Archives: 07/2008

Nordhaus’s Less-than-optimal Climate Strategy

In “Pointless to rush a carbon emissions plan,” the Toronto Globe and Mail’s Neal Reynolds compares Yale Professor William Nordhaus’s “optimal” approach to controlling greenhouse gases and finds it superior to approaches that would impose deeper controls more rapidly, such as those favored by Stern, various EU leaders, and many in the US.

Under the Nordhaus approach, which is also discussed by Keith Johnson at the Wall Street Journal, costs of control would start at 0.3 per cent of global GDP in 2010 (currently around $60,000 billion), increase to 0.5 per cent in 2015, 0.6 per cent in 2020 and peak at 0.9 per cent in 2065. He estimates the net present value (NPV) of climate change damages absent any controls at $22 trillion. Under this so-called “optimal” approach, the NPV costs of controls would be $2 trillion and climate change damages would be reduced by $5 trillion (i.e., the “optimal” policy would provide net benefits of $3 trillion, but residual damages would be $17 trillion). As he explains, “More of the climate damages are not eliminated because the additional abatement would cost more than the additional reduction in damages.”

He also estimates that proposals that emphasize “excessively early reductions [make] the policies much more expensive… For example, the Gore and Stern proposals have net costs of $17 trillion to $22 trillion relative to no controls; they are more costly than doing nothing today.” By his calculations, his proposal is clearly superior to these other reduction proposals.

However, while Nordhaus’s prescription may indeed be the most “optimal economic approach” to slow global warming, it isn’t the optimal approach to addressing global warming. This is because it ignores adaptation. Some adaptations may reduce climate change damages more efficiently than mitigation. Perhaps all or part of the $2 trillion that Nordhaus would spend on mitigation should, instead, be invested in adaptation. That might reduce damages by more than the $5 trillion. In any case, with adaptation in the mix, $5 trillion may well be the lower bound for the optimal reduction in climate change damages. And, of course, emission reductions that seem to be optimal under 0.9 percent of GDP in 2065 in the absence of adaptation may, once adaptation is thrown into the mix, no longer be optimal.

In fact, a recent Cato Policy Analysis indicates that in the short-to-medium term, adaptation — specifically, reducing vulnerability to climate-sensitive problems that might be exacerbated by climate change — would provide greater benefits than mitigation, and at a much lower cost. Most of those benefits come from the fact that one approach to adaptation is to advance adaptive capacity. Significantly, that can help society cope not only with climate change but, more importantly, to other problems that are more important than climate change now and in the foreseeable future. Thus the ancillary benefits of increasing adaptive capacity are very high, higher than climate change damages in the absence of any controls according to the Cato Policy Analysis.

Notably, Nordhaus acknowledges to having “relatively little confidence in our projections beyond 2050.” To his credit, this skepticism informs his recommended approach, but it would probably have been best to avoid stretching the analysis to 2200.

Sometimes such long-range analyses are justified on the grounds that that’s the best that can be done. But even if that’s so, it misses the real issue, namely, whether even the best available analysis is good enough for making trillion-dollar decisions which, moreover, extend out centuries hence. At these temporal distances, Nostradamus may be just as credible as Nordhaus, or Nicholas Stern, for that matter.

Humility isn’t an offense, and it ought to be acceptable for economists and policy analysts—even those whose stock in trade is climate change—to admit that they haven’t a clue what the world will look like beyond 2050 (if then).

Nordhaus’s numbers indicate that estimates of pre-control damages and post-control residual damages frequently are substantially larger than either the costs or benefits of emission controls. But the treatment of damages (i.e., impacts) of climate change in the Nordhaus analysis is somewhat sketchy. As far as I can determine, none of the damage studies properly account for adaptive capacity, particularly considering that that capacity ought to increase if societies accumulate wealth, human capital and technology at rates implied by all the socioeconomic scenarios used to derive future emissions (and climate change). (See, for example, here.) Thus, both pre-control climate change damages and post- control residual damages could be substantially overestimated.

[Some argue that they disbelieve that economic growth will be as high as assumed, but in that case they should also disbelieve estimates of future climate change and impacts predicated on that growth.]

