Saints, psychopaths and the sins of the fathers

Paul Collier has finally ‘nailed it’ as they say on Australian Idol.

Climate change is, in fact, infested with ethical baggage, much of it unhelpful. Lets get rid of some of it now. First, climate change has been hijacked by the environmentalist hatred of industrialized modernity. The scientific process behind global warmingthe buildup of carbon emissionsunfortunately might have been designed as a parody of medieval Christian theology. Instead of the wages of sin being death, the wages of industrialization is global warming. Rather than burning in hell, we will burn on earth. The cap and trade system, under which the right to emit carbon beyond a set limit can be purchased from the authorities, echoes with remarkable precision the indulgences sold by the medieval papacy. The popes needed to finance the building of the Vatican; President Obama needs to finance the fiscal deficit. The environmentalist hatred of industrialization is matched by the guilt-ridden colonialist hangover: we in the rich West are responsible for the poverty of the South. As colonialism receded into history this sense of guilt became harder to sustain, but global warming gives it a new lease on life. We, the rich, have emitted carbon and now the worlds poor will suffer climatic deterioration as a consequence. Victimhood is back in business. Lets try a thought experiment to cut through the thicket. Suppose that scientists discover that the reason why we in the North die before we reach the age of 150 is that cassava, a crop grown by poor peasant farmers in Africa, emits ions which affect the air in Northern latitudes. Does this discovery give us all a claim for compensation from African farmers? The answer is, obviously, that it does not. Since the farmers did not know, they incur no liability. Now push it one step further. Once the science is accepted, what should happen? Clearly, African peasants should cease to grow cassava, but who should bear the cost? Should Africans simply recognize that killing us is an unacceptable price to pay for growing their favorite crop, or should we in the North compensate them for not killing us? I hope that you recognize the analogy with global warming: the emotive baggage surrounding the issuesin and guiltis not intrinsic to the structure of the problem, but imported from other agendas.

Now let me get down to the genuinely difficult ethical issues. 

And so he does – a fantastic article if occasionally a little too strident and self assured for my taste.

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SJ
SJ
12 years ago

I think the paper did make a useful point, but a couple of things left me scratching my head.

Firstly, why bring up the cassava, and then say nothing about Coase? Secondly, why bring up taxation and then ignore transfer payments?

Still worth taking the time to read it, though.

SJ
SJ
12 years ago

But it’s an obvious situation where the Coase theorem would be applicable, and one where the initial allocation of property rights automatically gives the correct ethical results.

He didn’t need to explicitly mention Coase, but he should have added a sentence along the lines of “Since we in the north put a higher value on not having the cassava than they do, of course we’d be willing to compensate them”. Otherwise it’s not obvious why it’s a valid analogy with global warming, because the cassava case didn’t appear to affect the farmers at all, whereas global warming prima facie affects e.g. the Chinese just as much as us.

Tel_
Tel_
12 years ago

Clearly, African peasants should cease to grow cassava, but who should bear the cost? Should Africans simply recognize that killing us is an unacceptable price to pay for growing their favorite crop, or should we in the North compensate them for not killing us?

I think that’s why the Good Lord gave us “defense” forces so we can discover the answer to such vexing questions.

Since we in the north put a higher value on not having the cassava than they do, of course wed be willing to compensate them.

That or just spray herbicide, as per the South American model, whichever is cheaper I guess (since this is an economics blog, cheaper always wins).

But yeah, back to global warming, I agree: he nailed it, except that victimhood is not back in business, that’s an old and work out magic word. People can only be spooked so many times before they start seeing bullshit behind every corner; the Green parties have cried wolf a few times and the wolf is just on the verge of biting them back. Now we just need a few years of cold weather and the laughter will start.

SJ
SJ
12 years ago

See, Nick, I told you he needed to introduce Coase. Otherwise people will think of stupid things that both don’t work and cost more.

Patrick
Patrick(@patrick)
12 years ago

I don’t think Tel was thinking of anything for himself -he was just reminding you of the last choice we made in a roughly analogous situation.

The war on drugs type response is also cheaper, in government spending proposals terms, which are what matter. After all no-one has ever gone and said: ‘we will spend $500bn over the next decade or so on the war on drugs, everyone cool with that?

I also agree that victimhood only appears to be back in fashion. Nick is a good example of someone who isn’t very much into victimhood, and I for one appreciate that enormously when it comes to topics like payday lending or climate change. In these topics, as Nick has pointed out with respect to both, the victimhood approach is both stupid and pernicious.

Tel_
Tel_
12 years ago

On your suggestion I have been reading a bit about Ronald Coase, which is interesting. Does anyone know of a single practical application? I can’t find one. I mean, where the idea has been successfully used, not where it might maybe be useful if only.

Tel_
Tel_
12 years ago

Have any of the cap-n-trade systems got beyond the “social experiment” stage yet? I’m not aware of any tangible results in emissions reduction. I was hoping for a more mature example (Coase wrote his prize-winning work back in 1960 or there abouts).

Last I heard from the EU, they got the allocations wrong and needed to rejig the system because early buyers were throwing money at it, only to find that what they bought was worthless. Since the core of Coase’s surprising thesis is that the mechanism of property allocation does not actually matter (providing transaction costs are kept minimal, as they are in any electronic trading system), I would argue that so far the experience in cap-n-trade is a strong counterexample — the details of the property allocation mechanism really DO matter, else it all falls in a flop.

A couple of articles about the price instability in the current systems:

http://www.guardian.co.uk/business/2009/jan/27/industry-abusing-ets-carbon-trading
http://www.newscientist.com/article/dn6846-european-trading-in-carbonemission-permits-begins.html

Also, the Aus govt is clearly concerned that the property allocation really does matter to making the scheme work:

http://www.aph.gov.au/library/Pubs/RP/2008-09/09rp03.pdf

I mean, where the idea has been successfully used, not where it might maybe be useful if only.

