Where Have All the Economists Gone? (Environment)

What does the average economist know about environmental science? Probably no more than any other reasonably educated person.

Yet economists have three talents that are sorely missing from most discussions of environmental policy—particularly policies related to climate change. They understand (1) the scientific method, (2) cost-benefit analysis and (3) how costs and benefits affecting different generations can be evaluated over time.

Here is how these skills matter.

The Scientific Method. During the Trump administration it became common for critics to accuse the president of being anti-science. In fact, New York Times columnist Paul Krugman accused the entire Republican Party of being anti-science.

Yet the Times routinely tells readers that wildfires in California, flooding in Europe, and worldwide deaths from heat are caused by climate change. Writing in the Wall Street Journal, Bjorn Lomborg notes that:

– “In 2021 the burned area to date is the fourth-lowest of the past 11 years. The area that burned in 2020 was only 11% of the area that burned in the early 1900s. Contrary to climate clichés, annual global burned area has declined since 1900 and continues to fall.”

– “A new study of more than 10,000 rivers around the world shows that most rivers now flood less.”

– “According to another study, climate change annually causes almost 120,000 additional heat deaths but avoids nearly 300,000 cold deaths.”

Here are some more conclusions of real science. Heat waves across the United States today are no more common than they were in 1900. The sea level is rising no faster today than it was 90 years ago. The latest Intergovernmental Panel on Climate Change report says that the most likely warming over the remainder of the century (1.5) is likely to have minimal economic impact.

Cost-Benefit Analysis. Why do we care if there is global warming? For the same reason we would care if there were global cooling. The key question in both cases would be: are the costs of climate change greater than the benefits?

Writing in the Wall Street Journal in 2015, Matt Ridley noted that actual warming has been below almost all the predictions of the climate models. Ridley doesn’t deny that there has been some warming or even that humans have contributed to it.

Yet, looking forward, he says moderate warming (up to 3.5°C over the next century) can be beneficial for the world on net. For example, carbon dioxide causes crops and wild ecosystems to grow greener and become more drought-resistant.

If there is a case for doing something about climate change, what should we do? On this, economists are virtually unanimous—regardless of their other political views. The best solution is a carbon tax. If the revenue from such a tax were refunded, say by a cut in income or payroll taxes, total private sector income and assets would be unchanged. But everyone would have an economic incentive to reduce carbon emissions.

With a U.S. carbon tax, 331 million people would have an incentive to reduce their use of carbon. With a worldwide carbon tax, up to 8 billion people would have that incentive. Families would reorganize their lives to make the cost of the change as painless as possible. And that is something no government mandate could ever do.

Unfortunately, almost every political figure who wants some sort of government action is opposed to a carbon tax. Instead, they prefer command and control and subsidies—using the power of government to reduce carbon use in ways that are invisible to people who fill their gas tanks at the pump.

Economists estimate that these solutions would have a social cost six times as high as the carbon tax, under the best of circumstances. Once lobbyists got their hands on the process, the social cost could be many times that amount. The costs would be paid by the consumers of virtually every product. Instead of incentives to reduce their use of carbon, people would have an incentive to reduce their consumption of everything else.

To be fair, the U.S. public right now is unwilling to pay higher gasoline taxes to avert global warming. (Carbon taxes poll worse than defunding the police.) But that just means the advocates of carbon reduction haven’t made a persuasive case. The case would be more believable, however, if writers like Paul Krugman quit trying to deceive people into believing that carbon mitigation is a free lunch.

Intergenerational Equity. In the standard scenario, we are told we should sacrifice today so that our grandchildren (say, 100 years from now) will have a better life. Why would we want to do that? A hundred years from now people will have a much higher income and standard of living than we have today. Why would we want to take from the poor and give to the rich?

Economists can’t answer that question. But they can tell us what the trade-offs are.

Boston University economist Laurence Kotlikoff and his colleagues have taken a midstream estimate of predicted warming and Yale economist William Nordhaus’s estimate of the economic effects of warming over time. They used those predictions to estimate the economic impact of warming and its mitigation on different generations. Kotlikoff then used the model to construct a mitigation plan that makes every generation better off.

In the Kotlikoff model, long-term warming is harmful. So, his suggested carbon tax of $70 a ton (about 70 cents per gallon of gasoline) makes future generations better off. Kotlikoff would not only refund the carbon tax in the form of other tax cuts; he would cut additional taxes as well—in effect borrowing from future taxpayers. The upshot: every generation comes out ahead.

If we heard more from economists like Kotlikoff and his colleagues, and less from people who tell us to go buy a Tesla, public discussion about climate change would be far more rational.