opinion | Stopping climate change doesn’t need altruism

Of the nearly 700 things that make climate change a complex problem, fighting it requires people living today to do things for future generations. You know, what did future generations do to us?

Lawrence Kotlikoff, an economist at Boston University, argues that when designing climate change policies, the appeal to altruism will fail and that what is needed is a solution that benefits the people alive today as much as it benefits our grandchildren and great-grandchildren.

He argues that he has such a win-win solution. He says the countries of the world should immediately enact high carbon taxes, but compensate them by cutting other types of taxes such as those on income, sales and property. He argues that budget tax cuts must be so large that they increase the budget deficit, and burden future generations with debts that must be repaid.

This covers how people who live today will benefit – lower taxes. What about future generations? Isn’t that a bad deal for them?

Right number, they’ll have to pay off that debt. But the steps taken today to combat climate change will have such a big payoff that, for Kotlikoff’s reasoning, future generations, too, will be better off in a better equilibrium than they were.

But this is not even the most counterintuitive part of Kotlikoff’s plan. He argues that in the future some poor countries such as India will need to send money to some richer countries such as Canada. His reasoning is that India and other countries closer to the equator would benefit most from preventing climate change, while Canada, Russia and some other northern countries would be neutral to worse off – they would have to pay a lot to help prevent climate change, while gaining little for nothing. So to make sure that every country benefits from the scheme, the winners like India must compensate the losers like Canada and Russia.

Kotlikoff calculates that under his plan, all generations in all nations will be about 4 percent better than they are now.

Kotlikoff does not do this work alone. He collaborates with a distant group of experts in computational economics: Felix Kobler, Professor of Financial Economics at the University of Zurich; Andrey Polbin, Head of Macroeconomic Modeling at Gaidar Institute for Economic Policy in Moscow; Simon Scheideger, Associate Professor of Economics at the University of Lausanne. Since 2019 they have written three Leaves About various aspects of the plan, the latest released last month. They also posted a profile article Last Wednesday on the VoxEU economy website. They are working on a fourth academic paper that allows for uncertainty about the trajectories of the economy and climate. Kotlikoff says that uncertainty does not change the general trend.

Although the plan is designed to benefit all nations and generations on average equally, there will be people in every nation and generation who would lose—and might even fight a battle against the plan. Coal miners, for example. But Kotlikoff says individuals can be compensated, too, until everyone comes forward. For example, the government could pay coal miners for a period after the mines closed or make lump sum payments to people whose commute became more expensive when the price of gasoline rose. He admits that getting the payments exactly right will be difficult.

As for India paying to Canada: It probably won’t happen. This aspect of the plan follows Kotlikoff’s hypothesis that economists should not make moral judgments about who is worthy and who is not, and instead should simply look for solutions that make everyone better off. (Kotlikoff says politicians can eliminate transfers from India if they want to, “but we can’t rely on altruism or morality” as the basis for the plan.)

opinion conversation
The climate and the world are changing. What challenges will the future bring, and how should we respond to them?

Gernott Wagner, a climate economist at New York University, argues that Kotlikoff and his co-authors’ claim that they are doing pure, prescription-free economics does not hold up: they accuse others.”

However, the basic idea of ​​Kotlikoff’s proposal – the search for win-win solutions – is something negotiators at the Glasgow climate conference will have to consider when they come on air this week. Alan Auerbach, an economist at the University of California, Berkeley, who developed with Kotlikoff an important tool To study generational equality in the 1980s, he tells me Kotlikoff and his team are working on something. “The main point they’re making is absolutely correct,” he says. He agrees that there must be a way to divide the gains from halting climate change in a way that makes everyone better off.

“But that doesn’t mean it’s easy to do,” he added.

15 billion dollars

This is the potential monthly amount that the Federal Reserve will reduce purchases of Treasury and mortgage-backed securities.

The Fed was adding to its bond holdings at a rate of $120 billion per month to maintain long-term interest rates and support economic growth. according to Minutes During the FOMC meeting on September 21-22, participants “generally commented” that reducing the pace of purchases by $15 billion per month “provides a straightforward and appropriate model that policy makers can follow.” The committee is expected to announce on November 3 its decision on when and how to gradually reduce its purchases.

“As for mending things, no matter how distorted they may be, there is one principle clear and simple, and that is a principle which may be called contradiction. In such a case there is a certain institution or law; let us say, for the sake of simplicity, a fence or gate is erected across the road.” The more modern kind of reformers would cheerfully go up to him and say, “I see no point in this; Let’s download it. Who would do the smarter kind of reformer well to answer: “If you don’t see the benefit of it, I certainly won’t let you get rid of it.” Go away and think. Then, when you can go back and tell me you see how to use it, I may let you destroy it.”

– J. K. Chesterton, “The Thing: Why I’m a Catholic” (1929)

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