Costs of Global Warming

February 21, 2007

via New York Times: Apropos my post on global warming and computer models, this article points out an argument over Britain’s recent report calling for large-scale immediate, and expensive, action on global warming. The dispute is over an obscure (to us laymen) variable called the social discount rate. If 100 years from now the country will owe $1B, how much should we set aside today to pay off that eventual debt? Britain’s report argues we should set aside the full $1B, while other economists say that investing $7M today at 5% interest would raise $1B in 100 years. A social discount rate asks what percentage we should pick to calculate the present value of a future social debt (global warming). Unfortunately, there is no good way to pick that number, so people make very weak arguments (see Posner’s arguments) to justify some random number they pull out of their ass. Instead, we should use the models simply to calculate the risk and costs of global warming to classify it as catastrophic, fairly bad, ok, not-so-bad, and “you’re all lefty enviro-nuts”. Then we can work backwards to calculate how much the world can reasonably afford to invest without dampening the global economy. If we suffer a global recession then we can’t do anything at all! I’d guess that global warming is a catastrophe, but the world (mostly G8) can’t afford to invest that much. So all this talk of low social discount rate is moot because the world won’t spend the money anyway. Therefore, we can skip all the arguments and buy land in northern Canada.

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