Friday, February 15, 2019
"The Economists' Statement," part 2
Recently, I received a request from Janet Yellen, chair of the Climate Leadership Council, to sign the “Economists’ Statement on Carbon Dividends.”
I won’t sign and have previously explained why. An expanded version recently appeared in Real Clear Energy. Please read, as it makes my case a little more clearly, and will help make the rest of this post intelligible.
One of my former students read it, and while he concurred, he asked me if I would sign if the statement if the tax had been calculated differently, i.e. according to the modeling of Lemoine and Rudik. That's a great question, and my "maybe" response brought a "we're surprised" response from two other students. I post my answers here because I think they might be of interest to anyone who is thoughtful and interested in the climate change issue.
[REDACTED] writes: Question about your article - had the tax been better calculated, would you have signed?
Steele responds: I would reconsider. I considered this one until I read the proposal itself.
I am hesitant to sign petitions regardless; but if they had endorsed the L&R approach I might sign. It's not so much exact numbers as it is the approach; and I really disagree with the "precautionary principle" idea... These "climate plans" are not benefit-cost responses to what science tells us, these are responses to worst case scenarios, which have been further exaggerated by some for ulterior motives.
I think "Economists' Plan" is attempt to head off Green New Deal and similar socialist Trojan horses; I have some respect for that. But there are two fronts on which the socialists must be confronted. Not simply their bad "solution," but also the fabricated immediate urgency. Both are extremely costly. There's a very good book on precautionary principle (pp) by Cass Sunstein, "Laws of Fear." He entirely destroys pp as a coherent guide to anything rational, it's just a panic inducer.
But let's agree that climate change is a serious threat and accept the mid-range, non outlier estimates of the potential damage. The L&R approach is likely better than L&R calculate, because it also allows time to 1) develop carbon removal technology, which they note but don't count, 2) translate greater wealth into greater resilience, reducing harm, and 3) perfect carbon-free tech that *actually works.*
Furthermore, as you know, I argue that the space economy will grow explosively. In less than 100 years outer space is where we'll do manufacturing that has negative terrestrial side effects... *IF* we can prevent the "comrades" from shutting down world's economy and turning us into Venezuela.
So yes, I would probably sign. (Note L&R is projected to cost anywhere from 1/10 to 1/100th what Climate Council's plan would cost.)
Two other students expressed a bit of surprise that I would contemplate a carbon tax, given that I'm a libertarian. How does that follow? Good question. Here's my response.
Since I've shocked both of you by suggesting I could conceivably support a carbon tax policy, let me clarify. An effective Pigovian carbon tax would solve the climate problem by making users of fossil fuel take into account the effects of use on climate. The Climate Council’s proposal (the proposal I wouldn’t sign) uses a fairly standard economic result to try to calculate the tax that would accomplish this while inflicting the least collateral damage on people (on “the economy,” but let’s remember that means people, especially the less prosperous who are less able to cope with rising prices).
Economists, including the Climate Council, have calculated the tax according to the maximum amount of excess greenhouse gasses that can be put into the atmosphere w/o raising average temp above, say, 2C. A recent paper by two economists (Lemoine & Rudik, American Economic Review, Nov. 2017) shows there’s a conceptual error in this. For technical reasons I’ll skip here, if one instead designs the tax according to temperature instead of carbon stock, we find that the optimal tax costs 1/10 or less what the Climate Council recommends. That is, the Council's proposed tax is at least ten times too high. Given that standard calculations of the effects of global warming are that it could cost a percentage point of GDP growth by 2100, the Lemoine & Rudik tax is quite inexpensive in comparison. To emphasize, it gets the identical result in terms of cutting carbon emissions, but at 1/10 of the cost.
Of course, what China and India do matters much more, but I’m staking out reasonable ground here. I strongly dislike taxes (especially Pigovian taxes) and think there might be other solutions, but if someone points out that a few pennies of tax can save a dollar of damage, they certainly have a reasonable case.
