Monday, June 29, 2009

Sullivan Missing the Point on Waxman-Markey

There is a decent amount of buzz brewing today over a the cost-benefit analysis put together by Jim Manzi on the Waxman-Markey bill. The analysis is very well worth the read and I would suggest reading the whole thing. For those of you unwilling to read it all, the result of his analysis is that:
The costs would be more than ten times the benefits, even under extremely unrealistic assumptions of low costs and high benefits. More realistic assumptions would make for a comparison far less favorable to the bill.

The left is a-twitter, already rationalizing away the reasons why we can't pay attention to this, and they have a strong guiding hand coming from Andrew Sullivan, who obviously doesn't care for Manzi's results. He links us to Matt Steinglass, who laments the reasonableness of performing a CBA for items which cannot be measured in terms of cost:
There are two issues here. First, GDP measures income, not wealth. If your house burns down, it will most likely not change your income. Does that mean you should spend nothing to protect your house from burning down? Second, GDP only measures things that can be measured in money. But the worth of many precious things cannot be measured in money: Yellowstone National Park, the independence of one’s country from foreign rule, the existence of elephants and polar bears, clean air, the ruins of the city of Ur, the fact that humans have traveled to the moon, etc.

Sullivan also links to Rortybomb, who makes a similar argument, describing the Planet Earth itself as being the sunk cost in the CBA:

That said, the thing that worries me about the Cost-Benefit Analysis (CBA) approach to this issue is that there is always an implicit “do-over” cost in CBA. If we start a marketing campaign, hire a new team, or build a factory we do a CBA. If it turns out wrong, we simply stop the campaign, lay off the new team, or dynamite the factory. We eat our sunk costs and are back at square one. Sometimes this is costless, sometimes you have to pay for the dynamite. Indeed estimating the cost of this metaphoric dynamite should be high on the list of the CBA.

Now if 100 years from now, we want to “do-over”, how much will it cost to ‘dynamite’ the previous 100 years of warming? How much of GDP will we have to spend to get back an additional 10-20% of biodiversity? I’m worried that we are looking at Planet Earth as the sunk costs in these CBAs, and that makes me very worried, and being very worried makes me more willing to spend. We can’t just jump to another Earth if we got it wrong, in the same way we can build a new factory if our projections were off. This isn’t even tail risk or ‘precautionary principle’ land – we, as managers of Firm Earth doing a CBA, want to know the costs of getting rid of that 3 degrees of warming. As far as I can tell, they will be very, very high.

Both Steinglass and Rortybomb choose to ignore the most important part of Manzi's cost-benefit analysis, and Sullivan, by linking them to back his own agenda, proves that he seems not to care about it either (emphasis mine):
Remember that the U.S. should not expect any net economic damage from global warming before 2100. That is, the bill’s benefits would accrue to U.S. consumers—who are also bearing its costs—sometime in the next century. The EPA underestimate has costs rising from zero to 0.8 percent of consumption between now and 2050, and offers no projection beyond that year; but to what level would costs rise over the more than 50 years between 2050 and the point in 22nd century when we might actually expect some net economic losses from global warming? The answer is likely to be much higher.

What this means exactly is that the economy as a whole is unlikely to suffer any damage from "global warming" before 2100, therefore we are not expected to enjoy any benefit from the bill for 91 years, and that is only the point at which we might break even. In the meantime, we are all going to be paying, according to Heritage, $4,600 per year for this bill for a family of four. Now, in a crude look, if we say we have 300 million people, and all of them are families of four, so we have 75 million families of four paying an additional $4,600 per year for 91 years, this will be, cumulatively $31.395 trillion dollars paid to stave off what may very well be a ghost, and considering I've ignored inflation of any kind, that's on the low side!

Considering that the science regarding "global warming" or "climate change" actually appears to be far from settled, I am inclined personally to wonder into what crystal ball the likes of Steinglass, Rortybomb and Sullivan are looking that makes them know this bill is possibly worth its cost.

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