Posted by: bmeverett | April 2, 2014

Response to Greg, Part 2


Here’s part 2 of my open letter to Greg Craven regarding his book “What’s the Worst That Could Happen? A Rational Response to the Climate Change Debate.”

Dear Greg:
Last week, I went through my arguments on climate science. Here are my comments on climate economics.

Your economic analysis is driven by two powerful, but highly arguable assumptions: (1) even if the warmists are wrong, the future is still bleak because of peak oil and population pressures and (2) it doesn’t really cost much to reduce carbon emissions anyway.

Regarding the first proposition, I argued last week that Peak Oil, always a questionable proposition, has now been almost entirely discredited. The global hydrocarbon resource base will probably allow us grow production of oil, coal and natural gas for at least 100 if not 200 years. In the copper industry, technology has been outpacing resource depletion for 5,000 years.

I’m not sure the source of your pessimistic view of population. The latest UN projections show a growth in global population from 7 billion today to just under 11 billion by 2100. There’s no reason to believe that the Earth can’t sustain a 50% increase in humans. The US population has more than doubled since I was a child, but I don’t see us killing each other for the last scrap of food. Many other analysts see world population peaking and then beginning to decline sometime this century. A recent Deutschebank study, for example, projects population to rise to about 8.5 billion by mid-century, then to fall to 8 billion by 2100. The “population bomb” argument was wrong when Thomas Malthus made it in 1798, it was wrong when Paul Ehrlich made it in the 1970s and it’s wrong now.

Making these questionable assumptions severely distorts your comparison basis. Suppose your doctor recommends a heart transplant, and you ask him about the risks. He explains to you that you could easily die on the operating table, but that doesn’t matter since you’ll probably get killed in a car crash next week anyway. If we are evaluating what happens if the warmists are wrong, we should more reasonably assume that world economy can continue to grow at a healthy pace. Otherwise, you have decided that mankind has no optimistic future regardless.

What about your second assertion, that climate mitigation would be easy and inexpensive? You haven’t really offered a coherent argument here, just some bits and pieces of the usual environmental narrative, which you toss out without any critical evaluation. My primary comment is that you should get yourself an Economics 101 textbook and learn the basics of this field. Since you’re a busy guy and may not have the time to do that, let me offer some specific comments on some of your economic assertions.

A key component of the warmist agenda is strong and truly puzzling faith in central planning – the ability of government to manage the economy. The field of economics involves many controversies, but there is one overwhelming conclusion from history: central planning produces political oppression and poverty, while free markets are conducive to democracy and wealth creation.

I note in your book references to the standard myths about American economic history. The Depression Myth, which all schoolchildren are taught, claims that (1) the Great Depression started in 1929 with the stock market crash, (2) President Herbert Hoover and the Republicans believed that the economy could correct itself and did nothing, (3) President Roosevelt understood that only massive government intervention could save us and (4) fifteen years of central planning plus the massive government stimulus of World War II finally ended the Great Depression. A more accurate history is (1) in 1929 the US economy entered one of the painful recessions we had periodically endured over the prior hundred years, (2) unlike previous recessions, the federal government believed it could “fix” this one, (3) President Hoover and the Republicans immediately did all the wrong things, like raising taxes and contracting international trade, (4) the electorate replaced Hoover with FDR who did exactly the same things Hoover had done, thereby turning the recession into a depression and (5) World War II ended the Great Depression not because of stimulus but because FDR stopped messing around with the economy and let it produce at its capacity. For a rigorously researched and well-argued presentation of this alternative narrative, I would recommend you read “The Forgotten Man” by Amity Shlaes.

The political left jumped on the Great Depression as proof that free market economies don’t work and that government planning is necessary. Fortunately, the post war boom allowed us to overcome this severely misguided view. Until 2008, that is. The political left has once again seen an opportunity to attack free markets with the misguided narrative that (1) unregulated markets fueled by greed caused a financial collapse, (2) only massive government saved us from a repeat of the Great Depression and (3) government must take a much stronger role in the economy from now on to prevent this from happening again. The reality is that (1) both Republicans and Democrats in the 1990s and early 2000s demanded an increase in home ownership, (2) the federal government forced banks to extend mortgages to people who could not repay them, (3) to overcome resistance by the banks, the government allowed all these bad loans to be shifted to Fannie Mae and Freddie Mac, (4) the federal government told the American people that Fannie Mae and Freddie Mac were private institutions and (5) when the bad mortgages entered default, the federal government decided to bail out (almost) everyone, including the supposedly private Fannie Mae and Freddie Mac. In reality, the 2008 financial crisis was, like the Great Depression, an artifact of government economic meddling. The free market would never have produced such a result.

Nonetheless, the warmists see the 2008 financial crisis as validation of central planning. This is an extremely dangerous view. Warmists (and central planners in general) tend to see government as a panel of experts dedicated to the technocratic management of the economy in the general interest. In fact, government is run by politicians who use the money and authority granted to them to continue to build their power base by rewarding their supporters and punishing their enemies. Any public interest served is incidental to this process. I continue to be amazed at what we have seen in Washington over the last 20 years or so. Our elected officials identify social and economic problems, ask for money and authority to deal with those problems, make the problems worse and then ask for even more money and authority. It’s my sincere hope that we will soon wise up and stop granting this request.

