Climate change deniers: betrayal or just plain wrong?

Paul Krugman's column yesterday on climate change politics was particularly pointed, even for Paul Krugman.

He writes:

Indeed, if there was a defining moment in Friday’s debate, it was the declaration by Representative Paul Broun of Georgia that climate change is nothing but a “hoax” that has been “perpetrated out of the scientific community.” I’d call this a crazy conspiracy theory, but doing so would actually be unfair to crazy conspiracy theorists. After all, to believe that global warming is a hoax you have to believe in a vast cabal consisting of thousands of scientists — a cabal so powerful that it has managed to create false records on everything from global temperatures to Arctic sea ice.

Yet Mr. Broun’s declaration was met with applause.

Given this contempt for hard science, I’m almost reluctant to mention the deniers’ dishonesty on matters economic. But in addition to rejecting climate science, the opponents of the climate bill made a point of misrepresenting the results of studies of the bill’s economic impact, which all suggest that the cost will be relatively low.

Still, is it fair to call climate denial a form of treason? Isn’t it politics as usual?

Yes, it is — and that’s why it’s unforgivable.

Do you remember the days when Bush administration officials claimed that terrorism posed an “existential threat” to America, a threat in whose face normal rules no longer applied? That was hyperbole — but the existential threat from climate change is all too real.

Yet the deniers are choosing, willfully, to ignore that threat, placing future generations of Americans in grave danger, simply because it’s in their political interest to pretend that there’s nothing to worry about. If that’s not betrayal, I don’t know what is.

But here's the thing: Conservatives and some Libertarians actually believe this conspiracy theory. Even serious academic ones. They are like the Vulcans of the Bush administration who thought invading Iraq and establishing a seed of Democracy in a predominantly Islamic country would be the key to solving middle east problems. It wasn't just politics as usual. The WMD thing might have been oversold for political reasons, but in their hearts they thought they were doing the right thing. I thought they were crazy, but I think it can be hard to get anywhere in these debates if we always think the problem is bad incentives rather than bad ideas.

Another case in point: Here Krugman is debating John Taylor. John Taylor thinks the financial crisis and global recession were due to Ben Bernanke and Hank Paulson scaring the public and the financial industry by going to congress and asking for the TARP funds. Taylor thinks government caused the crisis by overreacting. This view seems little short of bats insane to my eyes, but I do believe that John Taylor believes that what he is saying is true.

Sometimes I think both sides attribute much more to bad motives or political economy than is reality. The climate scientists are not corrupt as many Republicans believe. Nor are many of the Republicans fighting against climate change policy. They just have strong and perhaps ill considered beliefs.

In reality I think political conflict stems mainly from differing worldviews and ideologies. Paul Krugman's intellectual arguments are quite strong. But I think he'd be more persuasive if he refrained from accusing the other side of bad motives.

Capping C02 emissions costs 18 cents per person per day

A new report by CBO says cap-and-trade will cost 18 cents per person per day.

And a big hand slap for Nat Keohane (of Environmental Defense Fund) for saying the cost was just a dime a day.

Yeah, I take such estimates lightly and tack on a lot of uncertainty. But CBO isn't biased.

Can someone explain to me why this is controversial?

Update: One big thing getting in the way of climate change legislation is deciding who gets to count all the carbon, particularly the offset part, which will be complicated. It's a conflict between two agencies that love each other dearly: USDA and EPA. Conflicts and a culture of distrust between these agencies go way back. On some level I think it's superficial stuff. Farmers don't know or like the EPA but do know and at least feel comfortable with their local FSA guys. Anyway, it's funny how agriculture always gets in the way on policy matters much bigger than itself, everything from trade agreements to climate change.

Nick Kristoff gets Michael Pollanized

I really like Nick Kristoff. He likes to dig in hard to see things from all sides. And then he takes a stand. Here I'm not so sure he dug into the other side.

Growing up on a farm near Yamhill, Ore., I quickly learned to appreciate the difference between fresh, home-grown foods and the commercial versions in the supermarket.

Store-bought lettuce was always lush, green and pristine, and thus vastly preferable to lettuce from my Mom’s vegetable garden (organic before we called it that). Her lettuce kept me on my toes, because a caterpillar might come crawling out of my salad.

We endured endless elk and venison — my Dad is still hunting at age 90 — or ate beef from steers raised on our own pasture, but “grass-fed” had no allure for me. I longed for delicious, wholesome food that my friends in town ate. Like hot dogs.

Over the years, though, I’ve become nostalgic for an occasional bug in my salad...profoundly unhealthy American diet.

I’ve often criticized America’s health care system, .... But one reason for our health problems is our industrialized agriculture system....

A terrific new documentary, “Food, Inc.,” playing in cinemas nationwide, offers a powerful and largely persuasive diagnosis of American agriculture...(It was particularly unnerving to see leftover animal bits washed over with ammonia and ground into “hamburger filler.”....)

“The way we eat has changed more in the last 50 years than in the previous 10,000,” Michael Pollan, the food writer, declares in the film.

What’s even more eerie is the way animals are being re-engineered. For example, most Americans prefer light meat to dark, so chickens have been redesigned to produce more white meat by growing massive breasts that make them lopsided... ...“their bones and their internal organs can’t keep up with the rapid growth,” explained Carole Morison, a Maryland chicken farmer .... “A lot of these chickens here, they can take a few steps and then they plop down. It’s because they can’t keep up with all the weight that they’re carrying.”

Huge confinement operations for livestock and poultry produce very cheap meat and eggs. But at what cost?

Agribusiness companies exercise huge political influence, and industry leaders often fill regulatory posts. The Food and Drug Administration consequently dozed, and the number of food safety inspections plunged.

The solutions aren’t simple, and may involve paying more for what we eat, although we may save some of that in reduced health costs for diabetes and heart disease. In any case, “Food, Inc.” notes that we as consumers do have power. “You can vote to change the system,” it declares, “three times a day.”

I can see and fully appreciate where Kristoff and Michael Pollan are coming from. But I do think there is another side. For my own eating habits I'm trying to follow Pollan's advice. At the same time, I don't think that recipe will work for the whole world. For the real poor in developing nations, we need cheap food. Cheap food means cheap food staples, like corn. Cheap corn means cheap meat. And for most of us in rich countries, well, that hot dog just tastes so good and is so, so affordable.

Free trade meets organic

I'm guessing this announcement inspired mixed feelings among foodies.

Economists love it, of course.

AGRICULTURE DEPUTY SECRETARY MERRIGAN ANNOUNCES U.S. – CANADA AGREEMENT FOR ORGANIC TRADE EQUIVALENCE

CHICAGO, June 17, 2009 -- Agriculture Deputy Secretary Kathleen Merrigan today announced that a first-of-its-kind agreement has been reached between the United States and Canada that will expand opportunities for organic producers in both countries. The "equivalency agreement" follows a review by both nations of the other's organic certification program and a determination that products meeting the standard in the United States can be sold as organic in Canada, and vice versa. Merrigan made this announcement at the All Things Organic Trade Show and Conference in Chicago this morning.

"The production of organic foods is a vibrant growth opportunity for American agriculture, and by agreeing on a common set of organic principles with Canada, we are expanding market opportunities for our producers to sell their products abroad," said Merrigan. "Today's agreement between the world's two largest organic trading partners is an important first step towards global harmonization of organic standards."

Under a determination of equivalence, producers and processors that are certified to the National Organic Program (NOP) standards by a U.S. Department of Agriculture accredited certifying agent do not have to become certified to the Canada Organic Product Regulation (COPR) standards in order for their products to be represented as organic in Canada. Likewise, Canadian organic products certified to COPR standards may be sold or labeled in the United States as organically produced. Both the USDA Organic seal and the Canada Organic Biologique logo may be used on certified products from both countries. The COPR goes into effect on June 30.

