One of the many ways in which the debate about “climate change” (as the climate catastrophists now describe their catastrophic and catastrophically silly opinions) is that those on the side of the free market who publicly surrendered to the climate catastrophists (back in the days when “climate change” was still known as “global warming”) are seeking to renegotiate their original surrender.
Most of us free marketeers started out reckoning that there might be something in all this Global Warming talk. At first we were ready to believe what we did not want to believe. But then we looked into it a bit, and we then concluded that what we wanted to believe was what we actually did believe, and now do believe with ever growing conviction. Climate catastrophism was and continues to be made-up nonsense. It was and is driven: by anti-capitalist lefties who found a substitute for their fading fantasy of mass human immiseration in another fantasy about an immiserated environment; by corrupted scientists looking to keep on feeding at the public trough; by corrupt businessmen ditto and on a far grander scale; and by media people looking for catastrophic headlines to grab attention, sell newspapers and boost hit-rates. With lots of overlap between these various categories, and probably with several more categories that I have temporarily forgotten about.
But a few free marketeers, either for tactical reasons or out of genuine conviction, continued to trust the climate catastrophists. One such was Tim Worstall, who now writes, at the Adam Smith Institute blog:
As you all know I’m boringly mainstream in my views over climate change. The scientists tell us that we’ve got to do something, the economists that that something is a carbon tax so I say, great, let’s have a carbon tax.
Or rather, that is what Worstall said at the start of his piece, but from which he then immediately starts to retreat. For his next sentence reads as follows:
And then we get information that rather changes this so far sterile debate:
He then quotes from the Wall Street Journal, on the subject of the latest pronouncement from the United Nations’ Intergovernmental Panel on Climate Change:
It puts the overall cost at less than 2% of GDP for a 2.5 degrees Centigrade (or 4.5 degrees Fahrenheit) temperature increase during this century. This is vastly less than the much heralded prediction of Lord Stern, who said climate change would cost 5%-20% of world GDP in his influential 2006 report for the British government.
In other words, the “climate orthodoxy” used to be that there was going to be a climate catastrophe, very soon, and people like Worstall said: Okay, so what do we do? But now, the more honest among the climate scientists, hammered away at for the last decade and more by their “climate skeptic” critics, are instead admitting that their precious catastrophe is, to put it mildly, unproven. There will be no catastrophe very soon, they now concede, and very possibly no catastrophe at all. We don’t know, really.
Which is exactly what that debate that Worstall says has been so “sterile” has been all about. It is understandable that Worstall wants to declare that a vitally important argument, full of sound and fury and signifying a hell of a lot, that he picked the wrong side of and has stayed on the wrong side of, year after year, was “sterile”, but this need not impress anyone else.
Finally, Tim Worstall has got the information.
Should the rest of us climate skeptics welcome Worstall, and all the other ex-swallowers of or ex-believers in immediate climate catastrophe, into the land of the sane, or continue to sneer at such people for having been so wrong for so long? Personally, as you can see, I choose to indulge in a little sneering. But I also note that this hideously belated and still absurdly muddled admission of error by Tim Worstall is yet one more sign that this highly significant debate continues to move in the right direction. The debate isn’t moving fast enough to save the world a huge slice of its wealth, with much more squandering to come. But, every little helps.
As a Tim W fan I think he let his ego / mindset get in the way here.
He is primarily an economist and based his opinions on countering the sackcloth and ashes solutions proposed by the watermelons with more pragmatic economics based solutions such as a Pigou Carbon tax.
Unfortunately he didn’t realise that the framing was wrong – i.e. that CAGW exists, and that CAGW alaramism is simply made up bollocks to let mad statists tell us all what we are “allowed” to do..
Look up Richard Tol’s piece in the FT yesterday.
I continue to sneer.
Worstall hasn’t conceded that he was wrong; he has merely discovered that the forecasted economic costs of CAGW are much lower than were originally “projected” (if one can properly characterize the wild guesses thrown around by alarmists as “projections”). He therefore concludes (rightly) that the costs to mitigate climate change must be reduced commensurately. Straightforward economics there. But nowhere does he acknowledge that the entire argument is wrong; that the pseudoscience behind CAGW was largely fabricated, that the very real benefits of a slightly warmer climate have been ignored, and that the net impact of climate change has been grossly exaggerated.
In his short article Worstall devotes an entire paragraph to describing how Lord Stern essentially invented out of whole cloth his estimate that CAGW would reduce world GDP by 5% – 20%, but then in the very next sentence says “However, the essential heart of his argument was correct.” This is merely justifying fraud by saying that the man’s heart was pure. It’s the classic argument of leftists everywhere, and it doesn’t wash.
Worstall is clearly not reconstructed yet. He gets no credit from me.
Another rube self-identifies. Let us welcome him into the light.
I’ve never quite believed in the C part of CAGW. And all of that is irrelevant to what I’ve been going on about these past 10 years. Which is that *even if* the IPCC is correct in each and every detail, even if we want to swallow the extremes to which Stern went to maximise the potential damages it is *still* true that the solution to climate change is a global market based economy with a carbon tax.
Hell, I even wrote an entire book making this point at length.
You’re just not getting the point that I’ve been trying to make. And one implication of the point that I have been trying to make is that even if we do accept the IPCC, Stern and all the rest, then the UK has *already* solved climate change. For we already have a carbon tax at about that rate that Stern insisted we should. So we’re done.
