My nomination (within a circle of prima facie grownups who should know better, omitting children and wingnuts) goes to economist Karl SmithÂ´s post of 2 December on climate change. This is bravely entitled Â¨In Praise of Dirty Energy: There Are Worse Things Than Pollution and We Have ThemÂ¨.
We should pursue the development of fossil fuels as rapidly as possible including looking for ways to streamline regulation in North American regarding fossil fuel production. …
However, even if we have to face the warming, we face it in the future with a much richer and more progressive world. …
100 years is a long time in the industrial age. However, it is simply forever in the information age. There is an extremely high chance that the very nature of human society itself will have changed by that time in ways that render this entire issue moot.
Read the whole thing as a fine example of yahoo values, data-free scaremongering and reckless optimism, and an indifference to economic reasoning.
The last paragraph cited is self-refuting. ItÂ´s very likely to Smith that humans will stop needing food, transport, consumer durables, heating and cooling, and shelter because of an unspecified information singularity, as in Charles StrossÂ´ SF romp Accelerando. On the other hand, the risk of population losses on a genocidal scale as a result of well understood and carefully modelled climatic processes can be ignored.
The second paragraph at least reflects an actual argument. Future generations will very probably be richer and better able than us to afford the costs of adaptation and mitigation. However, this depends on how much. Faced with a trend in damage and adaptation costs rising to infinity, there is some point at which we should spend the money to mitigate. The equilibrium depends on the cost curves and the discount rate. You need a model to work it all out and infer whether the date is in the future (Nordhaus) or has already passed (Stern).
Amazingly, there have actually been attempts by economists to think about this: Stern, Quiggin (eg here), Weitzman, Nordhaus. Professor Smith is a professional economist. ItÂ´s very curious that he does not think it worthwhile to use the tools of economic analysis to address the most important question of public policy of our generation.
For example, one key issue in the debate. The use of high rates of time preference, rather than SternÂ´s and QuigginÂ´s near-zero, leads to discount rates of 5% or so. These imply a morally unacceptable indifference to the fate of our grandchildren, many of whom will still be alive in 2100 – their incomes and costs valued today at 1.04c on the dollar if we accept 5%.
As it stands, SmithÂ´s Micawberish paragraph simply illustrates the bounded rationality of risk-seeking aversion to losses : to avoid a certain loss, people will take substantial risks with an expected negative value exceeding it – though they would not take symmetrical risks to secure an equal gain. The fact that mitigation now involves modest costs to the lifestyle of Americans including Professor Smith is to him sufficient (un)reason to gamble his and my grandchildrenÂ´s lives to avoid it.
Loss aversion – an observed fact of human nature – leads to a paradox. Consider the equilibrium reached by a standard rational utility model. We suppose, following Nordhaus rather than Stern, that itÂ´s in the future. At that point, the rational thing to do is to launch the crash mitigation programme. (It is all about mitigation; the adaptation costs are a trivial consequence of our mitigation policy, whether action or inaction.)
The costs of this programme at that date are necessarily higher than they would have been under a mitigation-now scenario, as long as the inefficient early-start measures have some positive effect. But generation z will be richer than us, so they shouldnÂ´t mind, right? Their marginal utility of money will be lower than ours.
Not so, according to Kahneman and TverskyÂ´s empirically grounded prospect theory. Welfare gains are losses are evaluated relative to a changing baseline. The higher costs of mitigation will therefore be taken very seriously. In fact, thereÂ´s a very good chance generation z will simply repeat our own buck-passing loss-aversion analysis, and kick the can down the road to the next generation. Ainsi de suite, until catastrophe.
A form of reasoning that allows an avoidable catastrophe is unsound, however much itÂ´s embedded in human nature. The duty of scholars is to fight our cognitive illusions, not to parrot them.
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Wishing all our readers a fulfilling and enjoyable 2012 – and the same to your grandchildren and great-grandchildren in 2112.