To summarize, the Nordhaus analysis probably overestimates climate change damages. In any case, the Nordhaus approach could be made more optimal by adding to it an adaptation component that would enhance societies’ adaptive capacities (by reducing present day vulnerabilities to climate-sensitive problems and boosting economic development and human capital in developing countries). In fact, optimal carbon taxes (or cap-and-trade approaches) can only be determined after completion of more comprehensive analyses that include full and equal consideration of adaptation and any ancillary (net) benefits.

Of course that still leaves the problem of relying on analyses over time frames that demand, in Coleridge’s words, “willing suspension of disbelief.” Instead of suspending disbelief and succumbing to gullibility, I would recommend a somewhat different approach (see here, p. 37).

More on Randy Vanderhoof and Privacy

Who is Randy Vanderhoof, you say?

More than a year ago, I posted here about a quote Randy Vanderhoof of the Smart Card Alliance had given to Federal Computer Week:

Privacy concerns are all perception and hype and no substance but carry considerable weight with state legislators because no one wants to be accused of being soft on privacy.

Though I’m not sure, I have a vague recollection that someone from his organization called me up or emailed and explained that he was misquoted. All a misunderstanding.

So I was interested in a Q&A Randy Vanderhoof had with David Pogue of the New York Times recently. Asked about the obstacles to adoption of smart cards in the U.S., he said:

It’s the business rules and legal barriers that are the biggest obstacles to overcome, and some cultural norms have to change as well, like the privacy advocates who don’t trust any technology that touches their identities (especially if the government is somehow in the middle).

There may be some privacy advocates that don’t trust any technology touching identity, but maybe it’s that all the technologies touching identity yet seen fail to meet the demands of the public for privacy and data security - especially if the government is in the middle.

I’m all for changing cultural norms. The dismissive culture at the Smart Card Alliance seems to be the right place to start.

Norway’s Hypocritical Government Launches Attack Against Low-Tax Jurisdictions

The Norwegian government has appointed a one-sided commission to investigate the supposed damage caused by tax havens. A leftist news service reports on this development, and regurgitates a discredited estimate from Oxfam about how low-tax jurisdictions ostensibly deprive politicians in the developing world of tax revenue:

A new commission appointed by Norway will investigate ways of putting a stop to the huge flows of money into tax havens. Tax evasion and corruption are believed to cost poor countries at least 50 billion dollars a year. The commission, launched last week, includes Eva Joly, a special advisor on corruption for the Norwegian development agency Norad… Among the areas that have been labelled as tax havens are Andorra, Monaco, Gibraltar, Jersey, the Cayman Islands, Luxembourg, the Netherlands, as well as some parts of the financial system in London. “I am very proud of this commission and I think it is very important that it has been appointed, because there is quite a high level of confusion surrounding the damaging effects of tax havens,” Joly, who is also part of an anti-corruption working group at the World Bank, told IPS. …According to a 2000 estimate by Oxfam International, tax havens rob developing countries of at least 50 billion dollars a year in revenues.

An amusing aspect of this story is that Norway’s pension fund is a big investor in tax havens:

Finance Minister Kristin Halvorsen and the minister in charge of foreign aid, Erik Solheim, have harshly criticized companies, both Norwegian- and foreign-owned, that avoid taxes by registering themselves in countries with low or non-existent tax obligations. At the same time, however, the state’s massive pension fund that’s fueled by Norway’s oil revenues has been investing billions in companies that are registered in tax havens. This includes companies “based” in places like the Cayman Islands, Bermuda and Cyprus.

The moral of the story, of course, is that politicians are in favor of anything that gives them more money. That enables them to buy votes and provide unearned wealth to their supporters. But taxpayers (the ones who generate the wealth) should not be allowed to protect themselves and their families by utilizing jurisdictions with better tax law.

