As Dylan once professed, the times they are a-changin’. Although he wasn’t really referring to the climate, we’re going to extrapolate his message and use that as a lede here. Last night, welfare economics/climate change enthusiast Peter Krawczyk got Low (ha!) with Professors Stiglitz and Dasgupta. Hopping ensued.
The Fourth Annual Arrow Lecture in honor of Professor Kenneth Arrow was delivered in the Low Library Rotunda on Tuesday evening. Cambridge University’s Partha Dasgupta and our own Scott Barrett (SIPA) and Geoffrey Heal (BSchool) discoursed. Perhaps due to the time of the lecture or to the consistent rain that was falling outside, there were many empty seats around the periphery of the rotunda as Professor Joseph Stiglitz gave the introductory remarks. However, the combination of a small audience with the friendly rapport of most of the speakers (Dasgupta, Heal, and Stiglitz all studied at Cambridge) lent the lecture a refined and intimate atmosphere of a 19th century academic society, as twilight fell behind the statues of Euripedes, Demosthenes, Sophoclese and Augustus Caesar.
The evening’s topic was “Persons and Time in the Welfare Economics of Climate Change,” and Professor Dasgupta accordingly avoided common debates about the severity and timing of climate change to instead focus on the method of evaluating intergenerational justice as it pertains to climate change. This concept of justice refers to the increasingly apparent evidence that climate change entails costs that will vary across time. By taking steps now to prevent climate change, we are essentially incurring costs upon ourselves in order to lessen the future costs of climate change. How much of our current consumption are we willing to give up so that future generations will be able to consume one unit more?
Economists and philosophers, Dasgupta says, have nearly unanimously agreed on the formula for determining the answer to this question. It focuses on a rate at which future consumption should be “discounted” to represent it in terms of present consumption. This in turn depends upon how we value people in the future relative to ourselves and how we predict the growth in consumption. The more we value future generations, the lower the discount rate should be. The greater the growth rate of consumption, the higher the discount rate should be, because richer future generations will value each additional unit of consumption less than current generations.
Dasgupta’s central argument was that this method of valuing future consumption is flawed. It fails to account for individuals and their role as decision makers with regards to intergenerational consumption. Specifically, people whom Dasgupta termed “concerned citizens” distinguish in their discounting between personal and public matters. For example, people will tend to use different discount rates with regard to how much of their wealth the choose to leave to their children than they would use in determining what costs the government should bear in taking steps to prevent climate change. The result of this, Dasgupta concluded, is that the discount rate model is necessarily flawed, and a new method of determining intergenerational justice is needed which focuses directly on the price of future consumption rather than the discount rate.
Dasgupta was followed by Professors Heal and Barrett, who each brought an additional perspective to the conversation. Heal posited the consideration of two types of goods contributing to consumption, normal goods and environmental goods, and suggested that we would have to trade some consumption of normal goods in order to mitigate declines in environmental resources. Barrett, in contrast to Dasgupta, argued that the biggest problem in addressing climate change was not disagreement over the discount rate, but rather the problem of the collective action required of nations. Barrett hypothesized that if there was a catastrophic event which would occur with certainty were the global temperature to reach a certain level, then the collective action problem would be solved as each nation would suffer if it failed to decrease its output of emissions.
Kenneth Arrow, the Stanford professor and Columbia graduate for whom the lecture series is named, took the podium next and chided the two earlier discussants for not directly addressing Dasgupta. He then went on to criticize Dasgupta’s position by suggesting that the consideration of “personhood” would not effectively change the results of discount. He also criticized Barrett’s “catastrophic event” scenario by arguing that in many situations where a disastrous event is unlikely, we often do not take steps to avoid it even when there are low costs associated with perfect safety. “Risk-averse people often run across the street,” he said. Therefore it is unlikely that even certainty of a catastrophic even would eliminate the collective action problem.
Stiglitz, who was not scheduled to give remarks, followed Arrow, saying he “couldn’t resist” weighing in. He first argued the case of those who advocate a large discount rate, saying you could theoretically put money aside to pay for the cost of climate change which would grow at a rate of seven percent annually, and would provide a huge sum to cover any damages incurred by climate change by the time that such damages occurred. He went on, however, to say that he felt instead that “very low or negative discount rates are plausible,” for there is risk associated with climate change and it is essential to minimize that risk.
Her majesty, via Wikimedia Commons.