Arnold Kling

What Kind of Global Warming Skeptic?

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'Jane Galt' writes,


As I read it, the Stern Report basically assumes that there are low diminishing returns to income (it sets the elasticity of marginal utility of consumption, or η, to 1). It strikes me as odd to see the left half of the blogosphere supporting this proposition; I'm fairly sure that John Quiggin, who is a social democrat, thinks it is higher than that.

Once again, I feel the urge to try to get rid of the jargon and the Greek letters and explain what's going on. If person A has $1 million in wealth and person B has $10,000 in total wealth, and you can increase "total" wealth by doing something that takes $10 from B (the poor chap) and giving $11 to A (the rich guy), should you do so?

The position of someone on the Left would ordinarily be, "No." But when it comes to the issue of how much environmental damage we should leave it for our wealthy descendants to clean up, the Stern report is saying "Yes, increase total wealth." See my earlier post. And many on the Left are cheering them on.

My worst fear is that instead of using restructuring the economy as a means to fight global warming, the left aims to use the global warming issue as a means to restructure the economy. The rush to defend the Stern report's discounting approach, at what seems to me a huge cost of overall intellectual inconsistency, serves to reinforce this fear.

'Jane Galt' does seek to distance herself from me on the issue of global warming skepticism.

UPDATE: John Quiggin says that I am mis-reading eta, a point made by the first commenter below. I think they're right, and I'm wrong. This section says,


[eta] measures how fast the value of an increment in consumption falls as consumption rises, for example when it is equal to one, an extra unit to Person A, with three times the consumption of Person B, would have one third the value to that if the extra unit went to Person B. If the elasticity were equal to two, the extra unit would have one ninth of the value.

So, using the Stern report methodology, the rich guy has to gain $1001 from the transfer of $10 from the poor dude in order for this to be a "socially desirable" change. I said it was $11. My bad.

I got into this defending Arnold Kling from scurrilous charges of hackery. I was not, as my opponents mistakenly assumed, defending him because we agree on Global Warming. we do not. I think global warming is happening...
"Global warming is happening" is too broad a statement. There are a number of propositions that one might buy into.

1. Average global temperatures in the past decade are higher than for any other ten-year period since 1900.

2. Climate models explain this rise.

3. The cause of the rise is CO2.

4. Temperatures will rise further in the coming decades.

5. Given the consequences predicted, we need to reduce CO2 emissions, even at a very high cost of lower economic growth.

This is not an exhaustive list, but it is sufficient to spell out where I am a skeptic and where I am not.

I am not a skeptic about the temperature data. I am a skeptic about climate models, because of the nature of the statistical problem (too many potential model specifications, too little data, too much trouble coming up with an appropriate way to time-aggregate the data), and because of the frequent use of the word "calibrated" as in "the models have been calibrated to fit historical climate data." (The Stern report used the c-word.) I am allergic to the word "calibrated." Whenever I see a paper in the American Economic Review that uses a "calibrated" model, my instinct is to skip it.

It troubles me that in order to connect CO2 to global warming, you pretty much need the models. If you just fit a simple bivariate model using CO2 and global average temperature, you would not be particularly confident that you had found a stable, well-fitting relationship. The climate modelers reassure themselves that when they add more subtle features they are getting better fits. That does not do as much for me as it does for them.

I think that if CO2 is a main causal variable, then we will see temperature increases going forward. Even if something else is the cause, that something else may be tending upward. So, suppose we had to bet on whether average global temps in 2010-2019 will be higher or lower than 2001-2009. I think if you gave me even odds, I'd bet on an increase. Maybe if you gave me 3 to 1 (I win $3 if I bet against a temperature rise and I win, I lose $1 if I lose), I'd bet against an increase. Hard to say.

Where I really get off the train, however, is at point 5--drastically reducing emissions at a high cost of economic growth. My slogan would be "Backwardness kills." I think that people in Bangladesh (or New Orleans, for that matter) are at least as threatened by economic and political backwardness as they are by coastal flooding.


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Michael E Sullivan writes:

"Once again, I feel the urge to try to get rid of the jargon and the Greek letters and explain what's going on. If person A has $1 million in wealth and person B has $10,000 in total wealth, and you can increase "total" wealth by doing something that takes $10 from B (the poor chap) and giving $11 to A (the rich guy), should you do so?"


I don't think that's a fair characterization. eta=1 represents log utility, so in fact, the Stern report is essentially saying that if you could take $10 from the poor chap and give the rich guy $1000 it's worth doing.

