In the 70 years that have passed since Joseph Schumpeter coined the term "creative destruction," economists have struggled awkwardly with how to think about growth and innovation. Born of the low-growth agricultural economies of 18th century Europe, the dismal science to this day remains focused on the question of how to most efficiently distribute scarce resources, not on how to create new ones -- this despite two centuries of rapid economic growth driven by disruptive technologies, from the steam engine to electricity to the Internet.There are some important, if qualified, exceptions. Sixty years ago, Nobelist Robert Solow and colleagues calculated that more than 80 percent of long-term growth derives from technological change. But neither Solow nor most other economists offered much explanation beyond that. Technological change was, in the words of one of Solow's contemporaries, "manna from heaven."
Climate economics until recently was similarly oriented. Economists mostly treated global warming as a challenge of distributing scarce resources (e.g., the right to pollute), not of creating new ones (e.g., cheap zero carbon energy sources). Climate models treated technological innovation as a given, not as a dependent variable.
That's starting to change. Over the last few years, economists have modeled ways to accelerate the innovation of zero carbon power sources. The boldest of these entries to date comes from one of the discipline's rising stars, MIT's Daron Acemoglu, along with Philippe Aghion, Leonardo Bursztyn and David Hemous, in a paper published last February in American Economic Review. The paper argues that conventional climate models have overstated the importance of carbon pricing and understated the importance of public investment to encourage technological innovation.The Breakthrough Insititute
The Creative Destruction of Climate Economics: Why 18th Century Economics Can't Deal with 21st Century Global Warming
Michael Shellenberger, Ted Nordhaus
18 comments:
"Optimal policy," they found, "relies less on a carbon tax, and even more so on a direct encouragement of clean energy technologies."
I've been arguing this point for a few years now. Although I think AGW-Clmate Change is exaggerated - i.e. the climate system is far too complex and the state of the science is too infant to be able to be making reliable long-term predictions - I say to people that are concerned about climate change: when the focus is on making renewables less expensive through subsidization, innovation, government support… then I'm on board. But until then, policies of making carbon-based energies more expensive are just going to make most people poorer.
Carbon-based energies are the lifeblood of modern society, and they primary input-costs for almost every industry. Making them more expensive will ripple out into cost-push inflation like the 1970s. We in the industrialized countries could handle the lower standard of living, though it wouldn't be pleasant. But making carbon-based energies more expensive is incredibly unfair to under-developed countries. It might even be cruel. "Sorry, we caused global warming, now you don't get to develop off of them."
For all of you who have put a lot of time, energy and thought into understanding how bad most economic models are, I encourage you to apply that same critical thinking to climate models. They are borderline pseudo-science.
I have a friend who has a job that takes him to Beijing several times a year for a three week stretch at at time. He says it is a death sentence the pollution is so bad. I recall being in Delhi thirty five years ago and being appalled at the pollution level.
Carbon-based fuels are a negative externality owing not only to the highly probable connection to climate change but also to the health consequences of living in a polluted environment. The cost is to be figured not only in terms of treatment of disease and lost productive capacity but reduction in quality of life across the board.
Even if climate change were not a potential consequence the costs of negative externality should be computed into true cost for the market price to reflect reality.
Right now, the principle is capitalize the gains and socialize the losses. That's just bad economics and bad policy.
Tom I don't disagree about the pollution issues. I lived in China for a year back in 2004. I would wash my clothes by hand and hang dry them. I quickly learned that the my clothes would need to be hang dried insided my apartment, because when done outside by the time they were dry the clothes would be dirtier then before they were washed. A constant dust or soot in the air.
IMO Climate Change is a major distraction from real important issues like pollution, soil degradation, protection of bio diversity, protecting earth's lungs in; forests… and global poverty, health issues, etc
Climate CHANGES. Climates CHANGE. It's a an oxymoron. Perfect Orwellian language. Similar to the War on Terror. Both are existential enemies that can never actually be defeated. It's a perpetual struggle. The Cold War is over and we need some new enemies.
This "pause" in global warming over the past 15+ years already falsifies climate model predictions, and unless warming starts to pick up asap, it's going to become increasingly obvious to more and more people that the models can't actually predict anything at all.
As I've said previously, there is really no need to base the argument against carbon on climate change as the chief negative externality. The cost of pollution is reason enough for government to force true cost pricing through a tax on the negative externality instead of socializing it though lower quality of life, increased cost of health care, and shorter life span. We need both a carbon tax and more government sponsored R&D on sustainable alternatives, as well as subsidizing scaling up the most promising innovations.
