David R. Henderson  

Climate Economists Base Their Alarm on Their Own Ethical Judgments

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Update below

The title above doesn't quite tell the story. It's hard to tell in just a title. That's why you need to read this post.

Unless you've been living in a cave, you probably know that when economists say that there is not much urgency to acting against global warming, we are accused of being "deniers."

So it comes as somewhat of a surprise that a recent survey of 365 economists who publish in the field of climate change shows that a majority of them, 59%, think climate change will have a negative impact by 2025 and that 37% of them think it will have a negative impact by 2050. These dates, especially 2025, aren't way far off, but still, I found that surprising.

By the way, Robert Murphy, whose post I will quote from liberally, doesn't quite get it right. He writes:

As the numbers indicate, 59 percent--a solid majority--thought that climate change would be beneficial for the global economy at least through the year 2025. Moreover, 37 percent of the experts thought that climate change would be beneficial to the global economy until at least the year 2050.

But one could think that it will have a negative impact by 2025 and that the impact starts, say, in 2017. If so, one would be in the 2025 category.

But wait. There's more. Murphy quotes David Roberts, who's touting this survey as a case for immediate action, as follows:

The median answer here is 2025, which is considerably earlier than many prominent economic models estimate. For instance, Tol's FUND model -- one of the three big models used in the field -- estimates that impacts will not be net negative until 2080.

So why do many of these economists go beyond some "prominent economic models?"

It's because of the weight they think should be given to benefits to future generations versus costs to current generations. A standard way to do that is to use a market interest rate. But 44% of them want to substitute their own ethical judgments about interest rates for judgments that are revealed in market interest rates. Specifically, 16% of them would use a constant interest rate "calibrated using ethical parameters." And 28% would use a declining interest rate "calibrated using ethical parameters." Both methods would weight benefits to future generations--who, by the way, are likely to be way wealthier than we are--more heavily than market interest rates would do.

Murphy comments:

Although they may have expertise on certain matters of analysis, professional economists have no claim to superior ethical standards than the community at large. Economists understand the impact of discount rates on climate policy more than the average person, but economists don't have any superior standing in the debate over how we should weigh future welfare against present outcomes. Market discount rates take into account how the community at large balances the present versus the future. To throw out this "consensus" in favor of an arbitrary number picked by a group of experts is a very dubious move, which should at least be explicitly debated. The choice of the appropriate discount rate involves considerations that extend far beyond a mere technical detail, and as such a few hundred economists shouldn't dictate policy on this criterion. (italics in original)

Update:
Fioccina, in a comment below, points out that the clause I wrote above, "59% think climate change will have a negative impact by 2025 and 37% of them think it will have a negative impact by 2050" is logically impossible. The graph I'm reporting on is kind of sloppy, but I made multiple errors, even more errors than I accused Robert Murphy of making. That's what happens when I write in a hurry so that I can close my computer and have dinner.

Here's what I think is the right interpretation:
59% think climate change is not having a negative impact yet. 22% think it will have a negative impact by 2025 and 26% think it will have a negative impact between 2025 and 2050. Of the remaining 11%, 9 percentage points of them (forgive the awkwardness, but I want to distinguish between percents and percentage points and I would rather get the grammar iffy to get the arithmetic right) think it will have a negative impact sometime after 2050 and 2 percentage points of them think it will not have a negative effect.


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COMMENTS (9 to date)
Josiah writes:

If most economists think climate change will start having net negative impact on the global economy within the next ten years instead of in 65 years, then it's probably not an issue of discount rates.

If I had to guess, I'd say the discrepancy is due to an ambiguity in how you define a net negative effect. The general conclusion of the economic research in this area is that warming has net beneficial effects up to around 1.1C. After that the costs outweigh the benefits, but it takes until around 2C for these net costs to cancel out the net benefits gained during the first 1.1C of warming.

