The Stern review, and the social discount rate objection

[ataxi]

I don't know nearly enough economics to understand this topic. Yet. Anyone want to explain it?

In this morning's Australian the fair-way-to-the-right Alan Wood questions the assumptions underpinning the economic model used in the Stern review on climate change. The article, not that lucid or explanatory, is hereThe somewhat-to-the-left

Comments

[prawnwarp]

I don't know enough either. But I seem to remember that social discounting is to do with the tradeoff between present economic benefits and future ones. Future benefits are discounted because they're hypothetical - it's the same logic as "a bird in the hand is worth two in the bush."

In this context, it means if global warming is estimated to cause $X worth of damage in 100 years, we shouldn't take that $X figure and just plug it into a cost-benefit analysis against current costs - it should be discounted because it's only a probable loss.

Anyway, I think that's what it means. It's a long long time since I studied environmental law though.

I think you should dismiss Wood because he uses the adjective 'shrill' to describe his opponents. This is never a sign of a sound argument.

[ataxi]

I certainly question Wood, who's one of the long term right wing hacks in Murdoch's stable of opinion-columnist-cum-superannuated-editors, and invariably falls in line against anything that threatens the bottom line of big business.

Wood's rhetoric is definitely broken - but I'd just like to understand the arguments on both sides in an economic sense if only for my own benefit. If the playing field of the climate change debate is going to change permanently to an economic one I'd like to continue to understand what all the pundits are on about ...

[prawnwarp]

yeah I see your point.

On the one hand I'm heartened by signs that the debate is shifting to economics. For the mainstream west at the moment the Economic is The Real in some sense, so it means that the terms of the debate are fundamentally shifting from "should we believe in it" to "what should we do about it."

But on the other hand I don't know much economics, and what little contact I've had with it makes me feel like it's pretty intellectually disreputable.

[ataxi]

"For the mainstream west at the moment the Economic is The Real in some sense"

Yeah, that was my take on the Stern review when it came out. Talking about climate change in cost/benefit terms seemed to force decision makers to take note of it properly for the first time.

Regarding economics, "pretty intellectually disreputable" seems to cover it. I find it very hard to read economic discourse - I know very little about economics so everyone basing their arguments on anyone from Marx through Hayek (a name I can now drop having read Kevin Rudd vilifying him in today's Australian alongside Alan Wood) seems thoroughly convincing just by using big words and ignoring anything that doesn't fit their models.

But once you've heard several such arguments totally contradict each other without giving any ground you know you're in the midst of a holy war. Starts to lose the appeal of mathematics after that.

[strangedave]

For the most part, it seems to be the familiar pattern (as seen with the use of McIntyre and McKitrick vs Mann, for example) of a genuine but highly technical debate between genuine economists being seized on by the climate change denialists (and expanded beyond its initial claim) and used as part of a general claim that doesn't form a coherent argument. In other words, Woods article is the normal bollocks you get from the right talking about climate change, including gratuitous misunderstandings of some of the issues (his explanation of what the Royal Society said to Exxon is quite different to my understanding, for example

[ataxi]

There's some sort of explanation on wikipedia I notice. I've linked it above. Looks like it's something like an arbitrary (in the sense of chosen) factor that represents the risk associated with the calculations used to determine whether a given course of action is correct because of its projected utility.

[strangedave]

And its further complicated as the argument between Stern and Nordhaus, Quiggin, etc is couched not in terms of the SDR directly, but in terms of the parameters delta and eta that make it up. But the important point to me is it involves significant speculation about the future to calculate, and such speculation would seem to be inherently limited when debated purely in terms of economic theory. Its an argument that can inherently only be solved in hindsight.

[ataxi]

Knew I could rely on you for a decent rundown, my dear flyingblogspot. So what it comes down to, in the end, is that the terms being argued aren't really derived from a rational process, but from a political / ideological process. Neither side is more justified than the other except in the sense that you might already agree with one side politically or ideologically (in our case, the Quiggin side I guess).

Thanks!

[strangedave]

Thanks for that analysis - it makes it clear how some of the arguments about economics are essentially reflecting ideological assumptions, which wasn't clear to me before.