I like most of his stuff but he has been consistently wrong on this issue and it’s not just the economics. You don’t need to be a ‘climate scientist’ to be able to review the scientific information presented by the CAGW crowd and find gaping holes in both the science and the mitigation proposals. He’s certainly bright enough to do this and the only explanation I can find for his stance is the common one amongst people who fancy themselves experts in some field or another (the dismal science for him) circling the wagons and protecting other experts from attack, in this case the aformentioned ‘climate scientists’. This is further exacerbated by his noted ego of course. Sadly an all too common problem I find and the reason why you get all this crap about consensus etc. from the technocrats – what they mean is; listen to your betters you oiks.
The sin I would find TW guilty of – and I say this as a great fan – is giving aid and comfort to the enemey.
And the catastrophists are the enemy.
The powers they seek – and in many cases they have already attained – are to manage your life in every respect from the wattage of your light bulbs to the size of your family. They are the modern day eugenicists, committed to ‘saving’ the planet at your expense and the expense of anyone else who gets in their way.
Intuitively it seems we can now complain *on their terms* about any climate related tax or regulation that costs more than 2% of GDP. Is that about right?
Simplify people.
This is about a TAX. Nothing more.
It’s actually an auction !
‘Let’s start the bidding at 20% of GDP’.
Silence
‘15% ?’
Silence until we get down to single digits at which point some
‘bidders’ ( weak believers ) start saying
‘well maybe% …………..’
Never ANY admission that the whole damn thing is a fraud and merely an attempt to get a world TAX of some amount.
The first ‘trick’ that MUST be accomplished is to get a tax, ANY tax established. That is the REAL purpose of lowering the ‘opening bid price’ from 15%-20% down to 2%-5%.
Once the tax is established, does ANYONE really believe that the percentage will not increase, ever so gradually of course, given what happens to EVERY DAMN tax levied ??
We’re being played again, by liars who see an almost unimaginable bucket of money that they can plunder, knowing full well that they will be long dead by the time anyone is called to account – if ever !!!!!!!!!
The success of the CAGW crowd was in large part due to casting the issue as stupid vs smart. Stupid people were deniers, smart people embraced science. This naturally attracted people who were ignorant of the facts and had a weakness for flattery. Journalists, actors, writers, and even real scientists were easily swayed when the proposition was framed that way. Many scientists, I would argue, had little knowledge of the subject, but were convinced of their superior intelligence and were easily enlisted to defend their colleagues against the ignorant masses. There was more vanity and delusion involved in the CAGW movement than science.
I never put Mr Worstall down as a catastrophe-monger or an ally of such. There is a perfectly rational middle ground between realist and alarmist, that being those who think that dumping huge amounts of carbon into the atmosphere can’t be all that good, regardless of the secure scientific evidence. He also has a minor bias in that all those rare earth minerals he deals in goes towards green technology. Nevertheless, I would say he errs on the side of science advancement and has faith we can technology ourselves out of any problem.
My only gripe with his arguments is they concentrate too much on the financial costs of being green, an area which most environmentalists have scant knowledge and his simple Economics 101 approach is almost too easy. However, eco-loons also have very little understanding on the science of energy production, their simplistic (and somewhat fascist) argument is less energy use overall, and this is where the true battle begins, not on how much money we throw away but how much energy is being wasted on green products that are frighteningly less efficient, which undermines the very objectives of using less energy and producing less emissions.
It’s fairly ironic that one of the best ways to combat the issues that the climate-changers have (or claim to have) would be for governments to stop stealing wealth from the productive (whose population is in decline) and subsidizing poverty.
I’ve always assumed he was deliberately playing devil’s advocate to make a point.
This tact would have been valid if it had made any impression on the public debate at large. My issue is that, it clearly hasn’t and so why continue. It has been obvious for some time the science is only used because it appears to provide support for the statist’s solutions. The conclusion precedes the science. These people would sooner cast Worstall as a denier than allow that there may be an argument for the market to solve AGW.
The clue is in the fact that the exact same people are against fracking, GM Foods and mobile phone masts. They subscribe to an anti-humanist philosophy. The consequence for them is that science can only be contingently true. Given two estimates of harm due to AGW they can only pick the higher one. Offer a solution that allows continued consumption and development – it must be wrong.
Having read TW for years I thought he was always clear on this. He said that although he has his doubts about the science, he is committed by what he has said elsewhere to accepting the mainstream science view, which he took to be the IPCC. (Because what he has constantly said elsewhere is that we should follow mainstream science, because who are we laymen to declare etc.). His point then was that even if you do accept global warming as the IPCC sees it, then economics tells us that what needs to be done is nothing like what the Greens are saying. So the Greens can be defeated even without taking the climate scientists on.
So he seemed to be trying to convince those who accept the supposedly mainstream view and who weren’t going to change their minds about it, that the proposals being put about by various greens were wrong. This seemed a reasonable tactic — except that, of course, not many people of this sort ever read a Tim Worstall column or blog post. And he clearly could have done with some more scepticism about whether the IPCC reports were ‘maintream science’, because it doesn’t take much digging before it becomes obvious that the IPCC is controlled by a small cabal of green activists. But I think he thought that was work for others to do.
Anyway, he hasn’t changed his position at all. He’s still accepting what the IPCC say, and applying standard economics to it.
I’d say you’re completely misreading Tim.
Tim Worstall’s got a pretty good record on economics. He gets listened to. He’s consistently made a case for policies that would lessen the damage to the economy, actions to combat a supposed CAGW would cause. Let’s call it a holding action against warmist excesses.
He has no credentials whatsoever to have a valid opinion on climate science. The moment he parts company from the “climate consensus” he’ll be rubbished, not only on his opinion on climate, but the economics will be tied to his climate opinion & rubbished with it.
