Freaking Out over Global Warming
http://mises.org/story/3825
by Robert P. Murphy

One of the ugliest battles in the blogosphere climate wars has involved the newly released Superfreakonomics, sequel to the best-selling Freakonomics. In their new book's final chapter,Download PDF economist Steven Levitt and journalist Stephen Dubner set out to challenge the view that massively restricting carbon emissions is the only hope for averting planetwide catastrophe. Some of the most outspoken advocates for immediate "carbon legislation," such as Joe Romm and Paul Krugman, were appalled by the chapter.

In this article I will link to some of the major commentary on the book so far, and try to explain to Austrian readers why the interventionists were understandably upset. In particular, I want to caution libertarians not to reflexively side with Levitt and Dubner because "they're on our side." I will remind readers of the admitted errors Levitt made in his battles (stemming from the Freakonomics era) with anti-gun-controller John Lott.

Having done all this, at the end of the article my merciful nature will compel me to defend Levitt and Dubner from UC Berkeley economist Brad DeLong's specific claim that their support of geoengineering is somehow "bad economics."

As we'll see, Levitt and Dubner might be wrong in their views on global warming, but if so they are wrong because of the numbers. Regardless of their other possible sins, Levitt and Dubner should be acquitted of DeLong's accusation that they aren't thinking like economists.
A Summary of the Blog Wars

I can't do Levitt and Dubner's presentation justice here; I encourage the interested reader to read the chapter.Download PDF To summarize very briefly, they argue that if global warming really is a threat, then it does not follow that governments need to enforce draconian cuts in carbon dioxide emissions, which would cost many trillions of dollars over the next few decades.

Instead, a "geoengineering" solution could be adopted to keep the earth cool despite increasing concentrations of greenhouse gases in the atmosphere. Perhaps the most fanciful idea is to suspend a hose using helium balloons, in order to pump sulfur dioxide into the stratosphere. This would reflect some of the incoming sunlight and arrest (or even reverse) global warming, just as occurred after the eruption of Mount Pinatubo in 1991. Best of all, this particular approach would only cost about $250 million total — less than what Al Gore's foundation is spending just to "raise awareness" about climate change.

Naturally, the proponents of massive government interventions into the economy were furious at Levitt and Dubner's claims. Physicist and Clinton administration Department of Energy official Joe Romm got the ball rolling with this fiery post in which he accused the Superfreakonomics writers not merely of being incredibly sloppy in their summary of the climate science but also of consciously distorting the views of the scientists they quoted.

Romm's frequent ally in such matters, Paul Krugman, soon followed suit and claimed that the authors horribly mischaracterized the views of leading climate economists in the chapter. Dubner defended himself and coauthor Levitt against Romm's accusations of intentional distortion in this post, and physicist (and all-around guru) Nathan Myhrvold, one of the primary sources for the chapter, defended himself from Romm's accusations of ignorance here.
Are the Critics Justified?

Readers of these pages know that I am no fan of Paul Krugman, especially when it comes to his views on climate change. But I do want to explain that I understand why he and Romm freaked out about this chapter.

The example that most offended Krugman was Levitt and Dubner's discussion of the work of economist Martin Weitzman. In a passage discussing the thorny issues of climate change — that the risks are very uncertain and won't occur for many years, making it hard to know how much action to take in the present — Levitt and Dubner say,

The economist Martin Weitzman analyzed the best available climate models and concluded the future holds a 5 percent chance of a terrible-case scenario — a rise of more than 10 degrees Celsius.

There is of course great uncertainty even in this estimate of uncertainty. So how should we place a value on this relatively small chance of worldwide catastrophe? (Superfreakonomics, p. 169)

This is the only mention of Weitzman in the chapter, and the overall theme of course is that global warming need not alter modern civilization. In context, then, one certainly gets the impression that Martin Weitzman's work weakens the case for immediate restrictions on carbon emissions.

But this is exactly the opposite of what Weitzman has done. The issues are too technical for a full discussion here, but elsewhere I have explained that Weitzman is one of the interventionists' heroes on the issue of climate change.
"I just want to caution Austrian and libertarian readers not to assume that anyone who 'thinks global warming is a big hoax' is automatically a great scholar."

Even conceding the natural-science "consensus" on human-caused climate change, standard cost-benefit models show that the "optimal carbon tax" starts out fairly modestly, and only increases gradually over the decades. This is because the serious damages from climate change won't really kick in until the end of the century, and so the present discounted value of the "social cost" of an additional ton of carbon dioxide emissions is fairly low.

Weitzman's work upsets this standard conclusion. He has shown the mathematical conditions under which the usual cost-benefit models break down. Weitzman's approach shows that, rather than making a slight marginal adjustment in the trajectory of emissions to "internalize the externality," it can be optimal to aggressively curtail emissions right away in order to minimize the likelihood of experiencing catastrophic climate events.

So it's not so much that Levitt and Dubner lied about Weitzman's work, but their reference was very misleading. Austrians can appreciate what happened by considering this analogy: Suppose a proponent of government healthcare said, "All these critics keep warning about 'socialized medicine.' But Nobel economist Friedrich Hayek wrote in the socialist-calculation debate that there was no logical problem with central planners optimally allocating resources."

Now the above (hypothetical) quotation would be accurate, strictly speaking, but horribly misleading. If it were embedded in a book chapter pushing for a government health-insurance plan, Austrian economists would understandably freak out. Thus, we should be forgiving when Paul Krugman does the same after reading Superfreakonomics on climate change.

