The Economics of Enough_ How to Run the Economy as if the Future Matters - Diane Coyle [35]
Part of the controversy about the Stern Review is that it did not discuss the ethical framework explicitly but implicitly took what other economists regard as an extreme position. There are two separate ethical judgments involved. One is whether people in future have the same value as people now and should therefore be given the same weight in decisions. To the extent that they should be given less weight, we should discount their views—in technical terms this is done using a discount rate. In many circumstances, including assigning values in the financial markets, we assume the appropriate discount rate is a small positive number—say 1 or 2 or 4 percent. Apart from anything else, impatience to have money now rather than later (economists call this “time preference”) and uncertainty about the future make this sensible. In the ethical context of the environmental debate, there is wide agreement that the discount rate used should by contrast be zero, or very low. Stern does this and nobody disagrees with the value judgment that people’s well-being should carry the same weight regardless of when they were or are to be born.
However, there is a further point, which has been emphasized by William Nordhaus and Partha Dasgupta. The Stern Review also attaches equal weight to people who have a lot and a little money, whereas many people would argue for placing more of the burden of adjustment on the rich than on the poor. Thus even if people in future are much richer than us, it concludes that we should still be making sacrifices so they can be better off still. In other words, there are two sets of weights involved in the choice about consumption sacrifices, the weight attached to an individual’s date of birth (equal for all) and the weight attached to their income (poor or rich, at whatever date they are born).
Dasgupta criticises the Stern Review for not exploring the sensitivity of its recommendations to the values of the parameters in its model that embody underlying ethical assumptions. He writes,
Where the modern economist is rightly hesitant, the authors of the Review are supremely confident. Climate change has been taken very seriously by all economists who have studied the science since the late 1970s. To be critical of the Review isn’t to understate the harm humanity is inflicting on itself by degrading the natural environment—not only in regard to the stock of carbon in the atmosphere, but also in regard to so many other environmental matters besides. But the cause isn’t served when parameter values are so chosen that they yield desired answers.21
Responding to these criticisms, Nicholas Stern is dismissive of these economists’ questions about the appropriate ethical judgments to apply to future consumption. For him, the framework of analysis they bring to the question misses the point that the scale of the potential catastrophe means the future is potentially much poorer, not much richer, than the present. The havoc wreaked by changing weather systems is likely to destroy the economy, he suggests. The economists who quibble about parameter values are, to him, the modern-day equivalents of mediaeval scholars debating how many angels could fit onto a pinhead. He agrees that we need to choose a rate at which to convert an extra unit of consumption gained in future to an extra unit of consumption given up now; and also that it will be less than one to one if future generations will be wealthier. But he writes: “What we do now on climate change will transform the circumstances and income of future generations.” If we fail to sacrifice some consumption now to mitigate climate change, future generations might in fact be much worse off than we are now. “If these strategies—and it is an unavoidable question in the context of climate change—are a matter of life and death for many, then the issues are different.”22
Moreover, Stern says