We might still argue with that, but on it's face, it seems somewhat more plausible to consider that acceptable, even if it's an unlikely stance for a leftist.

Part of the problem is that there is no clear prior distribution, unless you assume that today's generation has an indisputable claim to do whatever we want with the earth.

So the analogy of "taking $10 from the poor chap" is too much, because it carries the moral loading of losing something that was their rightful property, while it's not at all clear that we should or do carry a moral right to dump however much CO2 (or whatever) into the atmosphere as suits us with no thought to the potential consequences for future generations.

Also, many of the "poor chaps" we are talking about in the global warming debate are as comfortable and wealthy as anyone in recorded history, while many of the "rich folks" will be 2100 era Bangladeshis who will likely not be any richer than many of those "poor chaps". Yet the Stern model assumes they will be richer by a 3-4% per year social investment rate. It treats all current people, and all future people equally, even though current costs would hit the richest people now hardest, and future costs will hit poorer people hardest (the rich will have time and capital to prepare).

So I believe your argument on the extent of Stern's lack of discounting is overdone, even though I think you are right to be skeptical about the value of huge investments on climate change. Stern really is claiming that the avoided harm is much larger than the growth cost.

If you treat a stable earth climate as a right, given to future generations, then (assuming the calculations are correct, which I grant is a big assumption), you would frame the question as "Is it acceptable to confiscate $1000 from each of these rich people to give a paltry $10 to a similar number of the poor?" Certainly that's a tax and welfare plan that no reasonable conservative (and few leftists) would knowingly support, although sometimes unintended consequences give us equally dubious results.

Jane Galt writes:

I'm not sure "distance" is the right word; it implies I don't want to be associated with you, which couldn't be farther from the truth. ;-) We do disagree on some points, however, and I wanted to convince people that you don't need to be a global warming sceptic to be very wary of the Stern Report.

Calca writes:

Type M argument alert?

"My worst fear is that instead of using restructuring the economy as a means to fight global warming, the left aims to use the global warming issue as a means to restructure the economy."

I guess if someone's motivations are clearly stated (e.g. Chavez who says "death to capitalism") then it'ok to attack them.

US writes:

Michael

How do you estimate the regulatory cost distribution?

Even if you are right and Stern is wrong, so that the people in Bangladesh will still be poor in a 100 years, then to elaborate on Kling's last point; maybe the main reason people in Bangladesh will still be poor in the future is that we made the cheap energy sources unavailable to them by regulation?

As I see it, the countries with the greatest growth potential today are also the ones who stand to lose most by GW regulation, even though we do not observe these costs directly. Perhaps poor countries will be allowed to grow relatively unhindered via regulatory exceptions ect. But if they will be allowed to do so, this would just confirm the view that policymaking is what GW regulation will result in - not GW prevention.

thedude writes:

"My worst fear is that instead of using restructuring the economy as a means to fight global warming, the left aims to use the global warming issue as a means to restructure the economy."

I think Arnold hit on a key point here that causes my personal global warming skepticism. The kinds of solutions (beyond C02 credits) climate experts advocate can only be achieved through massive government regulation of the economy. Effectively socialism. All for something that might be caused by humans and that might be solved by humans. When I start hearing market solutions 1st and foremost from climate advocates rather than regulatory solutions I'll be much more inclined to believe their global warming predictions.

Brad Hutchings writes:

"My worst fear is that instead of using restructuring the economy as a means to fight global warming, the left aims to use the global warming issue as a means to restructure the economy."

It's the massive you know what in the punchbowl of this whole issue. Still fresh off their "victory" over CFCs from the Montral Protocol, the global warmers think they can pull the same routine with carbon. Anyone who questions any part of the story, from raw data to models to policy is branded a "denier". It's Type M for everyone in the debate. Might as well be armed...

Ville writes:

What I'm missing is why are most commenters, and arguably the poster, confusing between the science of global warming (i.e. climate science) and ways the projected changes could be averted or mitigated if any.

These are two completely separate issues and the latter is not a question climate science really even deals with - that's economics for the most part!

As a side note too: readers of this post / commenters / (and as a generalization) Americans should really really try to distance themselves more from the highly polarized left-right thinking.... that kind of thinking just leads to shouting Communist! at every turn somebody comes up with a way to internalize externalities.

Richard Pointer writes:

I was thinking about global warming the other day. With all the genetically modification that goes on today why couldn't we engineer our way out of this mess instead of regulate out of it? Forests are natural carbon sinks. Engineer a tree that sucks up carbon faster and stores it as biomass and that is your solution. I am sure planting trees would be cheaper than regulations.