Tim is a critical thinker but on climate he has taken a holiday.
Climate is complex. Our data on climate is incomplete and unreliable. The modeled predictions from this data are embarrassingly wrong. AGW proponents are tainted by ideology and dubious peer review.
Tim would pour scorn on this if it were economics.
There was a fad for quite some time for stories and theories about “mad scientists” and their nefarious schemes. From “Frankenstein” to “Dr No”, and beyond, there were any number of thrillers and chillers about those crazy scientists trying to play god, or conquer the world, or whatever.
Lately, however, the tide seems to have changed, and everything good, and modern, and wonderful has to have a coating of scientific approval for it to be legitimate. A large part of the mythology of collectivist theorizing had to do with its claims of being based on science and scientific planning, and avoided the chaotic randomness of capitalism and free markets.
Of course, the claims of AGW, or its latest euphemism, were always alleged to be totally scientifically based, and therefore, in modern parlance, unbiased and unassailable.
But now, after a few decades of examination, both internally as to their assumptions and premises, and externally as to their congruence with observations of the real world’s actual climate, it turns out the claims were poor science at best, the methodology badly flawed, and the policy proposals constructed out of collectivist whole cloth, with little or no positive effect on the alleged problem.
We are in an inter-glacial warm phase, with global temperatures oscillating in a fairly modest range between warmer and colder on a regular basis of several centuries for each swing of the pendulum.
But whether the climate is allegedly getting warmer or colder, some constants remain:
It is always a crisis which demands immediate action on a governmental scale;
It is always the result of flaws in the modern, industrial, technological economy, which must be drastically restructured by state action;
It is invariably the case that only careful, centralized planning of the economy will prevent the catastrophe du jour, and only our political elites and their pet academic theorists have the skills and disinterested objectivity to direct all the societal resources that need to be deployed to combat the threat;
It is absolutely never the case that any dissent from the conventional wisdom is either legitimate or reasonable, especially any dissent revolving around the concept that individuals and their actions might be equal or superior to the planning of the elites.
The words change, but the song remains the same.
Let me make an analogy to chess. Our army consists of different pieces and they attack the enemy in different ways. Tim chose the position ‘assuming your argument is correct, your economics don’t make sense’, leaving the scientific arguments to those better qualified to make them. I accept that as a useful contribution to the debate even though I fall into the ‘it’s all made up nonsense’ camp myself.
No one seems to have noticed the Mr. Worstall has posted his own comment in this thread, on April 2, 2014 at 2:50 pm. It merits a response.
First of all, he notes that he has “never quite believed in the C part of CAGW”. Fair enough; I agree. (I would add that I don’t believe in the “A” part either, which after all is the crux of the matter, but I can accept that he wants to skirt that issue to focus solely on the economics.) But then he continues to advocate for a carbon tax as the “solution” to climate change, apparently in the misguided belief that this is somehow a “market” solution. And that is utter nonsense.
A true market result would be where the actual costs (if any) are paid by those reaping the benefit to those bearing the burden. By contrast, a carbon tax is imposed by a government, at a rate which it unilaterally determines based on no economics whatsoever, and is payable to that government. The ultimate effect (and, indeed, I would argue the only real purpose) of such a tax is to swell the coffers of government and provide yet another tool for the enrichment of its friends and impoverishment of its enemies. That is equally true of any form of transferrable carbon credits, which suffer from exactly the same defect as a direct tax.
Whether the UK has already adopted such a tax, or that it is at a level equal to the purported harm caused by climate change (both of which Mr. Worstall asserts, and I assume that he is correct in this), is irrelevant. No form of carbon tax is a market solution; it’s merely a device for expanding government. No true free market enthusiast could support it.
A system already exists to deal with any climate change effects. When a disaster occurs, insurance companies, government and private individuals both in the disaster zone (direct costs) and outside of it (higher taxes and premiums) pay the costs to repair the damage and take precautions against a reoccurance. There is no need to create any further system to address disasters, a perfectly proven one already exists.
“But then he continues to advocate for a carbon tax as the “solution” to climate change, apparently in the misguided belief that this is somehow a “market” solution. And that is utter nonsense. ”
I love my markets just as much as the next froth mouthed classical liberal. But it’s simply not true that free markets all the time free markets and nothing but free markets solves every problem.
And public goods and externalities (ie, public bads) are two areas, one area if you prefer, where a pure free market approach does not work. Yes, sure, we can talk about Coase and times and places where purely private arrangements about pollution do work. But do note that Coase was delineating where such private arrangements will work: and also where they won’t.
As an example about public goods. The very existence of copyright and patents (and sure, there are problems with both systems as they currently are, but their mere existence) is an acceptance of the point that a pure free market in the production of knowledge and innovation is not optimal. Thus we invent intellectual property rights to correct for the public goods aspect.
OK, perhaps everyone here thinks that both copyright and patents should be abolished in their entirety, along with all IP. Fair enough, that would be consistent. But if one is willing to accept that (and there are many other examples of action to secure public goods that we could use instead) some action over and above pure free marketry might be a useful reaction to the public goods problem then exactly the same logic is applicable to the public bads, or externalities, problem.
I agree that a carbon tax is not a pure market action. However, given the problem to be faced a Pigou Tax is the most market orientated action possible. It’s a damn sight better than that idiotic planning that all the Greens (and greens) want to adopt, for example.