The backdrop for all of this is that in the past week I've had three separate radio interviews and two op-eds in national publications, all on climate change.
I will post all of these soon!
I won’t sign and have previously explained why. An expanded version recently appeared in Real Clear Energy. Please read, as it makes my case a little more clearly, and will help make the rest of this post intelligible.
One of my former students read it, and while he concurred, he asked me if I would sign if the statement if the tax had been calculated differently, i.e. according to the modeling of Lemoine and Rudik. That's a great question, and my "maybe" response brought a "we're surprised" response from two other students. I post my answers here because I think they might be of interest to anyone who is thoughtful and interested in the climate change issue.
[REDACTED] writes: Question about your article - had the tax been better calculated, would you have signed?
Steele responds: I would reconsider. I considered this one until I read the proposal itself.
I am hesitant to sign petitions regardless; but if they had endorsed the L&R approach I might sign. It's not so much exact numbers as it is the approach; and I really disagree with the "precautionary principle" idea... These "climate plans" are not benefit-cost responses to what science tells us, these are responses to worst case scenarios, which have been further exaggerated by some for ulterior motives.
I think "Economists' Plan" is attempt to head off Green New Deal and similar socialist Trojan horses; I have some respect for that. But there are two fronts on which the socialists must be confronted. Not simply their bad "solution," but also the fabricated immediate urgency. Both are extremely costly. There's a very good book on precautionary principle (pp) by Cass Sunstein, "Laws of Fear." He entirely destroys pp as a coherent guide to anything rational, it's just a panic inducer.
But let's agree that climate change is a serious threat and accept the mid-range, non outlier estimates of the potential damage. The L&R approach is likely better than L&R calculate, because it also allows time to 1) develop carbon removal technology, which they note but don't count, 2) translate greater wealth into greater resilience, reducing harm, and 3) perfect carbon-free tech that *actually works.*
Furthermore, as you know, I argue that the space economy will grow explosively. In less than 100 years outer space is where we'll do manufacturing that has negative terrestrial side effects... *IF* we can prevent the "comrades" from shutting down world's economy and turning us into Venezuela.
So yes, I would probably sign. (Note L&R is projected to cost anywhere from 1/10 to 1/100th what Climate Council's plan would cost.)
Two other students expressed a bit of surprise that I would contemplate a carbon tax, given that I'm a libertarian. How does that follow? Good question. Here's my response.
Since I've shocked both of you by suggesting I could conceivably support a carbon tax policy, let me clarify. An effective Pigovian carbon tax would solve the climate problem by making users of fossil fuel take into account the effects of use on climate. The Climate Council’s proposal (the proposal I wouldn’t sign) uses a fairly standard economic result to try to calculate the tax that would accomplish this while inflicting the least collateral damage on people (on “the economy,” but let’s remember that means people, especially the less prosperous who are less able to cope with rising prices).
Economists, including the Climate Council, have calculated the tax according to the maximum amount of excess greenhouse gasses that can be put into the atmosphere w/o raising average temp above, say, 2C. A recent paper by two economists (Lemoine & Rudik, American Economic Review, Nov. 2017) shows there’s a conceptual error in this. For technical reasons I’ll skip here, if one instead designs the tax according to temperature instead of carbon stock, we find that the optimal tax costs 1/10 or less what the Climate Council recommends. That is, the Council's proposed tax is at least ten times too high. Given that standard calculations of the effects of global warming are that it could cost a percentage point of GDP growth by 2100, the Lemoine & Rudik tax is quite inexpensive in comparison. To emphasize, it gets the identical result in terms of cutting carbon emissions, but at 1/10 of the cost.
Of course, what China and India do matters much more, but I’m staking out reasonable ground here. I strongly dislike taxes (especially Pigovian taxes) and think there might be other solutions, but if someone points out that a few pennies of tax can save a dollar of damage, they certainly have a reasonable case.
The backdrop for all of this is that in the past week I've had three separate radio interviews and two op-eds in national publications, all on climate change.
I will post all of these soon!