Canada is the largest U.S. trade partner and largest estimated export market for U.S. organic products. USDA's Foreign Agricultural Service office in Ottawa estimates that more than 80 percent of Canada's organic consumption comes from imports, and approximately 75 percent of those imports come from the United States. Organic produce and processed foods are estimated to make up the majority of U.S. organic products exported to Canada. Estimates of the total market for organic products in Canada range from $2.1 to $2.6 billion; meanwhile sales of organic products in the United States totaled $24.6 billion in 2008. Actual trade flows are difficult to track because the United States has not developed international harmonized system codes for organic products.

The two letters determining equivalence and Q & A's discussing the details of these actions can be found on the NOP website, under Today's News at www.ams.usda.gov/nop.

Consumer demand for organic food has risen quickly over the past ten years, triggered in part by the development and success of USDA's organic regulatory program and label, according to a recent study by USDA's Economic Research Service. As consumer demand for organic products has widened, organic retail sales have spread far beyond the 'natural products' market niche in urban areas and college towns and into big-box stores across the country.

Since the late 1990's, U.S. organic production has more than doubled, but the consumer market has grown even faster. Organic food sales have more than quintupled, increasing from $3.6 billion in 1997 to $24.6 billion in 2008. More than two-thirds of U.S. consumers buy organic products at least occasionally, and 28 percent buy organic products weekly, according to the Organic Trade Association.

Review of Michael Pollan's In Defense of Food (and the Kindle app for iphone)

Michael Pollan's latest was my first. First ebook purchase, that is. I bought it using the Kindle application on my iphone--very cool. I'm sure reading on the iphone is nowhere near as nice as reading on a genuine Kindle, but the price is better (the app is free). Reading a book on the iphone is actually a much more pleasant experience than I expected. The font size is adjustable, and though you read a lot of tiny pages, flipping them is a super simple, super fast swipe of the thumb. During the times inbetween--you know, on metro trains, airports, planes, taxicabs, sometimes even while walking--I've managed to read two books. Beside's Pollan, I also read Akerlof and Shiller's Animal Spirits on the iphone.

Okay, on to Michael Pollan.

There is a lot I like about this book. Far better than your average agricultural economist, and surely better than yours truly, Pollan can draw the interest of a broad audience and accurately describe some of the dizzying and truly fascinating details of our food system. I think his popular resonance should say something to agricultural economists about the kinds of issues and questions on which we should focus.

I also think Pollan gets most of his facts straight. His characterization of food marketing and, to a large extent, of nutrition science, seems right to me. Pollan's key themes: (1) That nutrition scientists really don't know that much about what's most healthy for us to eat; and (2) food companies exploit and often distort narrow findings from nutrition science when they market goods, misleading us into thinking were eating healthfully when we're really not. Pollan's now famous take home message: "Eat food, not too much, mostly plants." By food he means food in the raw, not processed; the rest is self explanatory. It's really hard to argue with his main themes or the take home message. I'm now trying to figure out where to put a vegetable garden in my yard.

Although I liked the book and recommend it, I think there are places where Pollan goes too far. My quibbles with Pollan are not so much with any of the particular facts he exposes (save for a few I'll mention below), but with sweeping consequences he attributes to them; and to some extent, his conspiratorial tone.

For example, Pollan faults the farmers for their "single minded focus on higher yields" over nutritional aspects of foods. Well, okay. But is this really so surprising? Farmers are small businesses and they all make more money if their yields go up, all else the same. So they all strive for higher yields--because it pays. Same goes for seed companies, fertilizer companies, and so on. My point here is that the food industry is just like every other with regard to its increasing decentralization, specialization, homogenization, over-zealous advertising and general single-minded focus on profits. That's what makes the world go 'round. And on some level everyone knows it.

What bothers me is that Pollan seems to overplay "nutritionism" and false advertising and underplay prices and taste. I imagine many people (including my mother) were duped into eating too much margarine and transfats because they were told it was a healthier alternative to butter (it wasn't). I think that was an honest mistake (one among many). But I think it's hard to believe that "nutritionism" and advertising are the main culprits in the obesity crisis. Rather, I think technological change and (likely unstoppable) economic progress has made food both very cheap and very tasty. People know that all the junk food they eat is bad for them, but they can't help themselves, and so they eat it anyway. The thing is, when you couch the problem in these terms, it become much harder to point a finger at a devious and unseen culprit. At the end of the day, it's just people making stuff to try to make a living and people eating stuff because the like it and can afford it.