Up Is Down, Black Is White, and Democracy Is Dictatorship

Europe’s political elitists are not very happy with the unwashed masses. First, French and Dutch voters had the unmitigated gall a couple of years ago to reject the European Union’s proposed constitution. In an effort to sidestep the democratic process, the political elite then made a few cosmetic changes to the document and called it a treaty, hoping this would enable national governments to bypass their voters. Much to their chagrin, however, Irish politicians could not figure out how to sidestep their nation’s referendum requirement, and the people of the Emerald Isle proceeded to reject the statist EU constitution (now officially referred to as the Lisbon Treaty). This led to a frenzy of anti-democratic utterances from the political class, but the prize for the most Orwellian response goes (what a surprise) to a French politician, who just stated that allowing voters to decide is “a tool for dictators.” He also wins a secondary prize for his assertion that the EU constitution, which would have granted even more power to undemocratic bureaucratic institutions in Brussels, is needed “to grant our citizens more power.” The Irish Times reports:

Alain Lamassoure MEP tells Jamie Smyth , European Correspondent, Ireland was wrong to hold a referendum, which is ‘a tool for dictators’. …”We are paralysed by the unanimity rule and we pass legislation through undemocratic procedures … we have a duty to grant our citizens more power,” he said.

Passport Snooping Scandal Grows

From the Washington Post:

Government workers repeatedly snooped without authorization inside the electronic passport records of entertainers, athletes and other high-profile Americans, a State Department audit has found. One celebrity’s records were breached 356 times by more than six dozen people.

The Inspector General compiled a list of popular and interesting people, then examined the number of accesses to their files.

As the investigation continues down the chain — and it should — it is very likely to find that ordinary citizens’ data was accessed too — not out of curiosity, but for the purposes of committing identity theft. More than 20,000 people in the State Department and Department of Homeland Security had access to the electronic system that maintained the passport records. There’s a bad seed or two in any group that size.

The IG has issued numerous recommendations for improvement, likely things that should have been implemented long ago. But know one thing: Security risks like this are an inseparable product of government policies that collect personal information in databases and then make it widely accessible. Proponents of national ID systems like REAL ID and the nationwide government background check system envisioned by E-Verify may dream about them being secure, but it’s just a dream.

More on passport snooping here and here.

When the Police ‘Take the Fifth’

Local incident here in the DC suburb of Prince George’s County:  The police are trying to solve a murder, but they can’t get useful information from certain key witnesses–even though those witnesses are themselves law enforcement officers. 

It sounds quite odd until you hear the additional details.  The murder victim was suspected of killing a police officer in the line of duty.  Seems like police vigilantism.  Marc Fisher has a good column about the death of Ron White here.  And the Washington Post has an editorial here.

This incident provides me with a rare opportunity to criticize the Supreme Court for carrying a provision of the Bill of Rights too far.  To briefly digress, never accept the blithe assertion that “sometimes the courts mistakenly expand the government’s powers and sometimes the courts mistakenly expand the constitutional rights of individuals.”  That’s true, but very misleading because it sounds as if it all evens out in the end.  Not true.

In Garrity v. New Jersey, the Supreme Court said police officers could “take the Fifth” with respect to internal investigations into police misconduct.  Now police officers, like anyone else, can “take the Fifth” when threatened with arrest and prosecution.  However, they should not be able to take the Fifth when they are threatened with the loss of their job.  Or, to be more precise, they can invoke the Fifth if they choose, but the police chief can then respond by demanding that they turn in their badges.  The dissenting opinion in Garrity contains this quote from one Judge Jerome Frank:

 “ ‘Duty required them to answer. Privilege permitted them to refuse to answer. They chose to exercise the privilege, but the exercise of such privilege was wholly inconsistent with their duty as police officers. They claim that they had a constitutional right to refuse to answer under the circumstances, but … they had no constitutional right to remain police officers in the face of their clear violation of the duty imposed upon them.’ Christal v. Police Commission of San Francisco.

Oliver Wendell Holmes once said, men may have the right to remain silent, but they do not have the constitutional right to be police officers.  Holmes was right and Garrity was wrong. 

Returning now to the apparent murder of Ron White in his jail cell, the silence of the correctional officers is simply inexcusable.  County officials should give these officers an ultimatum: You have 24 hours to come forward and tell us what you know.  Anyone who remains silent will be discharged.  And, note well, the criminal investigation will continue in any event.  The local police union will object, but let it.  Garrity was decided by a narrow, 5-4 vote.  It was incorrectly decided and ought to be overturned.  This case could be the perfect vehicle for accomplishing just that.

Under current law, citizens can lose their jobs and risk jail for refusing to cooperate with private investigators.  It is perverse for the law to permit a double standard for state employees–especially the police.  One would think that the law would hold the police to a higher standard here.