Arnold Kling  

Climate Change vs. Entitlements

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Megan McArdle writes,


Certainly, the long-term economic outlook is extremely uncertain, but I’m not sure what “who knows!” is a better answer to cumulatively worsening climate problems than to cumulatively worsening fiscal problems.

Her point is that ignoring climate change because of model uncertainty is like ignoring the entitlement outlook because of model uncertainty. This is part of a theme of hers, which is that it is odd to worry about climate change and not about entitlements, or vice-versa. They are similar problems in that they involve the long term and uncertainty.

However, I would argue that there are differences. Perhaps the least important difference is that I have more confidence in the models that project trouble ahead for Medicare than in climate models.

The most important difference is that we can improve the entitlement outlook costlessly. The problem with entitlements is that we are promising more than we can deliver (at least if the economic projections are reasonably correct). Suppose that we raise the age of eligibility for Social Security and Medicare for people under 50 to something like 72, and then we index that age for longevity. This will change what we promise. We still have the option, down the road, of delivering more benefits to people now under 50. But lowering what we promise them helps forestall the situation in which we either renege on our promise or we raise tax rates ginormously to try to keep our promises.

To appease the economic models of entitlements, we don't have to make any sacrifices today--we just have to make more conservative promises going forward. To appease the global warming models, we have to make rather large sacrifices of output.

Suppose it were the other way around, and that there were a global warming policy that cost nothing if it subsequently turns out that the models are incorrect, while fixing entitlements would cause irreversible losses in output. In that case, I would be all for taking steps to deal with global warming and strongly against taking steps to curb entitlements.


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COMMENTS (15 to date)
Randy writes:

Arnold,

I agree with the principle but not the details. The time to establish the agreement is on the date the individual starts working. To tell a 50 year old worker that he or she has to wait an additional so many years to receive benefits, or to reduce in any way the benefits that he or she has been working toward over the past three or so decades, is still a broken promise.

I am aware that the political class can and will adjust the program to ensure that it continues to turn a profit. In doing so they will be reneging on their promise. There is no value to me or my children in sugar coating the situation. There is considerable value to my children in stating the facts clearly - so that the next time these bastards propose a similar scam it will be recognized as a scam.

Dave writes:

"Costlessly"?

You're just applying a narrow definition of cost that doesn't include the incidents of what you're quaintly calling "chang[ing] what we promise" -- colloquially known as "breaking our promises."

(I.e., Randy is right.)

Chuck writes:

I think a more important distinction is the degree of control we have over global warming vs. entitlements.

We can stop paying Medicare any time we want.

We can't stop global warming any time we want, because we can't magically un-emit CO2. If we stopped burning all fossil fuels today, CO2 levels would not revert to normal overnight. It will take many many years.

8 writes:

Let's pay for climate change with Medicare cuts. It's win-win.

Mike Moffatt writes:

"To appease the economic models of entitlements, we don't have to make any sacrifices today--we just have to make more conservative promises going forward. To appease the global warming models, we have to make rather large sacrifices of output."

No we don't. Here's a policy that would reduce CO2 output and increase GDP - increase carbon taxes and make significant cuts to corporate income taxes.

You might suggest such a policy is politically infeasible (and you're likely to be correct), but can't the same thing be said about your policy proposal?

Ray G writes:

The more salient point is that economic promises are totally within our ability to change for better or worse, . . .

but we have no ability to alter the climate, warmer or cooler, better or worse.

Placing huge economic bets on such an unknown and unsettled theory such as anthropogenic global warming is akin to doubling down on a long shot, while altering or "breaking" the promise of certain entitlements is relatively an easily known issue.

Jody writes:

Minor point: that was Jon Henke guestblogging for Megan.

Craig Hubley writes:

"The most important difference is that we can improve the entitlement outlook costlessly. "

This is wrong. That's not a difference, it's a similarity. In almost all cases reported by the corporations and cities that make major emissions cuts, they report that the other efficiencies realized from redesigning their work processes more than pay for that effort - they even pay for more than the cost of offsets. The City of Chicago for instance had no problem starting and sustaining a voluntary carbon offset program for precisely this reason, and DuPont was one of the companies that reported the extremely positive effect on their bottom line. Bill Clinton quotes other examples in his public talks. This is not a controversial claim.