You fall right into this trap when you claim that “Shifting to a low-carbon economy, including building a massive new energy infrastructure, may be the greatest job-creation opportunity we’ve seen in a long time.” When the government forces the replacement of any good or service with a more expensive option, jobs will be created, but other jobs will be lost. Suppose we passed a law requiring everyone to wear a $500 Stetson hat whenever they are in public. Suppose further that that law created 5,000 jobs for people to make, distribute and retail the hats. Those people would be happy, and the government would claim that they had added 5,000 good jobs to the economy. Not so fast. The $500 you spend on your hat would have been spent on something else, say a new suit. The people who would have grown the wool, made and transported the cloth and tailored and sold the suit would now be out of jobs.

In a growing economy, the people whose jobs are created by government action can be identified and their smiling faces shown on TV. The jobs that were not created, however, cannot easily be assigned to particular people, but just add to the general unemployment. Remember that government has no money other than what it extracts from the economy through taxation, borrowing or inflation. The money government spends would have been spent on something else.

Energy is a critical input into a modern economy. A massive increase in energy costs would have profound impacts on our living standards, affecting not just the utility and gasoline bills of average Americans, but the cost of everything we produce and move around our huge and highly mobile society. There is no reason to be glib about the joys of replacing fossil fuels with energy sources that are much, much worse in terms of cost and performance.

Politicians are in fact too smart to even attempt the replacement of fossil fuels, since they know that the impacts on living standards would be so severe that the public would never accept them and would likely throw the politicians out of office. What elected officials like President Obama are actually proposing is a series of largely symbolic steps that would cost us some real money, but would have no material impact on US carbon emissions. If you doubt that statement, here’s an interesting exercise. Have a look at President Obama’s “Climate Action Plan” from June, 2013, which you can find at http://www.whitehouse.gov. This 21-page report is full of exciting words like “lead”, develop”, “promote” and “identify”. What exactly would the impact be on our carbon emissions? Well, page 4 reiterates the President’s 2009 pledge to reduce US carbon emissions by 2020 to 17% below the 2005 level. Note the careful choice of base year. In 2005, US carbon dioxide emissions from energy use were 5,999 million metric tonnes (mt) (http://www.eia.gov/environment/data.cfm#summary). By 2009, when the President made this wondrous pledge, the US was deep in recession and, as a result, carbon dioxide emissions had fallen to 5,418 million mt, a reduction of 10%. So the President was in fact proposing a further reduction of only 438 million mt by 2020, equivalent to 1.2% of projected global emissions. By the way, he only promises to do this “if all other major economies agreed to limit their emissions as well.” What you risk here is spending lots of money borrowed from China but having no impact whatsoever on atmospheric carbon levels. Are you OK with that?

Elected officials in the US and Europe are actually testing the willingness of their warmist constituents to accept promises and symbolic gestures rather than actual carbon reductions. Subsidies, renewable portfolio standards, feed-in tariffs and loan guarantees have cost American and European consumers billions of dollars with negligible effects on global carbon emissions. The worst example was the Kyoto Protocol – an expensive cap-and-trade system with loopholes and accounting gimmicks that allowed the European Union to meet its obligations without reducing greenhouse gas emissions at all. Politicians may like this approach, but the rest of us shouldn’t.

This gets us to the 800 pound gorilla in the climate room. American warmists talk about the problem as though carbon dioxide is coming primarily from the extravagant lifestyle of Americans with their big cars and excessive air conditioning. The US has certainly been a major emitter of carbon dioxide over the years, but that calculus has changed rather dramatically over the last few years. There are 190 signatories to the UN Framework Convention on Climate Change. When the Convention was signed in 1992, US CO2 emissions were 5½ billion metric tonnes (mt) per year – about a quarter of the world total. US emissions, however, have not increased much since, and the Energy Information Administration projects minimal growth through 2040, when the US will represent less than 13% of the global total. Chinese emissions, on the other hand, have increased from 2½ billion mt per year in 1992 to 9 billion today with a projected growth to nearly 15 billion by 2040 – a third of the world total. If there is a danger from greenhouse gas emissions, it comes not from rich Americans but from Chinese peasants not unreasonably seeking a middle class lifestyle by burning massive amounts of cheap domestic coal and imported oil. If there is a climate problem, it will arrive on a wave of Chinese coal.

The key to reducing atmospheric carbon concentrations lies not in the US but elsewhere. I am continually amazed at the faith my Fletcher students and faculty colleagues have that if the US would just destroy our economy, the Chinese would happily follow suit. Unfortunately for warmists, the Chinese leadership has only two objectives: staying in power and enhancing China’s geopolitical position. Achieving these goals requires a single-minded focus on economic growth to bring the Chinese population out of poverty and to provide the resources for a superpower-quality military. Climate change may be low on America’s priority list, but it’s not on China’s list at all. Chinese engagement in climate change negotiations serves only to encourage the West to hobble their economies with high energy costs and to offer China real economic benefits in return for vague promises.

The bottom line here is that the dichotomy between climate action and no climate action is entirely false. It makes more sense to talk about three scenarios: (a) no climate action, (b) reductions in carbon dioxide emissions sufficient to materially change atmospheric carbon concentrations and (c) meaningless, symbolic actions which would reduce economic growth slightly but have no impact whatsoever on climate. The warmists may like option (b), but the best they will ever get is option (c).

Next week, I’ll make an attempt to put the science and economics together and offer my own decision matrix.

Advertisements

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

Categories

%d bloggers like this: