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.
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.
“Firstly, why bring up the cassava, and then say nothing about Coase?”
Because he’s illustrating an ethical argument that’s not related to Coase.
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.
I think that’s why the Good Lord gave us “defense” forces so we can discover the answer to such vexing questions.
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.
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.
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.
SJ,
Your point on Coase is completely beyond me I’m afraid. The central point of the analogy has nothing to do with cost minimisation.
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.
err . . . Tradeable permits?
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
Err, like he said!
Tradeable permits to manage fish stocks, sulphur dioxide emissions in the states have been hugely successful exercises. One could do this for carbon too, but as we are seeing, carbon is such a biggie that politicians get panicked into handing out large capital subsidies to the very firms which will incur cost increases – which is the whole point of the emissions scheme.
This is not the fault of an ETS as such but is a good argument for using taxes rather than an ETS.
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:
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:
Well I hope you enjoyed getting that off your chest. Alas it doesn’t address my point. I do understand Coase’s point – most people do these days.
I have been arguing that it’s 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.
Nice to see you whizzing by as we talk past each other Tel_.
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,
Collier is criticising Stern who argues on utilitarian grounds that more help should go to those less off. Stern then argues that future generations will be worse off as a result of climate change which seems not only highly dubious but contrary to assumptions or implicit assumptions made elsewhere in his report. That was my understanding on a quick read anyway.
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.
OK – sorry if you thought I was being patronising.
As I read it Collier’s principle argument is rights based – not utilitarian.
“Essentially, I think we do not have the right to plunder the natural world so drastically that we pass on a climate disaster to the future.”
Then, on interrogating the content of that right he concludes that it doesn’t mean saving every spotted owl. So if some environmental capital is run down, we should invest some of the proceeds to compensate future generations. But future generations will have plenty of the thing that it’s easiest for us to compensate them with – wealth. They’ll be lacking environmental goods – like a good climate. Being richer than us the terms of trade (the imaginary terms on which future generations would ‘agree’ to the tradeoff our generation has made) between the two goods – the wealth we bequeath and the good climate that we take away – will be bad for us.
I expect I haven’t explained it terribly well, but it makes sense to me! Sorry but got to run.
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.
Likewise.
Possibly we should start with some basics: what is the source of authority for the ethical framework being applied?
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.