My point is this Tom:
Life before carbon-based energy was nasty, bruitsh and short. Take a look at the underdeveloped world today. It's a crime against humanity to not support their development. And for now that requires the use of carbon-based energy.
I will not support de-carbonization if it means regressing the developed world back toward the underdeveloped world.
The goal should be to make renewable non-carbon energies more cost efficient, not to make carbon-based energies more expensive. When this happens, the world will naturally transition to renewables, by choice.
MMT provides the framework to do this.
In the Sixties, I lived for a time in both Manhattan and Los Angeles. While the pollution wasn't so visible in NYC, I had to wash the grime off my face several times a day and snow turned black not long after falling.
The smog in LA was visible in that visibility was limited on most days. On rare occasions the smog would blow off and the mountains would be visible on the horizon.
I was living in Washington, DC in the late Sixties and early Seventies. I noticed the pollution getting worse and worse, and finally in '73, I moved from the city to the country to escape it.
Subsequently, I made it priority to live only where the air was clean, or at least relatively.
Tom,
Let me ask you this.. From an MMT perspective and understanding about taxes not a source of funding, what's the purpose of a carbon tax? Don't you think carbon-based energy companies will just pass that increased tax on in the form of higher prices?
Won't this ripple out into higher prices for nearly everything since carbon-based energy is a primary input-cost for nearly every industry? Won't this make people poorer?
What's the goal here?
If the goal is to make renewables more competitive, we can do that through "more government sponsored R&D on sustainable alternatives, as well as subsidizing scaling up the most promising innovations" without making society worse off in the meantime.
Taxation is a disincentive for use. Taxing a behavior reduced that behavior by negative reinforcement. It's behavioral psych,
However, it is also a matter of economic calculation. When something is underpriced it is overused. True pricing by including the cost of negative externality reduces overuse owing to socializing the externality. That is still a cost and it paid for in other ways by either raising other costs like health care or reducing qua lit of life.
Are carbon credits the next CDO derivative ponzi scheme?
Carbon credits are bad idea in my view. I would support taxing carbon but not as the only or even chief solution. Use a tax to offset the negative externality and approximate true price and subsidize alternatives by reducing their cost wrt to the positive externally. Then the market can allocate based on true price.
Tom,
That's all fine and well for a luxury good, or a drug… like nicotine in cigarettes. The ramifications are massive when we're talking about ENERGY, the lifeblood of civilization.
Btw, even some mainstream outlets and scientists are being forced to recognize that climate models are bogus:
http://www.nature.com/news/climate-change-the-case-of-the-missing-heat-1.14525
The thing is, the models always have been crap. But's it's taken this "pause" or "hiatus" in temperature increase for it to get more attention. In many ways I feels climate change "skeptics" are the MMTers of that field. Like MMT, they are marginzlized by the mainstream consensus. But when you start to hear them out and seriously consider what they are saying, the light bulb turns on.
Think about it.. just like it's taken this global recession for the mainstream to start seriously question economic models, and for MMT to gain some momentum, it's taken this pause in global warming for the (some in the) mainstream to start seriously questioning climate models, and for "skeptics" to gain some momentum.
Consider this gardening website:
"It is well known that a CO2 level in the garden's air between 700 and 900 ppm improves crop development and yield. Most plants grown for their beautiful flowers or foliage optimally develop at about 800 ppm."
http://www.novabiomatique.com/hydroponics-systems/plant-555-gardening-with-co2-explained.cfm
Right now we're freaking out because Earth's atmosphere is teetering near 400ppm!!!
AGW-Climate Change is borderline pseudo-science, imo.
While the cause of climate change may be controversial in some minds, it's existence is not. Water is getting scarcer, for instance, and large firms have realized this and are in the process of buying up sources of clean water.
Water is already much less of a free good. Now clean air is being less of a free good, too.
What is not controversial is that pollution is a negative externality affecting health and quality of life. It has been a major factor in my life, and I have made major changes because of it.
I have environmental sensitivities similar to allergies but not hystamine related. But the effect is pretty much the same, which is misery when they hit hard and low grade symptoms otherwise.
Allergies and environmental sensitivities affect millions of people and reduce productivity. not to mention the attendant discomfort they involve.
Then there is food. My physician, a prof at UI Med School, was recently saying that it is now known that food is causing an epidemic of ill health in Americans, starting in childhood.
We are poisoning ourselves in the name of economics. It's crazy.