Yes, we seem to have a problem. But don't think Pollan needs to point conspiratorial fingers. It doesn't change the essential story nor help with a solution.

In reading Pollan I almost start to feel sorry for the nutrition scientists. These dedicated scholars are plugging away at their jobs over many decades and have managed to learn a lot about the different kinds of nutrients in foods, how our bodies process those nutrients. I mean, so much of what Pollan is reporting is what they discovered. Talk about biting the hand that feeds you! There is--as all the scientists freely admit to Pollan (but he's surprised by this)--a lot they still don't know. They have a hard time understanding how nutrients work in conjunction with each other and whether their absorption is in some way facilitated by the foods in which they are contained. For example, taking a multivitamin every day may be a poor substitute for ingesting vitamins in foods that naturally contain them.

Pollan does a nice job explaining how scientific empiricism typically works--by carefully controlling for all factors except one particular nutrient--and how difficult it is to disentangle the workings of more complex mechanisms with multiple nutrients and delivery systems. All of this sounds right and very much like any science. Science is always hard. There's always lots we don't understand. Every huge discovery leads to a zillion new questions and nothing turns out to be quite as seemed when first discovered. And so it goes.

Pollan describes all of this in a chapter titled "Bad Science." Provocative title, yes. And most of the facts seem to be right. But what, exactly, would Pollan call "Good Science?" What Pollan describes is true for all scientific fields everwhere. Slow, plodding, and riddled with errors, yes. But it's not bad. This is the science that feeds a planet of 6 billion+ better (at least in most respects) than it ever has before, with the longer life expectancies, with stupendous variety, with jet airplane travel, and cool gadgets like iphones. But at its most basic level, science is typically riddled mistakes. Each truly novel discovery is miniscule. And oftentimes wrong. This is the nature of science, and every scientist knows it. Even the nutrition scientists.

So this is the tone that grates. Pollan writes as if the nutrition scientists are conspiring in a sinister plot with the food business to make us all fat and unhealthy. He doesn't actually say that but it is implied. And, well, that's just silly. The reality is that food companies exaggerate findings from food science to market their goods. But this is neither new nor surprising nor in anyway unique to food. It's absolutely ubiquitous. That doesn't make it right, but the problem surely isn't science. And by misrepresenting the problem it becomes more difficult to articulate reasonable solutions.

And, now, the real rub. Did I mention prices?

A friend of mine often jokes that there are just three attributes of food that matter: fast, cheap, and good. He didn't list healthy. If fast, cheap and good is what people want, well, the market has done a very nice job providing it for them. As consumers, hopefully we're slowly recognizing the fallacy of this view. But these bad tastes are the main culprit in our predicament.

I also think there is conundrum beneath the surface here far deeper and more complex than even Polllan realizes or is willing to admit. (Maybe he's conspiring with the nutrition scientists.) High crop yields and the food industrial complex have made food very cheap for us. Especially processed foods and fast food. But these same forces have caused prices for staple grains, like corn, soybeans, wheat and rice, to become cheaper the world around.

In this country we consume processed foods and fast foods--food that takes little time to prepare. While cheap, these foods are a lot more expensive than the raw grains taken from farms. But because we're comparatively so rich, we prefer to pay the extra pennies to have those grains processed and made quick to prepare and tasty to eat. Or, even better, to eat those grains in tastier forms of meat, milk, cheese and eggs after they've been processed through cows, chickens and hogs.

In the poorest parts of the world, inexpensive grains have helped to feed the hungry masses. If yields did not grow as much as they had, hundreds of millions would have starved, died of illnesses related to malnutrition, or killed each other in conflict derived ultimately from food shortages. Not that atrocities don't still exist, but cheap food has surely made the world a much more humane place than it might have been.

