Stern's critics respond to Stern's response to critiques of Stern Review

First there was the Stern Review. Then came a slew of critiques, which were promptly followed by a defense by Simon Dietz and Stern himself in the same volume of the Review of Environmental Economics and Policy (REEP).

Now on to round four: All four original critics get another stab in the latest edition of REEP. Robert Mendelsohn concludes his section by stating that:

Economic theory and empirical facts teach us that climate policy should follow a moderate course. Mitigation should begin modestly but globally and gradually increase over time.

Not so fast.

The statement about economic theory is true in general: it's cheapest to start slow and ramp up mitigation over time. But it does not yet address the question of how much we should do in the first place.

Here's again where Weitzman comes in. He says that climate change is largely an insurance problem. It's not about a degree or two of warming. It's about potentially catastrophic events.

Treating climate change as an insurance problem prompts us to make deeper cuts now than traditional benefit-cost analysis would imply. So, in the words of Weitzman, Stern was right for the wrong reasons.

Comments

[robertdfeinman]

I wonder if the few remaining frogs are sitting around debating the Stern report.

[robertdfeinman]

I think any economist (or politician) who advocates a go slow policy should be willing to put a little skin in the game.

I suggest that they be required to take in one extended Bangladeshi family (not to exceed 20 people) who gets displaced by rising oceans.

Using the "magic" of compound interest and the expected discount rate this agreement will extend to their descendants as well. So if the displacement happens in, say, 40 years, then the present 20 person family, having grown to 100 people, will still be housed by the descendants of the present pundits.

[John Whitehead]

Robert,

Huh? And Alan Greenspan and the rest of the FOMC should be responsible for housing all families displaced by defaulting on their variable rate mortgages?

[happyjuggler0]

Bangladeshis will be able to fend for themselves if only their economy grew fast enough. decimating the developed world's economies and insisting that everyone else follow in the name of "saving the planet" seems like a case of the cure being worse than the disease.

Also, the precautionary principle means that there is no progress whatsoever, which means we're doomed whenever a natural apocalyptic disaster comes along that we should've "taken out insurance" on.

Why does Weitzman think artificial low probability high impact disasters are worse than natural ones? He reminds me of those who think a natural toxin is less deadly than an artificial toxin. They are both toxic. The insurance argument is bunk.

[ben]

"I suggest that they be required to take in one extended Bangladehi family (not to exceed 20 people) who gets displaced by rising oceans."

I think they would be happy to take in any such Bangladeshi families if they were given their share of the trillions of dollars that would be saved from not pursuing aggressive carbon reductions.

[robertdfeinman]

JW:
I hadn't thought of that, but it sounds like a good idea. (wink!)

Why don't you see anything troubling about people who influence public policy but suffer no consequences if their advice turns out to be harmful? Shouldn't moral hazard apply to economic pundits as well as CEO's and investors?

The issue with the Stern report is not an economic one, it is a moral one. How much does this generation owe future generations. Only economists would think of trying to put a dollar figure on this question. How much would you be willing to accept in money now to have the lifespan of your grandchildren cut by 20 years?

Perhaps if the question was framed in these terms people would see the real issue.

There is only one real question: does the present generation have the resources and expertise to make things better in the future? If so than they have a moral obligation to do so, if not then they have to decide how to distribute the limited abilities most effectively.

I'll start worrying about the expected growth rate 50 years hence after you get the money currently being spent on militarism put to better use. The US, especially, has no moral standing in the climate change discussion given our present use of scarce resources.

[John Whitehead]

Robert,

My opinion is that expert opinion and advice helps the policy process. If those who get it wrong have to bear unbearable costs then we wouldn't get much expert opinion and advice input into the policy process.

[robertdfeinman]

JW:
When the CEO of company gets things wrong he gets the ax, it's not much of a punishment, but it is something.

When Greenspan got something wrong, nothing happened (to him).

The problem is that much "advice" these days is politically (or ideologically) motivated. I'm willing to let someone off without consequence when they make a mistake based upon lack of knowledge or the inability to foretell the future. Tort law recognizes the difference between negligent medical mistakes and those which are "acts of god".

I don't have any solution. For every person who thinks that X is ideologically driven and being dishonest there is someone willing to take the opposite position. However, I do think that a bit of humility as in Japan wouldn't hurt. If you are entrusted with responsibility as a government or corporate official and things go badly under your watch, you take the blame and resign.

Grew Mankiw's column in the Sunday Times listed things he said "all" economists agreed on - like free trade. That is, he was making an appeal to authority for support for his own particular opinions. This is not a good basis for a discipline that wants to be consider a science. Galileo was right, all of Europe was wrong - authority is not a valid argument - data is.

If there really isn't enough to go on then perhaps people should just decline to give advice. Overconfidence may be as bad as ideology.

By the way, you didn't address the moral argument...