Economics Never Stops: On the Costs and Benefits of Climate Change
Last Spring, a student came to my class wearing a shirt reading “Basketball Never Stops.” I need to get a shirt that says “Economics Never Stops.” David’s recent post on uncertainty and global warming was a good reminder. Public policy should account for the possibility of extreme negative effects, but it should also account for the possibility of extreme positive effects. My impression from discussions of climate change is that to suggest the possibility that climate change might have positive effects on net is to invite charges of heresy.
This 2011 post by David Friedman remains one of my favorite pieces on the subject. He asks us to consider Bangladesh, asking whether we should “assume that Bangladesh will still be a poor country a century hence, or that it will by then have followed the path blazed by South Korea, Taiwan, Singapore, and Hong Kong–and so be in a position to dike its coast, as Holland did several centuries ago.”
The CIA World Fact Book estimates purchasing power parity-adjusted Bangladeshi GDP per capita at $2100 for 2013. Growing at 2% per year, Bangladeshi per-capita GDP would double about every 35 years and, in just over a century increase by a factor of eight. The resulting per-capita GDP of $16,800 would put them today at about the level of Uruguay ($16,600): not fantastic riches, but nothing to sneeze at, either.
Growing at a real rate of 3% per year, Bangladeshi GDP per capita will double roughly every 24 years. This means it will increase sixteen-fold in about a century (lesson: small differences in growth rates matter). That would give them PPP-adjusted per-capita income of $33,600, which would put them right around the PPP-adjusted per-capita income of today’s European Union ($34,500). Should we not think that a country obtaining the resources of today’s high-income regions would not be able to “dike its coast, as Holland did several centuries ago”?
As Friedman notes, “the global warming controversy involves changes over not a year or a decade but a century.” I too am concerned about what will happen to the coasts as sea levels rise, but several decades is a lot of time to adjust to the threat of the encroaching seas. Again, there is a lot of uncertainty here, but we can convert at least some of this uncertainty into risk by developing long-term futures markets in coastal real estate. Contracts and prices turn a lot of speculation and hypotheticals into extremely useful information, namely, prices.
Even if the planet is getting hotter (I’m pretty sure it is) and even if people are contributing to it (I’m pretty sure we are), it’s still not clear where climate change ranks on the scale of existential threats to life on Earth or whether it would be wise to sacrifice a lot of production in order to mitigate it. Asteroids might pose a larger and more immediate existential threat than climate change*, and dealing with asteroids on a collision course with Earth will likely require a much more sophisticated solution than “burn fewer fossil fuels, plant more trees, and develop cleaner energy sources.” Diminished ability to address a threat like impact from a large asteroid is the price would pay by sacrificing production in order to combat climate change.
*-If you think asteroids aren’t cause for concern, I’d like to introduce you to 99942 Apophis. According to Neil DeGrasse Tyson, Apophis hitting in the Pacific Ocean would “sandblast the western seaboard” with tsunamis.
Edit, 12:33 PM Eastern: In a comment below, David corrects me and notes that the warming might offset negative effects of cooling:
Actually, my point about uncertainty was different. It’s not that there can be “extreme positive effects,” although there can be. It’s that there can be extreme negative effects from global cooling that global warming can offset.
In other words, if you embrace uncertainty, you really have to embrace uncertainty and not disguise certainty in one direction as uncertainty.