Also, since yield growth took off in the 1940s, cropland expansion has slowed considerably. If yields hadn't grown like they did, the Amazon and south Asian forests, and perhaps even some of our own forests, would have been gone long ago. Indeed, today yield growth seems to be slowing a little, demand growth (especially for meat) is coming on strong from China and south Asia, and cropland is expanding more rapidly. If yields don't continue to grow we may have problems far larger than a little (or a lot) of weight gain stemming from overindulgence in rich countries.

Thankfully, Pollan's advcie for individual food choices helps on all grounds. Eating more plants, less meat, and less processed food is almost surely good for your health, good for the planet, and good for food prices. I'm just a little wary about all of this happening on a large scale without much stronger incentives. It's hard for people to get over fast, cheap and good.

More realistically I think the deeper problem here is global income inequality. If all the world were as rich as we are, food prices, and especially meat prices, would be a lot higher. But since we'd all be wealthy no one would be hungry. And prices would push us toward eating more healthfully, and maybe even push more of us to grow our own vegetables.

Oh, and one last factual quibble: It is in no way clear, as Pollan contends, that agricultural subsidies boost agricultural production in the U.S. This is way more complicated than it may seem. And, as I've suggested before, subsidies that pay farmers to NOT produce may well have a larger influence on production than subsidies that pay farmers for what they do grow. But more on this some other time...

Home prices and fundamentals

We all know the housing bubble story and how so many economists, and business, finance and real estate professionals got it all wrong. While I was never in the business mortgage lending or forecasting home prices, I was one of those economists who got it all wrong. So, for the record, I like to spell out what I was thinking and why I was thinking it. I'm doing this for the following reasons: (1) to dispell the idea that all of this was or should have been totally obivous; (2) so that I might be less likely to make the same mistake; (3) because I think the dialog may now placing too much emphasis on bubbles and too little on fundamentals.

I'm motivated to do this in part from having just read Akerlof and Shiller's new and excellent book "Animal Spirits." Akerlof and Shiller present a compelling case. But I don't think they fully present the most rational justification for what was causing the boom as it happened, even if animal spirits had a clear role in the bust. I now believe Akerlof and Shiller are right on nearly all counts. But I'd like to spell out why some, or at least I, was fooled. I don't think I quite fit the caricature of the market participants in their book.

Also, one way to fight animal spirits underlying the current recession is to focus instead on fundamentals. A focus on fundamentals might also go some ways toward countering the present lack of confidence.

First, I never expected prices to continue their double-digit increases. Rather, I expected them to gradually level off and remain flat, at least in real terms. My impression was that the rapid increase in home prices came about from an adjustment to a new equilibrium. This adjustment seemed quite natural to me for two main reasons: (1) historically low interest rates; and (2) because mortgage lending markets, due to larger bank sizes and securitized lending (which can make sense if managed and regulated wisely), made it easier to manage risk, and thus allowed them to lend to more people with somewhat lower credit and incomes.

These two main factors were buttressed somewhat by a few secondary fundamental factors. These include, large tax breaks from mortgage interest deduction and relatively recent changes capital gains taxes, a general (and reasonable if not rational) increase in willingness to bear risk, and revitalization of inner cities like DC, which caused many extremely low-priced homes to increase in value many times over, which helped to skew upward some of the statistics (even the excellent Case-Shiller-Weis index).

The two main factors should have brought about a marked reduction in the 'price to rent' ratio often cited during the run up. This is the ratio of a home's price divided by the amount it can be rented in any given year. At the height of the bubble this ratio was reported to be around 30 in cities with the most rapidly increasing prices. The bubbleheads argued that the ratio should always return to its mean of around 12 to 15, indicating prices were more than double what they "should" be.

I saw no reason for the price-to-rent ratio to return to its mean. Interest rates had fallen steadily over many decades and were approaching all time lows. Consider that a price to rent ratio of 15 is like a real rate of return of 6.7% and a price-to-rent ratio of 30 is like a real rate of return equal of 3.3%. This didn't seem altogether out of line with fall in interest rates. And a real rate of return of 3.3% isn't bad--at the time the real rate on inflation indexed treasuries was around 1% or less.

I was also suspect of the ratios being reported. The quality of a typical home sold can be very different from a typical rental home. And with so many new homes and apartment-to-condo conversions, it was easy to see how the relative difference between the typical home sold and the typical rental were diverging.