One final point, in case the free-market reader simply cannot bring himself to empathize with Paul Krugman — let's not forget what happened in the argument between Steve Levitt and anti-gun-control economist John Lott. Levitt ultimately had to write a letter to a colleague retracting claims he had made regarding Lott's involvement with an issue of the Journal of Law and Economics. In that letter, Levitt made the following correction:

In those emails [I had sent to you], I did not mean to suggest that Dr. John R. Lott, Jr., or anyone acting on his behalf, engaged in bribery or exercised improper influence on the editorial process with respect to the preparation and publication of the Conference Issue. I acknowledge that the articles that were published in the Conference Issue were reviewed by referees engaged by the editors of the JLE. In fact, I was one of the peer referees.

In case the reader's eyes glazed over, let me emphasize the astounding admission in the above sentences by quoting one cynical blogger: "Look at the size of the lies Levitt was throwing around. 'It wasn't a refereed journal,' Levitt says. Not only was it a refereed journal, Levitt was a referee!"

Of course, just because Levitt may have been sloppy and very unfair in his treatment of the work of John Lott, doesn't prove that Romm and Krugman are right when it comes to Levitt's (and coauthor Dubner's) handling of climate change. I just want to caution Austrian and libertarian readers not to assume that anyone who "thinks global warming is a big hoax" is automatically a great scholar.

Now that I've spent so much time criticizing Levitt, let me end this article by defending him from economist Brad DeLong.
DeLong Forgets that Time Is Money

In a series of posts (one, two, and three), DeLong heaps extreme criticism on our authors. Under normal circumstances, DeLong's criticisms would be described as "scathing," yet compared to Romm's treatment, it's kid-glove stuff. For our purposes here, I want to focus on just two of DeLong's (many) complaints. First, DeLong quotes Levitt who said (during an NPR interview),

[I]f you look at the history of modern mankind, I think you will be hard pressed to find any particular problem that was serious that was solved by a behavioral change, as opposed to by a technological solution….

DeLong is astounded by this claim, and responds, "That's just not economics: economics is that incentives change, and as incentives change people's behavior changes."

DeLong is right: what Levitt said is "not economics." Rather, it's a historical claim. Maybe it's right and maybe it's wrong, but DeLong can't trump it by citing a tautology from microeconomics. I am sure that Levitt would concede the narrow point that if governments around the world instituted a massive carbon tax, and enforced it with draconian penalties for evasion, then global emissions would indeed fall quickly.
"I am sure that Levitt would concede the narrow point that if governments around the world instituted a massive carbon tax, and enforced it with draconian penalties for evasion, then global emissions would indeed fall quickly."

But one of Levitt's main points is that governments around the world are not going to do this — that it is naive to expect them to sacrifice their own economies when (in Levitt's opinion) the climate science is not nearly certain enough to justify this painful step.

Levitt is making a prediction — based on his interpretation of history — that if manmade global warming really does require drastic measures in the next few decades, the response will involve various forms of geoengineering, which (Levitt predicts) will cost a tiny fraction of what the carbon mitigation proposals would require. To repeat, I'm not saying I necessarily endorse Levitt's glib proclamations on these points, but DeLong is wrong to dismiss them as somehow "not economics."

Finally let's deal with another point on which DeLong completely misses Levitt's valid argument. He first quotes Levitt:

Now, in the long run, perhaps you'll want to deal with the [high] carbon [dioxide] issue [even with geoengineering] because we're going to have acidification of the oceans and the coral reefs will die if we don't do something about the carbon. But if you just buy the time to keep the Earth cool for a while longer, I am certain that if we invest we will come up with technology that will allow us much more effectively in the future to pull carbon out of the air than we currently have….

DeLong points out that whatever mechanism our descendants use to suck CO2 out of the atmosphere, it will require power generation. He then argues,

So now we have (a) our normal power plants to power our civilization, plus (b) our atmosphere carbon-scrubbing industry, which is (c) powered by even more carbon power plants to generate the power to break the carbon-oxygen bonds that our first set of power plants made. But plants (c) put more carbon into the atmosphere than plants (a) did.

I know, says Steve Levitt, we can power our carbon-scrubbing industry (b) by power plants (c) that use nuclear or solar or… But then why not power our original civilization-sustaining power plants (a) by nuclear or solar or whatever?

Now this is frankly silly. Let's be clear, I think Levitt and Dubner made some major goofs in their chapter, and DeLong (as well as Romm and Krugman) nailed them. But here DeLong is making an obvious mistake. He is neglecting the fact that it will be much, much cheaper to engage in carbon-free energy production the longer we wait. Does DeLong really not see this elementary point and how it makes Levitt's argument perfectly sensible?

For an analogy, consider people who contract a terminal illness and then elect to have their bodies cryonically frozen so that they can be resuscitated and cured in the future. Now maybe that's a good idea or maybe it's not, but it wouldn't really make sense for someone to say, "That's just bad economics! Why go to the trouble of having your cancer cured in the future? Just do it now." Yet that is exactly the argument DeLong has deployed against Levitt.

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"There is a reason that the energy infrastructure in today's market economies is so heavily based upon fossil fuels…"
Conclusion

There is a reason that the energy infrastructure in today's market economies is so heavily based upon fossil fuels: they are by far the cheapest, most reliable forms of energy, given the needs of modern society. Regardless of their (alleged) sloppy scholarship, Levitt and Dubner raise an interesting possibility that deserves careful scrutiny, not ridicule: even if it turns out that unfettered use of fossil fuels will spell unacceptable climate damages to future generations, it does not follow that the only solution is immediate and drastic reductions in carbon emissions.

Another possibility is to buy a few decades' worth of "breathing room" (Myhrvold's phrase in the book) through pumping SO2 into the stratosphere, for example, and then make the transition to carbon-free energy production when it will not be so terribly costly.

It's surprising that some of the people who warn that the fate of the planet itself is it stake are so dismissive of what could be a crucial component of humanity's response to the very dangers of which they're warning.