Friday, March 13, 2009

Wait, Since When? (Update: Oh. Since Never.)

Update: I take it all back. See the bottom of this post.

In my current line of work (energy industry research), I come across quite a few government research reports, and generally I need to suspend my Austrian-ness and libertarian-ness as I read them in order to avoid getting frustrated. It's not that they're poorly written; in fact, they tend to be really well researched and thought out, and it's incredibly valuable to have access to them. But as one might gather from this post, there are sometimes little tidbits in them that make me want to pull my hair out. Moreover, they almost never make it a point to mention things like government failure, and are very often ignorantly perfectionist and guilty of the nirvana fallacy.

So I was very surprised to stumble across a report from the Congressional Budget Office, The Economics of Climate Change: A Primer, which described the problem facing policymakers like this:
The Earth’s atmosphere is a global, open-access resource that no one owns, that everyone depends on, and that absorbs emissions from an enormous variety of natural and human activities. As such, it is vulnerable to overuse, and the climate is vulnerable to degradation—a problem known as the tragedy of the commons. The atmosphere’s global nature makes it very difficult for communities and
nations to agree on and enforce individual rights to and responsibilities for its use.

With rights and responsibilities difficult to delineate and agreements a challenge to reach, markets may not develop to allocate atmospheric resources effectively. It may therefore fall to governments to develop alternative policies for addressing the risks from climate change. And because the causes and consequences of such change are global, effective policies will probably require extensive cooperation among countries with very different circumstances and interests.

However, governments may also fail to allocate resources effectively, and international cooperation will be extremely hard to achieve as well. Developed countries, which are responsible for the overwhelming bulk of emissions, will be reluctant to take on increasingly expensive unilateral commitments while there are inexpensive opportunities to constrain emissions in developing countries. But developing nations, which are expected to be the chief source of emissions growth in the future, will also be reluctant to adopt policies that constrain emissions and thereby limit their potential for economic growth -- particularly when they have contributed so little to the historical rise in atmospheric greenhouse gas concentrations and may suffer disproportionately more of the negative effects if nothing is done.

The bolding in the above is mine. I honestly don't think I can think of another example of a central government publication being so good about acknowledging the power of spontaneous order and the need to avoid the Nirvana fallacy. So kudos goes to Robert Shackleton of the CBO's Macroeconomic Analysis Division, who wrote the study, for not sounding like someone who's ignorant of economic theory! I'm just starting to read through this report, but I'm already looking forward to hearing what he will have to say.

Those who have followed my work will be aware that I am generally hesitant to endorse the approach to the issue of climate change which treats the problem as a question about the most efficient allocation of social resources. It seems to me that efficiency considerations can only justify coercive and centrally organized social engineering in rather extreme situations, and I am not fully convinced that the specter of climate change qualifies (or that if it did, the currently popular policy approaches would be the appropriate way to handle the problem). And looking through the table of contents in Shackleton's report, it doesn't appear that he considers these issues. But this is typical in the mainstream discourse, and I am not entirely surprised -- I can't hold it against him.

However, I can hold it in favor of former CBO Director Peter Orszag, who mentioned my point of view in a presentation at Wellesley College in October. On the 13th slide of his presentation, Orszag wrote:
  • Alternative view: Valuation of future benefits should be viewed primarily as a decision about equity rather than as a traditional investment decision.

  • But viewed as an equity issue, inconsistencies arise relative to how other intergenerational trade-offs are analyzed

  • Of course, I don't think Orszag is right to brush aside my approach in such a cavalier manner. And I certainly think that if "inconsistencies arise" when policies are considered from the standpoint of equity, then that seems like a problem for the views which are made inconsistent, and not the idea that policies should be based on equity. But the greater point is that at least Orszag is aware enough of what's going on to bring up this issue.

    And this concludes my statist love-fest. You can all go back to your various degrees of distrust, dissent, and anarchist tendencies now.


    Ugh. I take back all my love for Shackleton. Way to break my heart, man! Enjoy:
    The atmosphere and climate are part of the stock of natural resources available to people to satisfy their needs and wants over time. From an economic point of view, climate policy involves measuring and comparing the values that people place on resources, across alternative uses and at different points in time, and applying the results to choose a course of action. An effective policy would balance the benefits and costs of using the atmosphere and distribute those benefits and costs among people in an acceptable way.

    And by "Enjoy," I mean, "Try not to break something. It'll be okay."

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