Of course Climate Change isn't controversial, broadly speaking. Climate changes. Climates change. What's controversial is the role that man's emissions of CO2 play in it. I'm suggesting that if you apply your critical thinking skills to climate models and climate science, you'll come to the conclusion that the evidence for CO2 as a driving factor is wildly exaggerated.
I support a focus on pollutants that are harmful to humans and life in general. What I don't support is scapegoating plant-food (CO2), i.e. what plants 'eat' to make our oxygen, as a primary driver of climate change or world problems. Didn't the EPA declare CO2 a pollutant? That's laughable. Again, see the gardening website above. CO2 levels much higher than our atmosphere are MORE conducive to plant growth.
The level of uncertainty in climate science is enormous, similar to economics. For all we know a slightly warmer world with higher levels of CO2 in the atmosphere will be more conducive to life on the planet. For all we know the marginal warming from CO2 is helping to stave off another little ice age. IMO, we should be far more concerned about a cooling Earth than a warming one. Just look at the tropics vs. the arctics. Warmth = Life.
As for fresh water, well, all the more reason why we should be using our government to subsidize the R&D to invent powerful renewable energy so that we can desalinate ocean water efficiently. Once we can do that, fresh water will never be an issue.
Just because I think AGW-Climate Change is mostly nonsense doesn't mean I think we should ignore toxic externalities.
It's the toxic externalities that are the immediate issue. Climate change is a long terms one that almost certainly won't affect me personally or even people quite a bit younger than I am. But it will affect people yonder than about 40 now, and it will affect generations not yet born.
We should be preparing now for contingencies. The Pentagon is and so are other militaries, which regard climate change as the greatest security threat.
From what I have said about negative externalities it should be obvious that I am opposed to the neoliberal mantra of "free markets, free trade, and free capital flows" as uneconomic and predatory. Economic calculation only works when true prices reflect true costs. There are no free lunches in economics anymore than there are perpetual motion machines in physics.
Ok, one final comment Tom...
I've learned far more about climate change from skeptics than from advocates. is that surprising? How many supporters of climate change understand that CO2 has a logarithmic effect, and that it's not the CO2 per se that is supposed to cause a lot of warming, rather positive feedback loops primarily with increases in water vapor? In my experience, not many.
Why don't most people know that? Maybe it's because AGW-Climate Change is almost pure propaganda. People aren't supposed to know. We're supposed to fear CO2. [Kinda like people aren't supposed to understand money and banking???]
Here's the IPCC mentioning the logarithmic effect of CO2, and water vapor's role:
[MY BOLDS FOR EMPHASIS]
"In reality, due to feedbacks, the response of the climate system is much more complex. It is believed that the overall effect of the feedbacks amplifies the temperature increase to 1.5 to 4.5°C. A SIGNIFICANT PART OF THIS UNCERTAINTY RANGE ARISES FROM OUR LIMITED KNOWLEDGE OF CLOUDS AND THER INTERACTIONS WITH RADIATION...
The so-called water vapour feedback, caused by an increase in atmospheric water vapour due to a temperature increase, IS THE MOST IMPORTANT FEEDBACK RESPONSIBLE FOR THE AMPLIFICATION OF THE TEMPERATURE INCREASE…
It has been suggested that the absorption by CO2 is already saturated so that an increase would have no effect. This, however, is not the case. Carbon dioxide absorbs infrared radiation in the middle of its 15 mm band to the extent that radiation in the middle of this band cannot escape unimpeded: this absorption is saturated. This, however, is not the case for the band's wings. IT IS BECAUSE OF THESE EFFECTS OF PARTIAL SATURATION THAT THE RADIATIVE FORCING IS NOT PROPORTIONAL TO THE INCREASE IN THE CARBON DIOXIDE BUT SHOWS A LOGARITHMIC DEPENDENCE."
http://www.ipcc.ch/ipccreports/tar/wg1/044.htm
Fore more on CO2 logarithmic efffect, read this article: http://wattsupwiththat.com/2010/03/08/the-logarithmic-effect-of-carbon-dioxide/
You may be right, JK. In that case, there's nothing humanity can do about the impending effects of climate change if global warming turns out to be an actually occurring phenomenon and the trend continues. We won't know for sure for some time whether effects may only be temporary, and local and regional, rather than global in scope, affecting life on the planet of the foreseeable future.
In any case, what remains is the effect of pollution on quality of life in any case. This is reason enough to act promptly and strongly to establish true price based on true cost. That means revisiting the neoliberal mantra of free markets, free trade, and free capital flows in terms of establishing economic calculation on the basis of true price and true cost in order to end rent seeking based on socialization of externality.
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