Weitzman has done good work on this; Romm has a digestible summary.)When economists run into the limitations of their models, they tend to heed the Wittgensteinian injunction: Whereof one cannot speak, thereof one must be silent. They don't feel comfortable making policy recommendations without solid modeling to back it up. Giving counsel in the face gigantic, unquantifiable risks starts to feel less like science and more like an exercise in politics or ethics. Heaven forbid.Let me just add a few thoughts. Economists are by nature conservative, with a small c, in the sense that they're reluctant to endorse big policy shifts without clear evidence of the benefits. And it's difficult to be sure of the trade-offs involved in these recommended policy choices. Modeling the impact of climate change on weather patterns is difficult enough, without then extending that analysis to forecast effects on things like crop yields and water supplies, and thence on to GDP growth rates. Economists want to be careful. They're also concerned that efforts to boost green investments may lead to boondoggles rather than valuable new technologies. If they can't be sure that resources shifted from normal private investments toward government-sponsored alternative technologies will pay off in big drops in emissions, then they'll often opt for what they see as the safe route—normal market economy activity and growth.Others recommend adopting some policies now as an insurance policy against apocalyptic tail outcomes. That seems sensible, but it's still difficult to know what level of insurance is appropriate to purchase. If you can confidently answer how much the world should pay to avoid apocalypse, then you've gone a long way toward answering how much the world should pay to achieve an optimum level of climate mitigation, and obviously economists haven't gotten to that point yet.In the face of this uncertainty, many economists nonetheless remain reasonably optimistic, and not entirely without reason. A half century is a very long time. Economies tend to be very flexible over such long time frames. Populations are highly mobile during that kind of window—think about how Detroit has emptied out since 1980. Consumption baskets and technologies can respond well over a five-decade period. I'm probably as confident as anyone that given current temperature projections, measured output won't perform badly at all through 2050, or even through 2100.But there are a few caveats worth noting. One is that economic resiliency can co-exist quite easily with significant levels of human suffering:Un-mitigated climate change is going to be like Operation Rolling Thunder. A lot of people are going to die. A lot of people are going to be maimed. A lot of existing physical infrastructure will be destroyed. The extent to which pulverizing Vietnam with high explosives didn’t alter the country’s long-term trajectory is fascinating, but obviously constitutes cold comfort to mothers with dead children or people with no legs. As Kahn notes, the negative impact of climate change will fall disproportionately on the global poor and the elderly. If the entire population of Bangladesh dropped dead tomorrow, per capita GDP would go up. A 20 percent increase in the death rate of Americans over the age of 65 would cause our per capita growth rate to accelerate. It’s important to understand these facts, but it’s strange to think of them as optimistic scenarios...Another is that unlike economies, political systems can be quite brittle. When you look at historical Jared Diamond collapse scenarios, what you see is that they're hyper-local. A complex society develops within a local environment, and when the local environmental conditions change the society collapses. But in the modern world, even substantial local environmental collapses tend not to lead to societal implosion. If Chinese crops fail, China doesn't end; it imports grain from elsewhere. But the ability to limit the damage of modern crises depends upon the institutions that support a liberal global economy, and institutions aren't always as flexible as economies. The world has this marvelous grain market, but if price increases lead to export-restrictions then that grain market suddenly fails. And if the grain markets fail, the unstable governments kept in place only by their ability to keep local markets provisioned fall. And if the governments fall, the refugees will seek asylum elsewhere, and if that happens then borders will be overwhelmed, and who knows what conflicts may erupt.In other words, I feel fairly comfortable arguing that a modern economy can handle the stresses of climate change reasonably well; economies are built to handle big change. I feel very nervous about the ability of various political systems to survive temperatures unprecedented in human history. Many political systems rely explicitly on stability to survive, and even those capable of handling climate impacts may struggle to handle the knock-on effects of climate impacts on their more vulnerable neighbours. And as political systems are disrupted, it will become more difficult to sustain growth.But how exactly does one model that? It's very difficult to say. So should governments do as some climate scientists recommend and begin plowing money into deployment of green power generation? Well, that's not clear either; there are opportunity costs to doing so. This needn't be a recipe for paralysis, however. Economists and climate scientists can certainly agree on many things that should be done: carbon pricing, elimination of fossil fuel subsidies, subsidisation of basic research, and so on. But then one is forced to confront the problem that Washington doesn't appear to be interested in optimal policies.At this point, environmentalists shift to arguing that the economist's reticence plays an outright pernicious role. Because economists are too conservative to call for ambitious building programmes without more clarity on the trade-offs, it's argued, they convey to policymakers that the situation is not, in fact, that dire. If economists were running around with their hair on fire, Congress might respond.I'm sceptical. Economists aren't always very successful at getting the policies they want, and when they are, it's often because their prescriptions fit the goals of established interests. That's clearly not the case here. All the same, it seems clear that economists have yet to put together a satisfactory analytical framework for addressing the climate crisis. Well-meaning political leaders need better ways of thinking about how to manage the trade-offs involved, and economists aren't yet providing them. If they can't do better, policy will ultimately either fall short of what's necessary, or run off in other directions unguided by their recommendations.

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