Lovins, Lovins, Hawken, in Natural Capitalism, 1999, estimate that up to 90 per cent of US energy use is waste. Waste. Doing nothing for anyone except Big Oil - what's good for them is bad for everyone else.

"Suppose it were the other way around, and that there were a global warming policy that cost nothing if it subsequently turns out that the models are incorrect, while fixing entitlements would cause irreversible losses in output. In that case, I would be all for taking steps to deal with global warming and strongly against taking steps to curb entitlements."

It IS that "other" way around. Cutting energy waste and replacing wasteful policies like more highway building with sane ones like more transit and telework costs nothing if the warming models are incorrect, and have other benefits like saving time on the roads and smog and accidents.

Similarly, upgrading appliances and housing, as the UK is doing by requiring zero-carbon housing for all new builds by 2016, makes it easier to do remote energy management, peak load shifting, and prevents having to build expensive new power plants. The fact that such grids, appliances and housing are by definition "smart" also makes it easier to support remote medical monitoring, security and fire management systems and other things an aging population desperately needs.

So the only "irreversible losses in output" are from continued toleration of waste and investment in waste-producing infrastructure of the sort the US built in the last century.

Given how profoundly wrong your assumptions are on the climate matter, there seems little point in examining your opinion on anything else. I suggest strongly you look at the issues above and withdraw this post. There is no way to defend your strange opinion other than by resorting to outright liars who similarly distort facts, many of whom are lobbyists on Capitol Hill.

Bob Knaus writes:

Every year we all get a statement in the mail from the Social Security Adminisrtation. On Page 2 of the statement, the following appears in bold letters:

*Your estimated benefits are based on current law. Congress has made changes to the law in the past and can do so at any time. The law governing benefit amounts may change because, by 2041, the payroll taxes collected will be enough to pay only about 75 percent of scheduled benefits.

What is all this talk of Social Security being a "promise?" The government could not possibly make it clearer that there is no promise. Language similar to this has been in the annual statement for many years.

Sometimes, to learn the truth, you just need to look at the obvious.

Lord writes:

Hardly a clearer case of bias can be suggested. Medicare reform costless and global warming costly. If you don't change anything how could you presume to tell? I am all for experimenting to find out. I think we will find Medicare reform costly and global warming cheap, but if we don't that can be incorporated in our response. On the positive side, we may be seeing global warming take care of itself as oil is already making for a far greater force than any global warming proposals suggested.

Mike Moffatt writes:

I highly recommend seeing Mankiw's article in tomorrow's NY Times - he advocates the same policy change as I do a few messages ago.

My challenge to Kling - Can you come up with an even remotely plausible scenario where the policy Mankiw describes would lower U.S. GDP?

aaron writes:

I agree with Craig, we should just start calling everything smart, zero-carbon, healthy, and fiscally solvent and all our our problems will be solved by definition.

Randy writes:

Bob Knaus,

Good point, but consider the phrase, "The law governing benefit amounts may change...". If we can't consider the law to be a promise, then what can we consider to be a promise? Why should we trust such "lawmakers" in anything? The answer, of course, is that we shouldn't.

Matt writes:

"My challenge to Kling - Can you come up with an even remotely plausible scenario where the policy Mankiw describes would lower U.S. GDP?"

Sure can, if Mankiw has bias.

What if corporations actually do receive government services? What do their 20,000 some odd lobbyist workers do in Washington except bargain for government services?

If we suddenly dropped the price for these services, then there would be 25,000 lobbyist workers in Washington, and they would be buying another 25% increase in government services.

Mankiw always neglects the other half of the bargain, government is a market place, it obeys the laws of efficient market equilibrium. I conclude that Mankiw wants bigger government, or bigger government services to corporations.

If I were Mankiw, I would charge 10% for domestic services and another 20% for international services of corporations operating in the USA.

Mike Moffatt writes:

"What if corporations actually do receive government services? What do their 20,000 some odd lobbyist workers do in Washington except bargain for government services"

What does that have to do with dropping corporate tax rates from 35% to 25% and raising the gas tax? I'm not seeing the connection at all.

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