What the bubble heads didn't do often was to cite the housing affordability index. This index relates the affordability of the median home price to a household with median income. An index value of 100 means a household with median income can just afford the median-priced home. The affordability index takes interest rates into account. Price-to-rent and price-to-income ratios, popular bubblehead stats (see, for example, NYT columns by David Leonhardt) do not. This housing affordability index remained fairly stable amid rapidly increasing home prices. Incidentally, the housing affordability index is now at a record high of about 170: homes have never been more affordable to so many.

While there is no denying there was a bubble in housing, I still believe the above fundamentals played a large role. And I think it is also interesting and important to note that today we see home price declines and foreclosures in places that did not see large increases during the bubble. Also, some of the places with the largest increases remain extremely expensive. Not all of this is born out by the statistics because the statistics tend to be of a more aggregate nature. The CSW index--surely the best index going--considers MSA's not individual cities or zip codes. But within each MSA there is surely a lot of variation across neighborhoods, with some increasing or decreasing faster than others. In Washington DC, for example, while home prices have declined, they've declined much less in the city center in comparison to suburbs and exurbs. Rather, it seems the best neighborhoods closest to the city center have declined very little while the newest and furthest areas have declined much faster. I understand this same pattern is true throughout the country. All of this led me to believe things didn't get really bubblicious until around 2004 or 2005 when mortgage lending got completely out of hand--something I had not realized at the time.

Aside about the CSW index: I'd love to see this index parsed out in following way: across all cities, sort areas by zip code from the most expensive to the least expensive. I expect a reliable index could be made using about 5% of the zip codes, which makes for 20 indexes. I'd guess the high end isn't coming down as fast as the low end, and this cut of the data should give the clearest indication of the phenomenon.

So, fundamentally speaking, where are we now? Well, on a national basis the price-to-rent ratio is nearing its historical mean while interest rates remain at near all time lows. Short-term interest rates are near zero and short-term inflation-indexed rates are also quite low.

I'll take a house my old neighborhood in DC as an example: There's a shell of good sized row house for sale right now next to the Georgia Ave.-Petworth metro. The asking price is $190K and they seem willing to take much less. I'm guessing it would take about $200K to make this a nice new home (plus a basement rental?). So let's just call it $400K and understand with construction time and such it could be a bit more than that. One would need about $80K to invest and would have a mortgage of about $1850/mo. plus taxes and insurance--let's call it $2300/mo. Note that about $350/mo of the initial payment would go toward principal and effectively count as savings with a 5.5% return.

I have a decent row house up the street (no basement rental) that I rent for $3500/month. For this rent we had a long line of interested and well qualified renters--we probably could have rented it for more but we wanted to be picky. The house isn't new and it doesn't have central air conditioning. So, to expect $3500 a month on a newly renovated row house right next to metro (but still on a quieter street) is no stretch of the imagination.

So beginning from the first month one can expect to make maybe $1000/mo over their mortgage payment on this place (we'll allow $200/mo for maintenance ), plus an initial $350/mo toward principal which will grow over time. And, over the long run, one should expect rents to rise with inflation. This means net returns increase over time because the payment on the fixed rate mortgage won't change. Even if taxes and insurance go up modestly, this is a deal that grows much sweeter with time.

Why am I not buying this place? I just don't have the time to deal with it all. But all of this makes me think we've overshot big time on the downside with respect to home prices. As the affordability index shows, there has never been a better time to buy. This is especially true if your a first time buyer and can get an $8K tax credit to boot.

Maybe prices will fall further and buying opportunities will be even better. But that's bubble-like speculating, not fundamentals. There are some really sweet deals out there right now and I'm baffled--and scared--that they aren't getting picked up faster.

Extreme heat, historical heat tolerance, and implications for climate change

Last weekend at the NBER meeting Climate Change: Past and Present, my coauthor Wolfram Schlenker presented some of our new research on the evolution of heat tolerance in corn plants.

