Thomas Piketty: Al Gore with a French accent

In addition to being an expert on economic history, Thomas Piketty turns out to be an expert on atmospheric physics. One would think that an advocate of greater wealth equality would welcome a sea level rise sufficient to wash away all of the Wall Streeters’ houses in the Hamptoms. Apparently not.

climate change and, more generally, the possibility of deterioration of humanity’s natural capital in the century ahead. If we take a global view, then this is clearly the world’s principal long-term worry. The Stern Report, published in 2006, calculated that the potential damage to the environment by the end of the century could amount, in some scenarios, to dozens of points of global GDP per year.

Piketty never explains why growing wealth inequality was the world’s #1 problem in the preceding 600 pages but climate change takes over the #1 spot for a short portion of the book.

Should we attack the problem now, when America’s best engineers can’t figure out how to deliver working WiFi service at brand new billion dollar airport terminals (see SFO, for example!)?

Nicholas Stern, who is British, argued for a relatively low discount rate, approximately the same as the growth rate (1–1.5 percent a year). With that assumption, present generations weigh future damage very heavily in their own calculations. William Nordhaus, an American, argued that one ought to choose a discount rate closer to the average return on capital (4–4.5 percent a year), a choice that makes future disasters seem much less worrisome.

For Stern, the loss of global well-being is so great that it justifies spending at least 5 points of global GDP a year right now to attempt to mitigate climate change in the future. For Nordhaus, such a large expenditure would be entirely unreasonable, because future generations will be richer and more productive than we are. They will find a way to cope, even if it means consuming less, which will in any case be less costly from the standpoint of universal well-being than making the kind of effort Stern envisions.

Stern’s opinion seems more reasonable to me than Nordhaus’s, whose optimism is attractive, to be sure, as well as opportunely consistent with the US strategy of unrestricted carbon emissions, but ultimately not very convincing.

Piketty proposes spending vast sums, though he admits that nobody has any idea what would be worth funding:

The public debt (which is much smaller than total private wealth and perhaps not really that difficult to eliminate) is not our major worry. The more urgent need is to increase our educational capital and prevent the degradation of our natural capital. This is a far more serious and difficult challenge, because climate change cannot be eliminated at the stroke of a pen (or with a tax on capital, which comes to the same thing). The key practical issue is the following. Suppose that Stern is approximately correct that there is good reason to spend the equivalent of 5 percent of global GDP annually to ward off an environmental catastrophe. Do we really know what we ought to invest in and how we should organize our effort? If we are talking about public investments of this magnitude, it is important to realize that this would represent public spending on a vast scale, far vaster than any previous public spending by the rich countries.

Should we count on advanced research to make rapid progress in developing renewable energy sources, or should we immediately subject ourselves to strict limits on hydrocarbon consumption? It would probably be wise to choose a balanced strategy that would make use of all available tools.55 So much for common sense. But the fact remains that no one knows for now how these challenges will be met or what role governments will play in preventing the degradation of our natural capital in the years ahead.

More: read  Capital in the Twenty-First Century.

6 Comments

  1. Tiago

    June 2, 2014 @ 6:04 am

    1

    So are you saying that because American engineers can’t get nice wifi at airports we should give up on fighting climate change?

    I don’t understand why you accuse Piketty of being an expert in “atmospheric physics” while at the same time criticising him for admitting his ignorance of the field.

    This post (along with the rest on Piketty) seems to pick on minor details to criticise the author while at the same time ignoring the overwhelming evidence of increasing inequality in developed countries. Perhaps Piketty should indeed have spent some of the 600+ pages explaining why rising inequality is a bad thing, given that even many educated Americans fail to understand why it is such a bad thing.

  2. David Freer

    June 2, 2014 @ 8:04 am

    2

    I love reading your blog but you know the Wall Street types will have a much easier time relocating and making a new life than the poor of the world.

  3. Peter Wells

    June 2, 2014 @ 9:25 am

    3

    Phil,
    As you say, “Piketty never explains why growing wealth inequality was the world’s #1 problem in the preceding 600 pages”. As a non-rich non-American, I am still waiting to understand why, myself.

    On climate change, I have yet to see a rebuttal of
    http://topher.com.au/50-to-1-video-project/#prettyPhotoflash/0/
    though perhaps it’s just that I’ve missed it.

  4. George

    June 2, 2014 @ 10:48 am

    4

    Piketty and thinkers like him, see the world and civilization as a “straight long line” in which everyone is lined up and if anyone is out of line, it is easy to put them back in line. [1] They think their ideas is so great and government can apply them if only they get the courage to do so. They think the entire civilization of Earth is striving for a just solution and they will jump on it if only someone leads them.

    The reality is, the moment a human being is born, a new dimension is added to reality and the “straight long line” is so hairy you don’t even know it exist. Even within the most organized, draconian cult, no two minds can agree. Coming up with a system and selling it to a group –leave alone a country and culture which Piketty and thinkers like him are lecturing to– is dead on arrival. Heck, I cannot even replace a burned out light-bulb in my own house without first debating it with my wife or even myself !!

    [1] This reminds me of the Borg http://en.wikipedia.org/wiki/Borg_(Star_Trek)

  5. philg

    June 2, 2014 @ 12:04 pm

    5

    Tiago: When someone proposes to spend 5% of world GDP, i.e., about $4 trillion per year, I just think it is nice if they have some idea what it is that they are going to buy.

    David: Your statement that Wall Streeters have more flexibility than poor people to relocate certainly seems true, but it could just as easily support a plan to take 5% of world GDP and give the money directly to poor people, rather than having an additional 5% of GDP spent by wise government officials in various countries. If you lived right at sea level in Bangladesh, would you rather have the U.S. government spend $3 million on a big windmill or give you $50,000 so that you could build a new house in the hills?

  6. michiel

    June 2, 2014 @ 1:38 pm

    6

    Physics professor Tom Murphy argues[1] that since the dollar value of fossil fuels is bound to increase as they get more scarce, and all currently-known alternative energy sources have heavily frontloaded costs, it will be more, not less expensive to ‘switch’ in the future.

    The article is worth checking out–he sketches the scenario of an administration trying to invest in alternative energy sources, at a time when scarcity causes these investments to have a direct negative effect on economic growth.

    [1]: http://physics.ucsd.edu/do-the-math/2011/10/the-energy-trap/

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