Sorry Tim, but the IP example you give is a red herring, as it is not a tax. I am a great supporter of absolutely free markets and the IP concept, precisely because IP acknowledges private property and the right of its owners to be protected from theft – which is the cornerstone of a free market. That is not to say that the current IP laws and regulations are fair or even effective in achieving that aim, but the idea itself is perfectly sound and fully consistent with free-market capitalism.
That is where I am coming from. Others may and will disagree with me about the IP concept itself, or about taxes vs free market, or even about the very desirability of free markets – and that is fine. But I’m afraid that you’ll need to find a different example to support your particular argument.
“but the idea itself is perfectly sound and fully consistent with free-market capitalism.”
But that’s the point. It isn’t. It’s a deliberate government intervention into the free market in order to make up for the fact that pure free markets don’t deal well with public goods.
OK, what exactly is meant by ‘public goods’ then? I mean, your personal, but general definition? And does the concept even apply in a free market?
“But it’s simply not true that free markets all the time free markets and nothing but free markets solves every problem.”
And there, again, missing the point. First you have to identify a problem to be solved.
How many IPCC predictions have been correct, how is the warming in 1970-1996 different from many thousands of pre-industrial warming cycles, is a warming planet actually a cost or a benefit etc etc ad nauseum.
Is this really that hard to understand?
Brian:
Well Brian, you believe in incentives influencing human behaviour. What set of incentives would you prefer to set, not just for TW, but for others like him who will see how he gets treated?
More generally, I actually rather identify with TW’s position (or at least, a weaker version of it that isn’t so keen on a carbon tax).
Yes,
All that I believe, and have always believed. It provides me with a strong inclination to be sceptical (in the genuine sense of the term). I just remain mindful of the fact that this does not necessarily imply the portion of your claim that I omitted to quote, that “Climate catastrophism was and continues to be made-up nonsense”, much less that GW, or even AWG is made up nonsense. (While we’re on the subject of embarrassment, the gradual addition of successive qualifying adjectives hasn’t been particularly edifying for the sceptics).
To suppose that such people’s motives disproves their empirical scientific claims is a form of ad hominem attack. Yes, there are all these reasons why so many people might be lying, but then again, there’s so many people all of whom have forgotten more about climatology than I will ever know. How can I really say whether they’re all wrong: because they’re all lying liars? Not the most convincing argument.
TW offered a much more satisfying response. As I read it, it went “Never mind whether you’re right about the science; let’s assume for the sake of argument that you’re right about it in every detail. That still doesn’t justify the demands you’re making for policy, and here’s why, and whatever right you may claim to exclusive control of the debate about the science, you sure damn well don’t have the right to exclusive control of debate about the policy response”.
That argument was a way to avoid talking about something I didn’t know anything about, and to avoid the consequential risk of saying something empirical that was later clearly falsified. More importantly, it was a way to avoid handing control of policy to deep-green activists with science degrees, and to retain permission to speak.
I think TW can feel entirely justified, and will be able to look back on this will far less embarrassment than most.
Tim, I certainly agree with you that it’s incorrect to say that “free markets solves every problem” (although it truly does solve most of them; we should give it a try some time). But that doesn’t mean that as uneconomic and irrational an approach as a carbon tax solves it either. I stand by my earlier statement that the only result of such a tax is to expand government, which will do nothing to ameliorate any actual climate change and will be positively harmful in every other respect. The adverse consequences (which I would contend are not “unintended”) far outweigh any putative benefits.
Mary Contrary makes a good point near the end of her post where she essentially says that accepting arguendo the warmists’ claims about the science, that doesn’t give them a monopoly on determining the policy response. I agree. But my point is that Mr. Worstall’s suggested policy response is a bad one, and clearly he is sticking with it. The best policy response would be to do nothing, and allow humans to adapt to whatever near-term climate change (warmer or colder, we simply don’t know) does occur. Adaptation is what we’re best at, if allowed.
Whilst the theory of Pigou Taxes is attractive it’s hard to see how the £80/tonne carbon tax can either reduce carbon emissions or even create revenue to fund carbon emission reduction.
To simplify, let’s just take oil.
Yes, an $80/tonne tax on carbon emission will deter carbon emission. It does that by increasing the price of oil fuels & yes, increased price implies reduced demand. But this looks at only one end of the market in oil. At the other end are the oil producers. Reduced demand is reduced supply is reduced oil revenues. But for the producers, the amount of oil available for supply is effectively open. To restore revenues it’s simply a matter of reducing the oil price to a level where demand rises. In fact to maintain revenues, a larger volume of oil must flow than before the carbon tax went on. More carbon is emitted. And the tax incidence is on the producers, not the emitters.
But do consumers pay more tax? Arguably not. It’s a regrettable fact, if governments can tax governments will tax. To the limit the economy can sustain. And in the UK, this is proved by fuel duties being much higher than needed to fulfill an $80/tonne. I’m quoting Tim Worstall on this. So fuel duties would be at that level irrespective of whether there was a carbon tax or not. The carbon tax is simply a fig leaf to label part of it.
In the end, all that happening is government is securing more revenue to do government. Which is what all environmental taxes seem to be about.
I’m as keen a defender of ideological purity as anyone. But I’m going to wander off the reservation here for a moment and suggest that the carbon tax is probably the least-bad of the policy proposals that are on the table. The pro-CAGW crowd scored enough points in the debate to ensure that democratic governments would have to “do something.” So, realistically, the choice has never been between a carbon tax and nothing, it has been between a carbon tax and other policies that are worse.
And it’s not as though governments aren’t going to spend the same amount of money anyway, whether we let them raise a new tax or not. They’ll simply print it if we don’t let them tax us for it, which is worse, in my opinion.