First some background: In earlier research we found that corn, soybeans, and cotton yields all have a similar characteristic relationship with temperature: yields increase with temperature up to a critical threshold and then decline sharply. The critical temperature for corn and soybeans is about 29 degrees Celsius (84 F). This one variable [degree days above 29 C] explains about 70 percent of the typical surprise in corn yields each year--about as good as the USDA's August forecast. And the relationship is negative: the more extreme heat, the lower is yield.

To correctly identify this relationship we had to do careful analysis of weather data to obtain the time at each degree within each day and across days of the growing season. We also had to account for variations in temperatures between weather stations. Some of this work is reported in this working paper and a more recent version was recently resubmitted to a science journal. Hopefully it will be published soon.

In this earlier work we found tolerance to extreme heat was remarkably stable over time, space, and a zillion alternative specifications. But we only looked at data back to 1950. Largely motivated by Richard Sutch's research[1, 2], we decided to look back further in time the interesting period during the Great Depression when the Midwest experienced the harshest and hottest temperatures on record and farmers began adopting modern farming techniques, including hybrid seed and comerical fertilizers. The challenge was to find good enough weather data for that period. NOAA has detailed daily weather data going back to the late 1800s, but its pretty thin before 1950. It turns out Indiana is the first state reporting more than a very few weather stations. Since Indiana is a key corn growing state, that's where we focused our analysis.

Fairly consistent with Sutch's work, we found heat tolerance of corn plants grew markedly with the adoption of hybrid corn, between 1940 and 1960. But after 1960, around the time farmers started planting single-cross rather than double-cross hybrid corn, heat tolerance declined sharply. Today, corn appears more sensitive to extreme heat than it was before the Great Depression (albeit, with much higher average yields).

So what are the prospects for climate change? Well, there's bad news and good news. The bad news first, illustrated in the figure below. The figure shows our key temperature measure: degree days above 29C during the growing season. The big drought years (and bad yield years) show prominently: 1934 and 1936, the worst on record, and 1983 and 1988, the worst years in more recent history (aside from the 1994 flood). I've drawn a line in blue showing what is projected to be typical during the last 30 years of the century under the "nice" warming scenario--an increase of about 104 Degree days above 29C. This is the projection if we sharply curb CO2 emissions in the near term. Under this predicted increase a typical year will be worse that the worst dust bowl years of 1934 and 1936. A second scenario is "business as usual" in which there are no efforts to curb emissions--an increase of 330. I can't draw a line for that scenario because it's off the chart. WAY off the chart. And this projection doesn't account for the recent acceleration of CO2 emissions from China[1, 2, 3].

Note that these projections are from the Hadley III model--the model used in the lastest IPCC report. They are probably good guesses but are surely very uncertain.

(click figure for higher-resolution. The diamonds indicate the state average for the growing season; the box plots indicate variations across counties within each year.)

The good news? Well, it looks like the damaging effect of extreme heat was curbed for awhile, so maybe they can do that again. The question is whether heat-resistant varieties can yield as much as the more heat sensitive varieties, since, over the last 20 years anyway, it seems they've only been able to grow yields by making them more sensitive to less-than-ideal conditions. And we'll probably need a *lot* more heat tolerance. In any case, while there seems to be some hope, prospects for yields under climate change are, for the moment, uncertain at best.

Pindyck vs. Weitzman: How much should we spend to curb global warming?

I spent last weekend at an excellent NBER Conference, Climate Change: Past and Present. There was lots of interesting stuff I’d love to blog about, and hopefully will soon. But a highlight was a fantastic exchange between two proverbial giants on the Big Climate Change Question.

I'm paraphrasing arguments from memory here, so hopefully I don't misrepresent either of these guys. And apologies in advance if this seems too technical..

Robert Pindyck went first. He presented a more-or-less standard representative agent macro model of the world economy and built in a lot of assumptions about various kinds of uncertainty surrounding the effect of warming on output. His model had welfare as a function of output and output growth as a function of temperature change. Importantly, it seems, he assumed temperature change could not affect utility in any manner other than output—a seemingly strong assumption in my book (we all study state-dependent utility, no?). He emphasized many assumptions that were generous toward those most worried about cataclysmic consequences of global warming. And in anticipation of Weitzman, he used probability distribution functions of uncertainties with “fat tails.” Pindyck concluded that society’s willingness to pay to prevent or severely limit global warming could be no more than about 2.5 percent of world income, and likely much, much less.