So when does the net effect of climate change turn negative, at 1.1C or at 2C? If you go with 1.1C, then 2025 might be a good estimate. If you go with 2C then 2080 is more plausible.

BC writes:

Under Social Security, future generations will have to make payments to the current generation. Thus, we don't really need to decide on climate change actions now.

If, in the future, it turns out that future generations are harmed by climate change, we can simply cancel or reduce Social Security benefits paid by them to the current generation to make up for it. If it turns out that climate change causes very little damage or even has mild benefits, then the Social Security benefits can be paid in full. In effect, current generation's Social Security benefits can be held in escrow to cover any damages from climate change. Problem solved.

Don Boudreaux writes:

How many of these economists are putting their money where their mouths are? 2025 is a mere nine years away. Were my confidence that X would occur (or worsen) in nine years so great that I fancy myself justified to offer public-policy advice based upon this prediction, I would also take steps to use my knowledge to enrich myself. (My self-interested actions would also, in addition to lending credibility to my policy recommendations, help direct resources into uses that would benefit my fellow human beings.)

So unless these economists believe that government will, with sufficient likelihood, take steps to avoid the climate-change problems predicted to arrive by 2025, they should be observed, for example, to

- invest in land in the upper midwestern U.S. and in inland Canada;
- invest in manufacturers and installers of air-conditioning systems;
- invest in pharmaceutical companies who have patents that extend beyond 2025 on medicines to treat illnesses that are especially prevalent in the tropics and subtropics;
- go short in companies that specialize in attracting tourists to sub-tropical and tropical destinations on or near seacoasts;
- go short on the currently most southerly located ski resorts in the northern hemisphere and go long in the most northerly located ones;
- more generally, invest in companies and industries that are likely to enjoy increased business when the ill-effects of climate change really kick in, and go short in companies and industries that are especially likely to suffer loss of business as a result of a warming global climate.

My list, I'm sure, is incomplete. But I offer it in all seriousness as a guide to the sorts of actions that people should take - that serious people would take - if they really believe that climate change will soon inflict serious negative consequences upon humanity.

ThomasH writes:

But of course value judgements have to go into the decision about what incentives to create and when to avoid and investments to mitigate the harmful effects of the accumulation of CO2 in the atmosphere. Has anyone suggested otherwise? The interest rate is one channel and another is how much to value harm to people in other countries. Perhaps there are models that show that the optimal carbon tax in 2016 is zero and will remain so until 20xx, but the article referenced does not lead to that conclusion.

Greg G writes:

We live in a world where most economic decisions must be made under conditions that fall very far short of certainty.

It is neither surprising nor bad that people are influenced by ethical considerations when making such judgments. It is far from obvious in a world where tensions are rising and nuclear weapons are proliferating that future generations will be better off than we are.

Josiah writes:

Prof. Boudreaux,

If you're interested, here is a book on precisely the topic you mentioned.

ChrisA writes:

While I am certainly no proponent for aggressive action to counter "global warming", especially as is pointed out in the OP that the premise is that the future generations experiencing this are richer than today - isn't there a common principle in law that damage done to third parties should be compensated by more than just market prices to cover the "insult" component? So would that not justify higher than market interest rates in damage costs?

Floccina writes:
So it comes as somewhat of a surprise that a recent survey of 365 economists who publish in the field of climate change shows that a majority of them, 59%, think climate change will have a negative impact by 2025 and that 37% of them think it will have a negative impact by 2050. These dates, especially 2025, aren't way far off, but still, I found that surprising.

Should that read:
"So it comes as somewhat of a surprise that a recent survey of 365 economists who publish in the field of climate change shows that a majority of them, 59%, think climate change will have a negative impact by 2025 and that 37% of them think it will not have a negative impact until 2050."

If it had a negative impact by 2025, it would certainly have a negative impact by 2050. So how could the number be smaller for 2050?

David R. Henderson writes:

@Fioccina,
Good catch. Thanks. But yours isn’t quite right either. I’ll update above in a minute.

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