James Wimberley nominates one my posts as the dumbest of 2011.

Read the whole thing as a fine example of yahoo values, data-free scaremongering and reckless optimism, and an indifference to economic reasoning.

Whether my values are yahoo or not I cannot say. I wasn’t aware of any scaremongering on my part, and certainly not of the data-free kind.

I am tickled, and at this point intrigued, by the repeated references to my position as optimistic, reckless or otherwise. My general philosophical disposition is black-on-black existential nihilism, which most people take and I accept to be a sternly pessimistic disposition.

Lastly, of all things one might say about my positions, that they are indifferent to economic reasoning is among the least likely to be true.

Wimberley continues

It´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 Stross´ 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.

I have not read Accelerando, so I don’t know exactly what Wimberley is referring to but I certainly don’t think that humans will stop needing any of those things. The issue, of course, is the cost of production.

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).

A few things. First, damages and adaptation and mitigation costs refer to real things. For reasons alluded to in previous posts I am an infinite set skeptic. That is, I am doubtful that real things can take on infinite values. Yet, let’s set that aside for now.

Its simply not the case that if trend damages and adaptation costs rise to infinity that there is some point at which you should mitigate. Suppose that we simply mean that damages grow without bound. If mitigation costs grow without bound but faster then it will never be worth your while.

Suppose that we mean there is a vertical asymptote such that damages take on an infinite value in finite time. Then if mitigation costs start higher, grow faster and there is vertical asymptote of mitigation costs which occurs before the damages asymptote then there does not exist a time T such that damages > mitigation costs.

All of that being said, Wimberely is correct that the key question is what are in fact the damages, adaptation and mitigation costs. This is the conversation that I want to have.

Amazingly, there have actually been attempts by economists to think about this: Stern, Quiggin (eg here), Weitzman, Nordhaus. Professor Smith is a professional economist. It´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 Stern´s and Quiggin´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%.

I find it very worthwhile to use economic analysis though I don’t always write in economic language. My main point is that we are overestimating the costs of adaptation, but underneath it all is an assumption of a relatively high rate of time preference.

The fundamental logic being that irrespective of how we think we ought to treat our grandchildren, we do not in fact treat them as if their future happiness is worth that much to us.

In the late 90s the US Treasury was selling I-Bonds for real 3.4% return. Before the Global Financial Crisis long term TIPS were trading at roughly 2.25%. Yet, these products weren’t hit with trillions of dollars in demand as grandparents recognized the ability to establish large guaranteed gifts to their grandchildren.

Even more directly New York Life is currently offering a 5% inflation protected annuity specially marketed towards grandparents.

The later example is especially illuminating because New York Life is in the business of convincing you to do this. Rationality issues might cloud your decision to buy I-Bonds, but if it was possible to frame the issue in such a way to get you to invest in your grandchildren’s future the New York Life has an interest in finding that way and exploiting it. Yet, they have not succeeded on a mass scale.

A form of reasoning that allows an avoidable catastrophe is unsound, however much it´s embedded in human nature. The duty of scholars is to fight our cognitive illusions, not to parrot them.

I agree that scholars should work to fight our cognitive illusions but I would count the first sentence above among them. Given any event chain that we can lay out there are all sorts bad things that can happen. Whatever path you choose lowers the probability of some catastrophes and raises the probability of others.

Simply saying that we should restrict ourselves to some subset of event chains because a particular catastrophe takes on probability zero within that subset is not sensible.

You might want to argue that we should lower the probability of all potential catastrophes. Though, I doubt that is a position people would actually want to take if faced with the option.

About these ads