While Pindyck did use some relatively “green” assumptions that might favor a large number, it was also clear the deck was stacked. One key assumption: it makes no difference whether or not the world ends with certainty in 400 years. I had a hard time with that one. Stephen Salant, one of the discussants, had a hard time with it too. He noted that changing this assumption alone could increase willingness to pay to 99 percent of income.

I noted Pindyck’s graphs omitted from consideration very large levels risk aversion (relative risk aversion was less than or equal about 2). For relatively small amounts of risk aversion and uncertainty, greater risk aversion reduces willingness to pay to stop warming. But for very large levels of risk aversion, this reverses, and willingness to pay explodes with risk aversion (in my view, Pindyck tried to ignore this possibility and bushed it off too casually when questioned). This reversal, I think, is also tied to the amount of growth in economy. It bothers me because empirical finance says risk aversion is crazy large and way off the charts of what Pindyck was willing to consider—like a CRRA of 20. This assumption alone would seem to push everything to infinity or zero depending on the other assumptions.

Weitzman’s view was the polar opposite of Pindyck’s. Weitzman finds uncertainty everywhere, and finds thoughtful account of this uncertainty can easily lead to infinite valuations for preventing global warming. Weitzman acknowledged that plausible models give very low willingness to pay, but argued that equally plausible models could give infinite valuations. No one questioned his math. I, at least, found his assumptions and the effort he took to justify them as reasonable. Weitzman has clearly dug in deep in terms of the scientific climate change literature and thinking seriously about the long run.


A few interesting highlights:

Weitzman suggested that it’s hard to take any of the climate models and economic models very seriously. He said there is little reliable temperature data because inferences from ice and sediment core samples and tree rings were noisy. In his view, the only good data are CO2 concentrations. These data go back hundreds of thousands of years because the air was trapped in the ice and so accurate CO2 concentrations can be extracted. Those data show that we now have higher CO2 concentrations than at any point in many hundreds of thousands of years. And concentrations are growing at rate that almost surely exceed anything in millions and perhaps hundreds of millions of years. It is also clear that, broadly speaking, CO2 and temperatures moved together in history.

We are in unchartered territory, and this is the principal source of uncertainty. Even a small probability that our activities will extinguish the planet give good cause to stop emissions, even at high cost, per Weitzman’s assumptions.

In the end, Weitzman said economic benefit-cost analysis is no help in situations like this one. He argued that climate change was rather unique in this way. Decisions must be made by some other means.

Pindyck argued that giving up on economic benefit-cost analysis would cede the debate to radical environmentalists. (He didn’t say why not to radical climate-change denialists.) He argued it was critical for economists to wrestle with the issue and find a reasonable and balanced valuations and targets. He emphasized learning (have we really much more to learn before it’s too late?). Pindyck argued climate change was not unique. Other potential problems were equally ominous, including: running out of water, infectious diseases, nuclear war and nuclear terrorist attacks. So if willingness to pay for preventing climate change was infinite, it left no room for these other problems. I think Weitzman concurred that climate change risks needed to be balanced against other concerns, but where to spend money for the other concerns seemed less clear. And it wasn’t clear how economists might help to quantify, realistically, these competing ominous concerns.

The inescapable conclusion to me was that we should worry a lot about what the future might hold. Technology and growth hold great promise and potential. But we also have a remarkably dangerous ability to influence our environment and destroy ourselves. How do we work collectively to make prudent choices and while preserving individual liberties? I’m pretty sure the answer is not to pretend these problems don’t exist.

There was a lot of technical debate about the separability of temperature effects from output effects on utility. I found the debate rather strange because all of it was in terms of a single, globally representative individual. From where I sit, looking at how climate change will affect food supply, I can easily imagine a situation where the richer two-thirds of the world goes on growing happily as ever toward utopia while the other third starves to death. I have a hard time reconciling that view with a non-separable utility function.