It probably would have been better if we’d gotten other proposals off the table by agreeing on a carbon tax early on. That way, the policy debate would have been reduced to determining the rate of the carbon tax, which probably would have minimized the damage. Sometimes you have to give up a little ground in one place to gain ground somewhere else.
I disagree, Tedd, and it has nothing to do with ideology. A new tax is not just money taken from the population and used by governments to fund whatever it is they do. This is a very specific tax, it will be levied on specific products and activities, and as such will create all kinds of distortions in all sorts of markets – some expected (see BiS comment above), and some not. In turn, these distortions will cause various inequalities and grievances, followed by demands for regulations, other taxes to “level the playing field”, etc. Also, one should remember that this is supposed to be some kind of a global tax, which is unprecedented IIUC, which means even more unforeseen consequences. If anything, I’d rather they raised the existing taxes or printed more money – at least with those it is the devil we know.
Ailsa’s comment about “distortion” provokes an addition to the above.
It’s my view the Pigou carbon tax is a transfer of wealth from the producer to the taxing government.
And it’s easy to forget, the use of energy is not done for its own sake. It’s actually a requirement of economic activity. Even driving your car, heating your home or cooking your dinner is economic activity of a sort. Consumption.
So what happens to the tax government has extracted from the producers? Unless it destroys its value, instantly – which governments do seem to be able achieve on occasion – it uses it. It may spend it on playschools or cancer treatments. Duck houses or special personal assistants. But it’s all economic activity. Which uses energy. Which produces carbon emissions. Consumption.
TANSTAAFL
Indeed.
A long range futures market in “climate”, IE temperature/location changes contract, sea level/ice cap changes contract, rainfall/location changes contract, etc would allow people impacted by changes (should they occur) to hedge their anticipated losses or profits.
If the market value of climate stasis reached an action-meriting threshold, then speculators in climate futures could profit from taking actions that create climate stasis. They could invest a part of the margin between anticipated climate future and desired climate future and invest it in achieving the desired climate future.
Because it would be continuously adjusted by the market, investors with their own wealth at risk would be strongly incentivized to seek the most scientifically meritorious models of climate future.
To use carbon emissions as an example, if investors with their own money at risk conclude that buying down carbon emissions is a cost effective way to cool the climate (or maintain stasis) then they could reward low carbon output energy producers to the detriment (and reduced market share) of high carbon output energy producers.
An unavoidable consequence of this approach is that it would not automatically seek climate stasis. It would automatically seek whatever climate the climate futures buyers most value.
Alisa:
I took it as read that we were talking about taxes by existing governments, not some kind of global tax. I agree with what you said about a global tax.
As for your other points, I agree they are negatives, but you haven’t explained how other proposed policies — carbon credits, emission limits, etc. — are less bad than a carbon tax, in those respects. I don’t see that they are.
@midwesterner
But you’re not describing what article of value you’re trading there. Somehow you’d have to capitalise those values you wish to create a market in. Essentially you’re back to Tim Worstall’s point that if you want to use market forces to control something you have to have something tangible to buy & sell. Hence carbon credits.
Tedd: sorry I neglected to address those particular points. No, they are not less bad than new taxes, but I don’t see how they are worse either. Seems to me they can be lumped in with the new taxes as Generally Bad Things. And just in case anyone is wondering: yes, this does mean ‘do nothing’.
Regarding a global tax, my fear is that it may carry additional externalities a regular local tax may not.
Bloke, Mid did mention the possibility of buying carbon emissions as an example, which seem to be synonymous with carbon credits. What am I missing?
@Alisa
It’s the problem, you have to assign value to things to begin with. The theory’s OK. But getting a handhold on the realities isn’t. You can’t price one degree of temperature change. You can price the cause of one degree of temperature change. But we’re having trouble in agreeing on assigning causes.
Look at emissions trading. Assign carbon credits, create a market, job’s done. Except emission trading had exactly the desired effect. Players reduced emissions, carbon credits bombed, so the wise heads want a “floor” on the price. Which totally negates the purpose of having a market, in the first place.
Incidentally, that market solutions don’t necessarily work isn’t a reason not to use market solutions. The alternative, if you wish solutions, is imposed solutions set by politicians for politicians’ ends. So, as a least worse tactic, selling politicians on market solutions, is a winner if market solutions do less damage. But don’t kid yourself it’s about creating a better world. Purely about creating a least worse one.
Why not? The insurance industry does precisely that, without much concern for causes.
Absolutely.
Hence my views on the carbon tax. May be Tim’s as well, for all I know. Doesn’t produce the desired effect. May even make the situation worse. But in a world where “something must be done” this is a something. Possibly less harmful than other somethings.
[Sorry preview, you are my friend:-O] Obviously, I did not mean that insurance necessarily deals with temperature changes (although I think it can), but more generally with consequences rather than with causes.
Sorry, but I still can’t see why, even if something indeed must be done (which I doubt), it must be done by the government. And getting back to Tedd’s point for a moment, I think that it can be taken for granted that anything done by a government can realistically thought of as a tax.
“The insurance industry does precisely that,”
Insurance is a gambling game. Insurer is one side of the bet. Insured the other. It’s whether you can find anyone to pick up the other side of the bet & whether they could cover the stake. If the temperature change causes universal disaster the insurer is just as badly affected as the insured.
ie If you want to pick a flood insurer, don’t use one who’s assets are all on a flood plain.
