Economics ignored by economics professor?

horses ass by robstephaustralia

SuperFreakonomics Ignores the Business Case for Sustainability

Stephen Dubner and Steven Levitt’s SuperFreakonomics has certainly gotten a lot of people worked up. The point of contention is a chapter about global warming which makes the case that Al Gore and others are getting us way too worked up about the climate problem because the only way to solve it is to convince people to “put aside their self interest and do the right thing even if it’s personally costly.”

The authors go on to explain their solution — geoengineering — which purportedly isn’t going to require us to cut back on our energy use or rethink the way we do business. But what they have completely failed to address — and what the (ahem) lively discussions on the topic have missed as well — is what the benefits of tackling climate change might be, instead of just the costs.

The authors have missed a major economic issue: the process of shifting our economy to a low-carbon one has enormous upsides completely aside from the benefits to climate balance.

I’m not going to try and take apart their arguments or judge the soundness of their climate science as a whole; there are some others who are already doing a detailed job of that. If you like your climate discussions hot and sarcastic (which can be entertaining), see Joe Romm’s posts on his Climate Progress blog. Or if you like the cool, dispassionate analysis, I’d recommend the Union of Concerned Scientists or the well-respected journalist Eric Pooley’s take on how the authors — who he says are friends of his — “flunk” the science.

There’s also been a fascinating back and forth which includes the authors and Nobel laureate economist Paul Krugman. In short, Krugman is not pleased and he lays out some devastating concerns about the mental exercise the authors have undertaken (“We’re not talking about the ethics of sumo wrestling here; we’re talking, quite possibly, about the fate of civilization. It’s not a place to play snarky, contrarian games”).

The brouhaha is truly unfortunate on many levels. It’s not that having a discussion of geo-engineering is a bad thing — we should explore and assess many options. But the real problem is that the authors of SuperFreakonomics — and even the big critics who have gotten sucked into it — seem to have taken too narrow a view of the problem. While the authors clearly believe that there is too much climate-change hype, there is some agreement that there’s a warming problem (or why propose a solution — the main point of the chapter — at all?). But the focus of the discussion is entirely on a way to counteract the effects of greenhouse gases, as if there are no other issues related to our reliance on fossil fuels.

Instead, let’s just think about the business benefits of changing our products and processes to reduce carbon emissions, regardless of the atmospheric benefits. How will changing to a lower-carbon economy help companies? Well, there’s real money involved here — energy and other resources are getting fundamentally more expensive over time as demand around the world rises and supply gets harder to find. Oddly, the SuperFreakonomics authors acknowledge this Econ 101 supply problem in passing with the statement: “In just a few centuries, we will have burned up most of the fossil fuel that took 300 million years…to make.” So why wouldn’t we want to move away from a declining resource?


Steven Levitt is one of the authors of Superfreakonomics and an economic professor at the University of Chicago. Yet according to this article, he seems to have taken off his economic hat in the chapter on climate change. Or at least he decided to wear his hat somewhat askew.

Moving away from fossil fuels has very strong economic implications, particularly since these fuels are a dwindling resource which will become more expensive over time.

The countries and companies that decouple themselves from fossil fuels will slash their costs and increase profits mightily. In fact, as Robert Kennedy, Jr. pointed out in a speech recently, the countries that have already reduced their reliance on fossil fuels — such as Iceland, with its geothermal energy, and Sweden, with a carbon tax driving down energy use as the country grew — have made their economies richer and more stable. (Yes, Iceland then bet its wealth on bad investments at the heart of the financial crisis in 2008 and bankrupted itself, but that’s another story.)

As many have repeatedly argued, we also place ourselves at great risk globally by continuing to pour money into oil markets. We send hundreds of billions of dollars a year to parts of the world that don’t like us very much. And we place ourselves at personal risk — the National Academy of Sciences just estimated, conservatively, that fossil fuels cost $120 billion per year in health costs and cause 20,000 premature deaths (that’s more than six 9/11s if you’re counting).

In their admiration of geoengineering, which only covers up the effects of burning fossil fuels, the authors appear to ignore the benefits that moving away from fossil fuel use engenders.

So, not only did they mess up in several ways when it came to the solutions to climate change, they also missed the economic implications of continuing to burn fossil fuels. I guess being contrarian was more important than fundamental economics. It helps sell more books, I guess.