David Friedman exposes a remarkable (if unrecognized) admission from William Nordhaus – a leading economist who supports action today to combat climate change – that the global cost of delaying action to combat climate change is vanishingly small relative to global GDP. Here are a couple of slices:
His [Nordhaus’s] final, and possibly most important point, is based on his own research, which he complains that the WSJ article is misrepresenting. He starts with a correct point—that it is the difference between benefit and cost, not the ratio, that matters. He goes on to summarize his conclusion:
My research shows that there are indeed substantial net benefits from acting now rather than waiting fifty years. A look at Table 5-1 in my study A Question of Balance (2008) shows that the cost of waiting fifty years to begin reducing CO2 emissions is $2.3 trillion in 2005 prices. If we bring that number to today’s economy and prices, the loss from waiting is $4.1 trillion. Wars have been started over smaller sums.
What he does not mention is that his $4.1 trillion is a cost summed over the entire globe and the rest of the century. Put in annual terms, that come to about $48 billion a year, a less impressive number. Current world GNP is about $85 trillion/year. So the net cost of waiting, on Nordhaus’s own numbers, is about one twentieth of one percent of world GNP. Not precisely a catastrophe.
I suggest a simple experiment. Let Nordhaus write a piece explicitly arguing that the net cost of waiting is about .06% of world GNP and see whether it is more popular with the supporters or the critics of his position. I predict that at least one supporter will accuse him of having sold out to big oil.…..In a world of certainty run by benevolent philosopher kings, the fact that the policy has even a relatively modest benefit is a good argument for it, but we do not live in such a world. In practice, policies aimed at reducing warming will be designed not by William Nordhaus but by political actors subject to political incentives. For a sample of what that is likely to produce, I suggest looking at the cap and trade bill that passed the House a few years ago but did not make it through the Senate. The farther the policies are from optimal, the higher the costs and the lower the net benefits.
UPDATE: From the comments on David Friedman’s post, I just noticed this much-earlier EconLog post from David Henderson regarding Bob Murphy’s critique of Nordhaus.
Here’s the Heritage Foundation’s Drew Gonshorowski on the continuing calamity that is Obamacare.
EconLog guest blogger James Schneider explores media bias.
The always-wise Nick Gillespie calls for the F.D.A. to be killed before it can kill again.