Of course. I did not suggest insurance as the solution (although I am saying that it can be part of the solution), I only brought it up regarding your point about pricing – it being the most important point in this discussion, as markets are all about pricing. All markets are, whether the ever-present and unavoidable gambling element is dominant (such as in insurance industry) or not.
Alisa,
“OK, what exactly is meant by ‘public goods’ then? I mean, your personal, but general definition? And does the concept even apply in a free market?”
A public good is something that is non-excludeable and non-rivalrous. Once it exists we cannot stop people from making use of it and also their use of it does not diminish the amount that others can use. The standard textbook example is vaccination. Unfortunately this is wrong: it is the herd immunity that results from vaccination that is the public good. Once 90-05% of the population are vaccinated then there’s no reservoir of the disease left to infect anyone. So that last 5% do not need to do anything to benefit from the disappearance of the disease.
There are various methods by which we can encourage that 95% vaccination rate. In the UK the NHS simply pays for them for all. In the US you cannot send a child to school (in most States at least) until it has been vaccinated but at private cost.
The recent outbreaks of measles as fools did not vaccinate their children over the autism nonsense also shows that herd immunity is not something likely to arise without some form of government action.
Thus we have government action to provide that public good. Do note that neither taxation nor spending are necessarily the government action that must happen.
In terms of intellectual property much of it is indeed a public good. Think of the cost of copying a digital novel these days. Zero. We tend to think that people react to incentives and that if no writer ever got paid for copies of their books then fewer books than we might like to be written will be written. So, we invent IP to provide a possibility of an author profiting from having written.
Again, this is a non-tax solution to the public goods problem.
Other public goods problems, like, say, the ill effects of pollution, might need different solutions. We could use regulation. We could use a Pigou Tax. We could shoot people who pollute. We could issue licences to pollute and have people trade them: cap and trade. But a normal and reasonable assumption is that the Pigou Tax is the most efficient manner of dealing with this sort of problem.
As to a carbon tax being distortionary. Umm, yes, that’s the point. It’s a distortion moving people away from making carbon emissions. That’s what it’s for.
Thanks Tim, was just making sure that I am on the same page as you are. Consequently, my next point was that in a fully free market there is no such thing as ‘public goods’, because no good is non-excludable.
I think that one of the earlier comments by Bloke in Spain show quite clearly that this is not exactly the case. Rather, what this tax does is moving some people away from making carbon emissions, while moving some other people towards making the same.
@Tim
“It’s a distortion moving people away from making carbon emissions. That’s what it’s for.”
I’m not sure if I haven’t proved it does the opposite. At least with oil. Any you’ll know I’ve advanced that theory in several places. To mostly silence. Do you want to have a go at refuting it?
Farmers can certainly value one degree of temperature change. They can and do value rainfall/temperature combinations to the day. For just one example on a crop that I grew, ideal conditions during the pollination window (a few days at most) can mean a bumper crop when an otherwise ideal year that had poor conditions for pollination means empty hoppers.
The tourism industry greatly values ideal weather over bad weather.
Something that is lost on most people in all of the “hedge fund preditors!!11!” noise that comes out of the MSM is that hedge funds – futures – are insurance. They provide price and profit insurance.
I belong to an recreation organization that heavily relies on a warm spring to maximize its annual revenues. Nine days ago we were still sailing iceboats in southern Wisconsin. In other years, we’ve had our ‘soft water’ piers in the lakes and been sailing on water during March. We could benefit from hedging the time the ice comes off of the lakes so that during a late year we would make up the losses from yields on “late ice” futures.
Understanding hedging is simple. Sellers forward contract a future commodity sale. Buyers forward contract a future commodity purchase. Buyers and sellers are “hedging” their transaction prices. Speculators look at the best evidence they can find and then buy and sell hedgers contracts. When the ‘seller’ is an act of nature rather than a farmer or miner, the speculators/underwriters can still bid a weather contract according to their anticipation of weather actuary calculation. In those cases instead of the dynamic being seller->speculator->buyer, it is just speculator->buyer.
And yes, you are stating the obvious with respect to insurance underwriting being speculative. The term “gambling” is a pejorative that implies a random decision process. If you’ve ever looked into actuarial studies, you know that while they may make errors, they are not randomly making decisions. Futures markets are insurance markets. They carry the same risks and benefits and should be chosen with the same degree of caution.
I will explain how a market in weather/climate futures will impact weather and climate.
If enough farmers, seashore property owners, etc are buying futures to insure themselves against a particular weather/climate outcome, the volume of those contracts will expand into Wall street lots-of-zeroes territory. An entity may look at all of that volume and realize that buying at market and then altering the climate is financially feasible. They may, for example, subsidize airline flights to occur during night (jet engine exhaust condensate blankets in the heat under the flight path) or daytime (jet engine exhaust condensate reflects solar gain back into space, cooling the area under the flight path). This entity may look at the value that Midwest farmers have placed on one or the other of those actions and determine that they can subsidize changes in flight scheduling and still return a profit on their weather futures contracts.
Using this method to undertake (deliberate) climate manipulations has several advantages over anointing politicians to manipulate climate. First, there is a built in cost/benefit restriction that prevents costly but useless symbolic rituals the politicians do so love. Secondly, there is a financial incentive to collect and act on the most sound climate models (no artificially constructed hockey sticks), the most economical climate amelioration techniques, and most importantly, the climate issues that have the most money-where-their-mouth-is substantive support. And yes, I do think (genuine) environmentalists will invest in delicate ecosystem preservation.
@Midwesterner
Insurance really is gambling. It’s just they dress the stable boys up in suits & call them actuaries.