Err, like he said!

MikeM
MikeM
12 years ago

Your point on Coase is completely beyond me Im afraid.

Coase himself explains it lucidly in his 23-page October 1960 paper, The Problem of Social Cost. This, and his other brief paper, “The Nature of the Firm” may be the briefest body of work to ever have won the Nobel Prize in Economics (in 1991) – and no calculus or even algebra in either of them.

Coase’s conclusion was contrary to all the economic thinking of the day. Assailed in 1959 over a similar result stated in a slightly earlier paper, by the combined forces of the University of Chicago Economics Department, which insisted that he was wrong, Coase recalls:

I replied that if it was an error, it was a very interesting error and I would just as soon it stayed in [the paper]. And it did stay in.

Then George Stigler invited me to do something at a workshop in Chicago and I presented something on another topic. I said I’d like to have an opportunity to discuss my error. Aaron Director arranged a meeting at his home. Director was there, Milton Friedman was there, George Stigler was there, Arnold Harberger was there, John McGee was there–all the big shots of Chicago were there, and they came to set me right. They liked me, but they thought I was wrong. I expounded my views and then they questioned me and questioned me. Milton was the person who did most of the questioning and others took part. I remember at one stage, Harberger saying, “Well, if you can’t say that the marginal cost schedule changes when there’s a change in liability, he can run right through.” What he meant was that, if this was so, there was no way of stopping me from reaching my conclusions. And of course that was right. I said, “What is the cost schedule if a person is liable, and what is the cost schedule if he isn’t liable for damage?” It’s the same. The opportunity cost doesn’t shift.

There were a lot of other points too, but the decisive thing was that this schedule didn’t change. They thought if someone was liable it would be different than if he weren’t. This meeting was very grueling for me. I don’t know whether you’ve had a conversation with Milton Friedman, but an argument with Milton Friedman is a pretty strenuous affair. He’s very good. He’s very fair, but he doesn’t let you slip up on anything. You’re constantly being pressed. But when at the end of whatever the time was–say, an hour–I found I was still standing, I knew I’d won. Because if Milton can’t knock you out in a few rounds, you’re home.

The key proviso in the Coase theorem is that transaction costs must be zero for it to apply. But in many respects, transaction costs are diminishing – internet-mediated commerce, reduction of tariff barriers, improving international payment systems (subject to resolution of current dislocation).

Coase wasbriefly interviewed by The New York Times in 2000 to see what he thought about the internet economy. Not much, it turns out.

This year he is 99 – a fine record of survival, considering:

Born in England in 1910, Coase wore leg braces as a youngster and was placed in a school for “physical defectives.” It was run by the same organization, Coase remembers, that ran the school for “mental defectives,” and there was “some overlapping in the curriculum.” Coase found himself in (literally) basket-weaving classes, and received virtually no academics until the age of 10.

Tel_
Tel_
12 years ago

I have been arguing that its not germane to Colliers ethical point about who is responsible for costs imposed by past emissions which is the point of his analogy.

To take Coase at face value, since the final outcome is the same regardless of which way the costs are allocated, we don’t need any judge or lawmaker to waste time thinking about ethics (other than as a matter of artistic taste or arbitrary personal preference). If a system of ethics is not oriented towards achievement of outcomes then what other purpose does it serve? Do we sit and feel special because we have better ethics than that other guy?

However, as I pointed out above, early trials of cap-n-trade in carbon emissions show that getting the property allocations correct makes a big difference to the viability of the entire trading scheme, so yes it does effect the final outcome (and that’s a real-world experiment, not a mere theorem). Trying to blame the result on transaction costs is going to be difficult in the light of ultra low-overhead electronic trades.

Patrick
Patrick(@patrick)
12 years ago

I find Colliers’ bit about the ethical implications of the future being rich hard to follow. I didn’t get why the presumption is not that if they are rich, they are better able to compensate themselves and thus need less help from us? It hardly seems valid to argue that the richer someone is the greater compensation is required for forcing them to compensate for eg 10% of their income.

Ie, in torts generally, would not most people be likely to agree that the destruction of a major business’ truck fleet would not deserved proportionately greater compensation than the destruction of a small business’ sole truck?

Also, he assumes that they are likely to value the climate more than we do – but I can’t follow how this requires us to also value the climate more highly than we do. Doesn’t it just follow that they will spend a greater proportion of their even greater wealth on their climate?

Patrick
Patrick(@patrick)
12 years ago

Thanks! Though I understood that much I think. Where I got confused was what I took to be Collier’s own argument for why we should in fact come to the same basic or worse conclusions as Stern, ie because they will be so much richer so the value of the environment to them will be so much higher.

Tel_
Tel_
12 years ago

As I read it Colliers principle argument is rights based – not utilitarian.

That was also my interpretation, but a “rights based” argument is difficult to relate to anything measurable, and I was picking up a strong sense of irony (just me perhaps?). Maybe there’s some genius when both the person who reads it straight-faced, and the person who thinks it is deliberate irony can be equally convinced by the argument.

I expect I havent explained it terribly well, but it makes sense to me!

Likewise.

Possibly we should start with some basics: what is the source of authority for the ethical framework being applied?

Patrick
Patrick(@patrick)
12 years ago

Hmm, thanks Nick (+Tel-with-a-silly-underscore-after-his-name) that makes sense enough then.

I remain thoroughly unconvinced unless the whole thing was tongue-in-cheek which I strongly doubt.