It is time to stop quivering in our boots in pointless fear of the future and just roll up our sleeves and build it.
- Ray Pierrehumbert

Monday, June 29, 2009

Manzi's Folly and Economics in General

Remarkably, an IPCC WGII report (see p 17) shows the "cost" of a 4 degree C temperature increase to be on the order of 3% of net economic output.

Jim Manzi uses this assertion to conclude that Waxman-Markey is a bad idea. I would go further. If 3% were a measure of anything realistic it would be hard to argue for the sort of policy measure that we are all so urgently arguing for. So I can't provide a counterargument to Manzi. He even goes so far as to address the fat-tail argument (though of course he misattributes it to Weitzman... sigh...) but it's all calibrated against that 3% .

I think it becomes crucial to track down that 3% and address it. Which makes us all economists, whether we want to be or not. Boulding's observation seems germane; total capital is NOT actually the integral of net economic output. It's where our capital stocks are in 2100, not our GDP, that matters. If climate change is marginal, we should let the chips fall where they may, but the conclusion that only 3% of net economic output is at stake seems totally disproportionate to the risks. IPCC or no (and I've never been a big fan of WGII) I have a lot of trouble believing it.

Hope to pick this up again at some point.

Update: Nice followup here. UT doesn't have priv's to the referenced article, unfortunately. Is this any way to run an intelligentsia?

6 comments:

Steve Bloom said...

The text seems to be available here (although possibly an earlier version).

Valtteri said...

Blogger ate my post again. Trying with a different login.

*Very nonlinear effects*. That's what I wanted to say about future economics of global changes. Everything is very interdependent.

Food for example.

tidal said...

Well, if you think an economic model that forecasts just a 3% decline in GDP for a 4C temperature rise is a little off... consider this one. At the Copenhagen Climate Congress last March, Nicholas Stern was discussing one of the most widely used 'economics of climate change' models, namely Bill Nordhaus' DICE model...

Stern asked the audience - mostly scientists - what they thought the model forecast for reduced GDP under a scenario where global temperatures had risen 19C. That's not a typo. It is a scenario that DICE models. Well, for that 19C rise in temperature, global GDP is forecast to fall 50%.

C'mon. That is just ridiculous. And this was Stern's point, really. That the models are failing to capture realistic damage functions.

Oh, well then. It's not as though there's much at stake here!

Aaron said...

Sure it is low! It excludes ice dynamics that will raise sea level.

It is sea level rise resulting from ice dynamics that will result in large, early on losses of infratructure such as NYC with its capital markets. Or, Washington DC with government management structures.

As long as we are not willing to talk about ice dynamics, we are not going to get the economics right. If we cannot get the economics right, we are not going to get any of the policy right.

David B. Benson said...

Very expensive to try to just muddle through this one...

tidal said...

I thought I would add the actual link to Stern's talk about how many of the standard economic models are getting it wrong, and how the economics and deals have to follow the science. Stern does a good job of cutting to the point. He also says that one of the problems was that the climate scientists themselves did not articulate how severe the damages could be at 3, 4, 5, 7C degree changes... One of the reasons that he himself underestimated the damage functions in his own report... The webcast is here. Stern's commentary starts at ~ 1 hour in, but there is control to just jump to him. His commentary on Nordhaus and related issues at around 1:05, on Nordhaus-DICE-19C around 1:07:30...