Greta on Fire
Nancy Folbre
29 January 2020Greta Thunberg is highlighting a point that most economists have missed: climate change is happening so rapidly that it is threatening the economic prospects of children already born, children who lack the political or economic power to fully represent their own interests, but are fully capable of anger, outrage, and protest at the complacency of the older generation.
After her first speech to the Davos Forum of world “leaders” in Switzerland last year, Greta Thunberg was cautioned against causing panic. In her recent encore performance of January 21, 2020 she drily observed that she was clearly not causing panic, because they had done absolutely nothing over the past year to halt global climate change.
Anyone who doubts that Thunberg’s insistence on immediate action is unfounded should read Paul Krugman’s recent New York Times column, which compares her understanding of economics quite favorably with that of U.S. Treasury Secretary Steven Mnuchin. I’d go further: she is way ahead of most of the economics profession. She boils the issue down to parental commitment: “we are telling you to act as if you loved your children above all else.”
Quite a contrast with the traditional textbook approach to discounting the future, based on a 1928 paper by Frank Ramsey positing an “infinitely lived agent” who optimizes his own consumption over time, or with the “dynastic utility function” invoked by Gary Becker and Robert Barro, which simply takes altruism toward biological descendants as a given.
Thunberg’s metaphor is very much in synch with the 2006 Stern Review on the Economics of Climate Change, which argues that we should weigh the well-being of future generations as heavily as our own. This argument has taken a lot of heat from economists. Cameron Hepburn and Wilfred Beckerman effectively outline the ethical issues deeply embedded in assumptions regarding discount rates here. And, yes, these issues are complicated and deserve serious discussion beyond the blogosphere.
But Greta Thunberg is highlighting a point that most economists have missed: climate change is happening so rapidly that it is threatening the economic prospects of children already born, children who lack the political or economic power to fully represent their own interests, but are fully capable of anger, outrage, and protest at the complacency of the older generation.
If you’re having a hard time imagining the possible consequences, give John Lanchester’s dystopian novel The Wall a read. It’s not the best of Lanchester’s work, but it includes an unforgettable description of young people so angry at the state of the world that they refuse to even speak to, much less care for, their parents.
Anders Fremstad
Can you expand on Hepburn and Beckerman’s analysis of the ethics or discount rates? Should we not use them in thinking about climate change, or should simply adopt a discount rate very close to 0?
folbre
I really like Hepburn and Beckerman through section 6 of their paper. They unpack the Ramsey model and show that its basic parameters pack in preferences regarding inequality and risk and well as pure time preference. They provide a clear overview of the Stern report’s argument that the discount rate should be set close to zero, and defend it against at least some criticisms. I also like their consideration of empirical dimensions (what people actually want) versus normative dimensions (what we think they should want). But I part ways with them in section 7. When they emphasize that a majority of the world’s population might prefer to increase current living standards rather than future ones, they may be right, all else equal. But a majority of the world’s population also might prefer to increase their current living standards by redistributing the wealth of the global top 10% and/or redirecting a portion of that bucket of wealth toward decarbonization. I am sure there are tradeoffs between current consumption and future consumption, but there are also complementarities–especially if consumption is defined to include consumption of public goods–like the Australian wildlife and ecosystems currently being destroyed by fire. In other words, investment in decarbonization could yield significant current benefits, and also, to reiterate the point above, there’s an important age group in our society that will be alive in the 50 years as well as being alive now. The underlying assumption seems to be that the current generations has common preferences–and that there is no
but significant distributional conflict based on class, gender, age, citizenship, etc..
What’s odd is that earlier in the paper they note that research on subjective well-being suggest that what people care about is relative–not absolute–consumption. If that’s the case, extreme inequality today creates the very desire for increased current consumption that they argue should be respected by the application of a higher discount rate. This never occurred to me before, but it makes sense, and I’d really like to figure out a way to model it.
Anders Fremstad
If subjective wellbeing depends largely on relative, rather than absolute, consumption, then that’s a pretty strong argument for seriously addressing climate change even if it slows economic growth relative to BAU. Lots of people have made this argument, but I don’t think it’s taken very seriously in most models. Brekke and Howarth have a nice chapter on climate change in their book Status, Growth, and the Environment.