The bet is: I’ll bet you 200 £/$ my house will burn down this year, to which the insurer replies, I’ll bet you 200,000 £/$ it won’t. Mostly the form book (actuaries) says insurers win more than 999 out of a thousand times. There’s nothing more to it. Apart from the Armanis.
Try & think of it this way. You want a bet covered on +1 deg climate change. The insurer is going to be doing no business in the northern states or Canada because +1 would be fat city. So the only cover will be bought in a strip across the south. Plus one happens, all those affected with cover will be putting in claims. No risk spread. Tell me who’d want to cover the bet?
We’re not insuring localised freak weather events, here. We’re trying to insure climate. Different thing.
Nope. It’s politicians who are trying to solve climate problems globally – problems which come in the form of localized weather, and this is precisely how they frame it when they are trying to scare the rest of us into their various schemes such as global carbon tax. And rightly so, because localized weather is what matters – otherwise no one would give them the time of day anyway.
“Insurance really is gambling. It’s just they dress the stable boys up in suits & call them actuaries.”
BIS, I frequently find myself in agreement with you, but that is an amazingly ignorant comment.
What is it, Laird, apart from a very sophisticated form of gambling? There was a guy use to drink in our local. Large farmhouse bought with the proceeds of an electrical business he’d sold. Big noise in the village shoot. Haven’t seen him for years. He was a member of a Lloyds underwriting syndicate. Good returns for him, for a while. Until chance produced a run of large claims. He lost every penny he had, when the syndicate failed. That’s the raw reality of the insurance business.
It explains why midwesterner’s idea of insuring against climate change wouldn’t work.
Go look in small print of your auto insurance policy & you’ll find you’re not insured against nuclear events. Why? It’s a very low probability event. But for you to have insurance cover, would guarantee to restore your losses, the initial insurance premium would need to be the same as the value of the auto. Because if the insurance company had to pay out on your vehicle it’s highly probable it would have to pay out on every other vehicle it was insuring. So it would need a claims provision equal to the value of all vehicles insured, to offer insurance.
Climate change insurance would be similar because the event being insured against might create a loss on all the policies. The sophisticated calculations actuaries use to assess & manage risk get stripped away because there’s no spread of risk to manage.
@Alisa
You are preaching at the choir, there. 🙂 But this is economics, not climate science.
Indeed, Bloke.
I think I see what you are getting at, but I’ll let Laird have a go at it, as I presume he had looked at as much small print on insurance policies of all kinds as one man possibly can.
http://en.mercopress.com/2014/04/04/white-house-targets-methane-emissions
Will farting, without wearing charcoal-impregnated underwear, or if in the bath, into an upturned vessel, become a Federal felony?
Wait 2 years.
BiS, I’m not arguing in support of Midwesterner’s idea of a climate change futures market (which is not the same as insurance, by the way). Personally, I don’t think it’s feasible for reasons I don’t want to go into here. But I am saying that ordinary life and hazard insurance have absolutely nothing in common with gambling, except in the sense that casino profits are “gambling”. Somehow casinos always come out ahead, and so do life and hazard insurance companies on their ordinary book of business. (Where they sometimes come to grief is in their investment portfolios.) Life insurance, automobile insurance, residential fire insurance, etc., are all eminently susceptible of actuarial analysis. If you’re an insurance company, the Law of Large Numbers is your friend. They know within fractions of a percentage point how many of their life policyholders are going to die in any given year, and how many of their auto policyholders are going to have accidents. They merely don’t know which specific ones, but that’s irrelevant. And that’s why they exclude “acts of God” and “acts of war” from their policies; those are inherently unpredictable and therefore impossible to properly price. There is a reason some insurance companies are literally centuries old, and it’s not that they were lucky in their “gambling”.
It’s not entirely the same with specialty insurers (such as Lloyds), where the unusual events they insure (such as a $1 million prize for hitting a hole in one in a tournament) aren’t properly quantifiable and are therefore more susceptible to mispricing. There simply aren’t enough “Large Numbers” to properly spread the risk, so I will concede that that is more akin to gambling. However, that is precisely why they lay off large portions of the risk to lots of other companies via the re-insurance market. But with respect to garden-variety insurance, anyone who thinks that it’s “gambling” is merely demonstrate his complete ignorance of statistics.
@Laird. Do I get the impression you work(ed) in the industry? In which case, that makes both of us. Yes, when you’re dealing with large spreads of risk, it’s possible to work the numbers takes almost all the gambling out of insurance, for insurers. But it’s still there. The chances of an auto insurer having every car it covers pranged are a lot less than being dealt a royal flush. But it still exists. The statistics say so. Or do you want to argue with your own math? And, of course, like most industry insiders, you’re ignoring you’re only half of the insurance industry. The other half is the insured who pay the premiums. And that side is much closer to gambling because, unlike the insurers, they can’t play the numbers game. Whether or not one insures risk is a unique gamble. Do the premiums asked reflect the perceived risk? The answer, in the end’s provided by Lady
There is a motive I enjoy emphasising the gambling element of insurance. There’s an illusion, this side of the Atlantic at least, insurance is some sort of benevolent fund, organised by the financial services industry, to shelter the public from life’s realities. Not helped by insurance salesmen claiming much the same. But it’s not “unfair” (a law should be passed – something should be done), because statistically few houses get flooded, their particular house built with the river lapping at its doorstep can’t get flood insurance. It’s because it’s a racing certainty, that house will get flooded. No insurer would want to bet the other way.