EcoDude writes:

I was wondering if there is any academic critique of climate models from a time-series econometric perspective. If economists were to try and forcast over a 100 year period, people would be skeptical.

Any suggestions...?

Fundamentalist writes:

Ecodude writes "If economists were to try and forcast over a 100 year period, people would be skeptical?"

Excellent point, dude! GW scientists have enormous confidence in their models because they're not statistical, but deterministic. Still, they should be as skeptical of their models as people are of econometric models, especially since the climate models have been "calibrated," not validated.

John F. Opie writes:

Hi -

Not to play devil's advocate, but what is the problem with calibrated models?

I know what MY problem with calibrated models is, but what is yours?

John

Mr. Econotarian writes:

CFC production was easy to halt, because the poorest and most politically messed-up countries don't produce much or use much CFCs, and where they are produced and used there are reasonably priced replacements in these rich countries.

On the other hand, CO2 & methane greenhouse gases are produced and emitted everywhere by almost everybody. And while there probably are reasonably priced mechanisms to reduce their emission in rich countries, it really remains to be seen if there is much hope of reducing their emissions in many places around the world.

Genetic engineering is being investigated for CO2 emission reduction. Bacterial enzymes are being genetically engineered to efficiently convert cellulose to alcohols (like switchgrass), and also in terms of engineering bacteria or algae to create hydrogen from sunlight and water.

aaron writes:

I read the JG post before coming here. While I was reading it I thought that Stern's 0 pure time preference assumption is absurd, but I also noticed that recommonendations proposed would move us more toward an economy with a rate closer to 0.

aaron writes:

Hey, does anyone have a good method to track average global temperature? How about natural and anthro CO2 and other GHG emissions? And sinks?

How about making a futures market? Could we design quarterly and even monthly contracts? We should at least be able to do contracts for each year.

Michael Sullivan writes:

"Even if you are right and Stern is wrong, so that the people in Bangladesh will still be poor in a 100 years, then to elaborate on Kling's last point; maybe the main reason people in Bangladesh will still be poor in the future is that we made the cheap energy sources unavailable to them by regulation?"

It's not a question of being at odds with Stern about a prediction of what will happen to the Bangladesh economy. He's averaging the whole world, and I'm saying that's not totally realistic.

I beleive that Bangladesh will not be poor by todays standards in 100 years (i.e. that globalization will "work"). In fact if I had to bet over under on whether their GDP/capita in 2100 would be higher than the current GDP of the US expressed in constant dollars, I would bet on it being higher.

But a quick BOTE calculation indicates that it's unlikely to be an order of magnitude higher, the way that *our* wealth in 2100 probably will be. Play out the current rough trend of 2.5% real growth of the US, and 5% growth for Bangladesh long term using their current GDP/capita of $40000 and $400 respectively. In 94 years, we get Bangladesh with $63,000 per head, about 50% wealthier than the US is today. Not 10 times wealthier which is what the US will be under my projection ($520,000).

So to the extent that it's rich countries being hurt now and poorer countries being hurt later, we're making a sacrifice today to help people who are about as well off as we are in the future.

But to the extent that climate models are accurate, the problem is not an all or nothing problem. If only rich countries cut back on CO2 and methane emissions, that would mitigate the future damage. I agree that it's unreasonable to expect people who are relatively poor today to give up growth in service of their future, probably much richer descendants. I'm not sure that same calculus applies equally to rich countries.

That said, the arguments about alternate investments (like dealing with malaria/AIDS, hunger, education and infrastructure in Africa, making more foreign investment available in places like Bangladesh) are legitimate, *if* we plan to implement some of those alternate investments.

If we decide in fine libertarian fashion that "money can't solve the problem" and there is nothing to do about those alternate problems but leave the people in impoverished countries to pull themselves up by their own bootstraps (well... presumably all good libertarians at least favor demolishing various restrictive trade and immigration policies that actively hurt those countries' ability to do that), then those things don't qualify as "better alternate investments".

The only real alternate investment in that case is simply economic growth which can be used to remediate later. I would argue that uncertainty in the models argues for risk aversion rather than less action. Changing the atmosphere as litttle as possible until we know more is the risk averse strategy.

Michael Sullivan writes:

"I read the JG post before coming here. While I was reading it I thought that Stern's 0 pure time preference assumption is absurd, but I also noticed that recommonendations proposed would move us more toward an economy with a rate closer to 0."

Don't make the mistake that a lot of Stern's critics have, of confusing the rate of pure time preference with the discount rate.

