Social Security and Global Warming
Here’s what I’ve noticed. Some of the same people who argue there’s too much uncertainty about the climate 75 years in the future to justify drastic action now use the so-called crisis in Social Security funding 75 years from now (which is far more uncertain than climate change) to argue for drastic change today.
Before I plead guilty, let me remind Mark that Jane Galt made this point over two years ago.
Now, for my guilty plea. The reason we should try to fix Social Security now is that the cure can be painless now. The problem is that under conservative assumptions about productivity, promised future benefits exceed future revenues by an ever-growing amount. So cut promised future benefits, and then if productivity does well, you can restore benefits if you like. The point is, planning for the worst case scenario does not hurt anybody in the non-worst-case scenario.
In the case of global warming, taking drastic steps now to prevent the worst-case scenario has real costs, against benefits that are potentially nil–in fact likely nil, for a variety of reasons. So, contra Jane and Mark, it is possible to be rationally precautionary about Social Security and not so much about global warming–or precautionary in a different way about global warming, as I’ve been suggesting.
As an aside, I disagree with Mark’s assessment of the relative likelihood of a Social Security crisis and a global warming crisis. I think that we are as certain as anything to have a lower ratio of workers to dependents at the current retirement age later in this century. The productivity bailout is the best hope for Social Security, and I admit to being an optimist there.
My personal opinion of climate models, on the other hand, is that they are of very little reliability. I think that the probability that they give estimates of the relationship between carbon dioxide emissions and future temperatures that is even in the ballpark of being correct is quite low.
As I said in my essay, if I believed the climate models, I would not worry a bit about global warming, because their forecast for moderate, gradual warming is one I can live with. My uncertainty about the models actually raises my level of concern about catastrophic climate change.
If I were to put numbers on it, my subjective probabilities would be that there is about a 5 percent chance of a significant shortfall in Social Security down the road, and less than a 1 percent chance of a climate catastrophe caused by carbon dioxide emissions. The climate catastrophe is potentially much, much worse, which makes it a legitimately larger worry. But the cost of acting now on Social Security is essentially zero, and the cost of acting now on carbon dioxide emissions is huge (at least for the reductions allegedly needed).
Feb 14 2007 at 6:42pm
I am reminded of the Italian health problem.
An Italian newborn will be nationless by the time he mounts his first government cardiac stress machine. Why? Because the cost of national health care falls on young families who give up children to support it.
However, global warming is not the issue to be assigning probabilities of a disaster. Damage will be done, small or large.
I am not sure what a climate catastrophe is. We regularly abandon cities due to weather, and migrate onward. We adapt. Like social security, the problem will always be 40 years away because we adapt as time goes on. I mean, it is hotter than hell in Mexico, and anyone who needs to escape the heat need just move north. But we do not hear global warming as a partial cause of migration, because on a year to year basis temperature does not rise that much. However, eventually Mexico will be depopulated and hot as hell; but the migration and population decline came increment by increment, and the damage incremental.
However low the probability of sudden catastrophe; it remains that damage done must be assigned to the fossil fuel industry and paid out to damaged parties.
Feb 15 2007 at 9:20am
You have confused Mark and this Angrybear with your “painless” solution. Are you saying there’s some free lunch. Mark and I both suggest why this is not the case – and it goes to the most basic premise of savings (foregoing consumption) and capital accumulation. Either your terminology was ill founded or you have revolutionized how we think about these issues? Please clarify.
Feb 15 2007 at 12:26pm
Arnold – thanks for the comment over at Angrybear. But I’m still at a loss to figure out what you are saying for reasons I noted over there, but I’ll repeat here. You seem to be saying households are not saving enough and to get them to do so would require some change in public policy. I find this to be a strange argument coming from a conservative. What is the market failure here and what change in public policy are you recommending?
Feb 15 2007 at 1:39pm
I have another comment at the Angry Bear web site. I hope it helps clarify my position.
Feb 15 2007 at 6:19pm
Very persuasive post. Of course, it’s easy to be persuasive when you take a position where the facts and arguments are so overwhelmingly on your side. You’re just going for the easy take-downs.
Feb 15 2007 at 9:04pm
“and the cost of acting now on carbon dioxide emissions is huge (at least for the reductions allegedly needed).”
Is it, though? The research I’ve seen suggests that by raising carbon taxes and lowering income taxes, there can, in some cases, be a net economic gain, not a loss. See McKittrick (1998).
I discuss this more on the About site. Click on my name for details.
Feb 16 2007 at 2:17am
Well, you are a bit unclear about how it is that one “fixes” social security now, therefore it is a bit vague to say that is it painless today. The plan that Bush pushed (although it was never officially pushed) involved at least one age group taking a pretty bad hit, sort of end-of-baby boomers-front-end-Gen-Xers, if I remember correctly. They did not get grandfathered in fully into the old system and had substantial cuts in their benefits, but did not have enough time in grade to get much out of the privatizatized accounts. Of course their pain would have been sometime in the future.
Likewise, the recent flurry of talk about a bipartisan deal, apparently now dead since Cheney and Norquist killed any talk of a tax increase, involved cuts in pretty distant future benefits, although it was not posed that way. Again, as long as one did not raise taxes now, the pain would be sometime off in the future.
So, again, what do you mean by “painless now”?
And, of course, I am already on record here as being optimistic about the system’s prospects: ain’t broke, don’t need no fixing.
Regarding climate change, I think I am increasingly in the Nordhaus camp. At least he did his discounting right: start with about 3% and then lower it as one goes out into longer time horizons down to 1% by 200 years out, although I am of the view that we have no idea what will be going on 200 years from now.
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