Commodities markets? They are a form of insurance because they hedge risk. But you can’t hedge climate change for the same reason some risks are uninsurable. Buying wheat “long” isn’t going to help if the wheat crop failure extends across all wheat producers. There’ll be no physical wheat available to deliver against the contract.
Actually, BiS, I’ve never worked in the insurance industry, although I have had a lot of involvement with it. But when you say that you can’t take all the “gambling” out of insurance, all you’re saying is that there are tail events which, while extremely unlikely, are nonetheless possible; that you can’t take 100% of the risk out of anything. I agree. But the “gambling” element of that is far less than in almost every other human activity. It’s far more quantifiable (and quantified) than in simply getting out of bed in the morning and going into the office. To call that “gambling” is disingenuous at best.
Nor is it “gambling” for the policyholder. You make a judgment that the cost of losing your house to fire, while a remote possibility, is nonetheless too severe a risk to run when compared to the modest cost of insurance. So you buy it. It’s not “gambling”, it’s catastrophic risk avoidance. And it’s entirely rational.
@Laird
Sorry, but this is exactly my point. With most risk, it’s quantifiable to the point where most insurance is a predictably staid boring matter of number crunching for the insurer. The “tail’s” minute. (For the insured, the “tail’s” much longer. For most people there’s an opportunity cost calculation. They’re not buying the insurance they need, they’re buying the insurance they think they can afford. Insuring a house against fire is not rational if paying the premium means you can’t eat*)
So there’s the illusion, midwesterner was exploring, that you can apply the same risk strategies** to something like climate change. Which is all “tail”. It’s very hard to put a handle of “price” on things unquantifiable. It’s possible for markets to produce energy producing tech, produces energy cheaper than current tech. But markets won’t produce low carbon tech because the carbon is an externality, won’t appear on any cost sheet. Hence taxing externalities, like carbon tax does, to insert that cost.
** Insurance, commodity markets, etc are all provisions against uncertain future. But they do require someone “betting” in the other direction, can pay up if they lose. A market containing only buyers isn’t a market.
*The eternal problem of trying to explain the non-middle class world to the middle classes.
“my next point was that in a fully free market there is no such thing as ‘public goods’, because no good is non-excludable.”
What? Where does this idea come from?
In a free market herd immunity does not benefit those not vaccinated? A free market means that there’s no general benefit from living in a generally literate and numerate society (to use one of Adam Smith’s examples of a public good)? Newton’s equations cannot be used by me in a free market society but can be in a not free market one?
Seriously, what on earth is it that you’re trying to say here?
A “benefit” is not a public good. It sounds to me like you are equating “the public good” with “the public’s goods”. Going down that path leads to everything “good” becoming a “public good”. That is that path to socialized collectivism.
Herd immunity is the same as mutual defense against any other threat. If a powerful nation were to defeat a nation bent on world rule, small nations benefit. But does that mean they have a claim against the powerful nation for its protection? Some will say yes but I reject that claim. Just as the small nations get a windfall benefit from the large nation protecting itself, the unvaccinated get a benefit from the actions of the vaccinated.
As for IP, which I think is where you are going with Newton’s equations, they are morally based on the right to keep secrets and the right to trade those secrets under terms. Part of the contract of living under our particular system of government (in the US) is that authors of the Constitution bribed inventors into sharing their secrets more widely by installing protections for them in the Constitution. Certainly someone not living under the protections of, and benefiting from our Constitution cannot be morally denied us of US specific IP but many nations have reached somewhat reciprocal terms. In a globalizing world these reciprocities become ever more important to keep inventors from holding their inventions as secrets (IP protection requires disclosure) or not bothering at all. There is a reason why all of the most world changing IP has originated in nations with the greatest protections for it.
Speaking strictly for myself and not attempting to put words in Alisa’s mouth (er, keyboard?) all property rights originate in the agreements of persons to not violently take each others possessions. A state of nature is a herd of zebras and a pride of lions. We rise above that by agreeing to respect each others possessions and agreeing on boundaries between ourselves.
Individualists place everything within the sphere of human individuals. Collectivists place everything into one collective sphere. It is like comparing ice, in which all water molecules fall specifically into one or another of many interlocking water crystals, with liquid water, in which there is no stability and all is in flux.
Inconsistency is not in one or the other of these (to the individual or to the collective) assignments of rights, it is in attempts to mix them and say “some things are assigned to the collective and some things to the individual”.
My observations of collectivist societies is that they are (to the extent of their collectivism) indistinguishable from the lions and zebras state of nature. So I choose individualism. It means I must enter reciprocal relations and while I might not (in fact do not) always agree with the assignments of rights/boundaries between individuals, I find the benefits of reciprocal association far outweigh the disappointments. The farther we get from the individualist assignments of the US Constitution or Britain’s Common Law heritage towards pursuit of the collectivist “greater good” or as you are defending in this thread, “the public benefit”, the less true benefits to association there are.
@ midwesterner
Do recommend you look up “public good” in an economics book. Non-excludable, non-rivalrous usually gets tagged on. It’s a noun, not an adjective. In normal circumstance, air is a public good. Anyone can breath it, no-one can be excluded from breathing it. So, by definition, it’s not subject to a market because it can’t be bought and sold.
Alisa:
A carbon tax has the advantages (relative to other “let’s do something” proposals) of simplicity, visibility, minimal market distortion (compared to credit trading or emission limits), and fewer mechanisms of corruption. I completely agree with you that everything government does can be considered a “tax.” But we can still consider the relative merits of each policy under the pragmatic assumption that government is probably going to implement at least one of them.