Stern has chosen a very low rate of pure time preference, but he's also considering a social rate of return of, IIRC, around 2-3%. The discount rate includes both and ends up being just about equal to the the trend rate of growth in the global economy, which is a pretty reasonable choice for discount rate in this sort of problem, even if you disagree with it.

Rubric writes:

Ecodude,

Check out www.climateaudit.org for interesting critiques of the global warming models. Here is a fun post on the verification r2 for one of the models.

Cheers

Michael Sullivan writes:

"I read the JG post before coming here. While I was reading it I thought that Stern's 0 pure time preference assumption is absurd, but I also noticed that recommonendations proposed would move us more toward an economy with a rate closer to 0."

Don't make the mistake that a lot of Stern's critics have, of confusing the rate of pure time preference with the discount rate.

Stern has chosen a very low rate of pure time preference, but he's also considering a social rate of return of, IIRC, around 2-3%. The discount rate includes both and ends up being just about equal to the the trend rate of growth in the global economy, which is a pretty reasonable choice for discount rate in this sort of problem, even if you disagree with it.

aaron writes:

Richard, forests are not necesarily carbon sinks. New forests are carbon sinks, mature forests are not. Carbon absorbtion happens during the growth of wood. Once growth slows, the trees no longer act as much of a sink. And when plant material deteriates the CO2 absorbed over its life is released into the atmosphere again as both methane and CO2.

aaron writes:

Harvesting mature trees before they begin to deteriorate and using them for durable long-lasting goods would delay the release of GHG though.

aaron writes:

2-3% global gdp growth sounds low to me. I thought it would be more like 4. Ours is between 3 and 4%, and gdp growth is higher in developing countries vs. developed.

aaron writes:

CIA has world GDP growth at 4.7% for 2005. Developed countries tend to stabilize at 2-3%. Much of the world is not developed or developing. Lot's of potential for GDP growth to increase. 2-3% is definitely a low ball.

Barkley Rosser writes:

aaron,

Standard methods of timber cutting involve large amounts of burning scrap on site, involving large amounts of CO2 emissions.

John Quiggin writes:

"Where I really get off the train, however, is at point 5--drastically reducing emissions at a high cost of economic growth. "

But no-one is suggesting this. No serious estimate of the cost of stabilising concentrations at 500 ppm exceeds 5 per cent of GDP by 2050. This is a change in levels, so the implied reduction in the annual growth rate is 0.1 percentage points. Stern estimates 1 per cent (a reduction of 0.02 percentage points in growth) and 2 per cent of GDP (0.04 percentage points of growth) is a plausible midrange. All of this must be balanced against economic costs of doing nothing.

aaron writes:

John, since you're in the thread, I'm hoping you can save me some leg work. I was just wonder what the implicit discount rate is for Stern's model [I thought it was around 1.5%, a commenter above asserted that it was between 2-3% here and between 3-4% in a McArdle thread (same commenter)]. Thanks.

Also, I'm starting to come around to the thinking that the costs of GHG emmision reduction in developed countries may be low enough to justify the gamble, but there are still a whole lot small issues that keep from making the leap. Issues pop-up and fade from my memory periodically [and I am terrible at verbalizing them], but here are a few I've been thinking about and wish to investigate [but probably will never get around to]. Just thought it would be good to throw them out there.

1) Why estimate a pure rate of time preference when it can be measured/derived empirically (as the aggregate of investment decisions)?

2) How much of our 3.2% GDP growth comes from investment in faster growing and developing economies?

3) Why does it seem to be assumed that rate of time preference drives the discount rate and not vise-versa? Aren't time preferences implicit in the finicial instument we choose to create and supply eachother? (Time preference seems to be an internal assesment of personal risk, independent of the investment instrument. It varies person to person.)

4)Do you know any good reading (re: not sophmoric, like most industry writing. Short clear, and to the point.)? I am biased against long-windedness, I've never known it to be anything other than a tactic to hide shortcomings. Anything that can be said in 20 pages can be said under 3.

Hopefully I'll be able to clarify what I'm trying to get at in the future, but any attempt to decipher what I'm saying would be appreciated.

Barkley Rosser writes:

Stern used 0.1%. Nordhaus used 3% for short time horizon declining to 1% for 200 years and beyond. Sorry that I am not John Quiggen. He can modify if I am incorrect.

aaron writes:

Do you know why the declining rate over an increasing one? Or why he uses a rate lower than real GDP growth? Seems plain old wrong. Why does he think GDP growth will trend down?

aaron writes:

Oh, and thanks Barkley.

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