Nov

11

Superfreakonomics aint economics

November 11, 2009 | 1 Comment | Mark Crosby

I have just read Chapter 5 of Superfreakonomics, alongside the New Yorker review by Elizabeth Colbert. The focus is on climate change science – the science is uncertain and imprecise (nothing new there), but the claim is that climate change fears are overdone and technological solutions will fix the problem. Plenty of others have tackled the science in Superfreakonomics, but what irks me is the economics…there is none. The claim is that because the science is uncertain “one good reason for waiting is that we might have options in future to avert the problem that cost far less than today’s options.”  That is possible. It is also possible it might cost a hell of a lot more to clean up a bigger mess. Surely this is an issue of cost benefit analysis, where the uncertainty is at least as great as with the science. While the uncertainty in the science is given prominence, there is no discussion of relevant mitigation costs and the uncertainty around these. The Garnaut Report and the Stern Review are upfront about the uncertainty in the economic modelling. Economic models simply aren’t built to deal with major structural changes in our economy that dealing with climate change would imply.

In my view the best evidence on the costs of doing business in a more sustainable manner is to use case studies.  And there are plenty of companies around that have tried to run their businesses in a more sustainable manner – doing so has not come at the expense of profit or competitive position.  Dupont has been working on reducing their footprint since 1989. Since that time they have they have increased production volumes by 41%, yet significantly reduced waste, emissions, and energy usage. Westpac have introduced similar programs to reduce their footprint very successfully.  In our own business here at the MBS we have not introduced sustainability related initiatives that have paybacks as short as 4 years because of our focus on the annual budget cycle. Like other businesses this forces us to be short term oriented, and potentially not-sustainable in the longer term (DuPont has been in existence for over 200 years).

 I have no problem with the chapter in Superfreakonomics suggesting that there is uncertainty with the science of climate change – clearly there is.  But we should be tackling environmental externalities now, not waiting for solutions to arrive in future. I am convinced that this will be much less costly than many of us fear, and forcing businesses to focus on the long term rather than the short term impacts of their actions will increase the probability of those companies being in existence for 200 years plus.


Comments

One Response to “Superfreakonomics aint economics”

  1. derrida derider on November 11th, 2009 4:07 pm

    Given risk aversion due to a concave utility function then uncertainty means you should take <b>more</b>, not less, action on climate.   It’s an elementary point that anyone calling themselves an economist should understand immediately.

    I’d like to believe Chapter 5 was written by Dubner rather than Levitt, and even that under the influence of some wingnut bloggers.  Otherwise the University of Chicago’s intellectual standards have greatly slipped.