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SuperFreakonomics on Geoengineering, Revisited

Geoengineering first came to much of the public’s attention in Levitt and Dubner’s 2009 book SuperFreakonomics. Levitt and Dubner were heavily criticized and their chapter on geoengineering was called patent nonsense, dangerous and error-ridden, unforgivably wrong and much more. A decade and a half later, it’s become clear that Levitt and Dubner were foresighted and mostly correct.

The good news is that climate change is a solved problem. Solar, wind, nuclear and various synthetic fuels can sustain civilization and put us on a long-term neutral footing. Per capita CO2 emissions are far down in developed countries and total emissions are leveling for the world. The bad news is that 200 years of putting carbon into the atmosphere still puts us on a warming trend for a long time. To deal with the immediate problem there is probably only one realistic and cost-effective solution: geoengineering. Geoengineering remains “fiendishly simple” and “startlingly cheap” and it will almost certainly be necessary. On this score, the world is catching up to Levitt and Dubner.

Fred Pearce: Once seen as spooky sci-fi, geoengineering to halt runaway climate change is now being looked at with growing urgency. A spate of dire scientific warnings that the world community can no longer delay major cuts in carbon emissions, coupled with a recent surge in atmospheric concentrations of CO2, has left a growing number of scientists saying that it’s time to give the controversial technologies a serious look.

“Time is no longer on our side,” one geoengineering advocate, former British government chief scientist David King, told a conference last fall. “What we do over the next 10 years will determine the future of humanity for the next 10,000 years.”

King helped secure the Paris Climate Agreement in 2015, but he no longer believes cutting planet-warming emissions is enough to stave off disaster. He is in the process of establishing a Center for Climate Repair at Cambridge University. It would be the world’s first major research center dedicated to a task that, he says, “is going to be necessary.”

Similarly, here is climate scientist David Keith in the NYTimes:

The energy infrastructure that powers our civilization must be rebuilt, replacing fossil fuels with carbon-free sources such as solar or nuclear. But even then, zeroing out emissions will not cool the planet. This is a direct consequence of the single most important fact about climate change: Warming is proportional to the cumulative emissions over the industrial era.

Eliminating emissions by about 2050 is a difficult but achievable goal. Suppose it is met. Average temperatures will stop increasing when emissions stop, but cooling will take thousands of years as greenhouse gases slowly dissipate from the atmosphere. Because the world will be a lot hotter by the time emissions reach zero, heat waves and storms will be worse than they are today. And while the heat will stop getting worse, sea level will continue to rise for centuries as polar ice melts in a warmer world. This July was the hottest month ever recorded, but it is likely to be one of the coolest Julys for centuries after emissions reach zero.

Stopping emissions stops making the climate worse. But repairing the damage, insofar as repair is possible, will require more than emissions cuts.

…Geoengineering could also work. The physical scale of intervention is — in some respects — small. Less than two million tons of sulfur per year injected into the stratosphere from a fleet of about a hundred high-flying aircraft would reflect away sunlight and cool the planet by a degree. The sulfur falls out of the stratosphere in about two years, so cooling is inherently short term and could be adjusted based on political decisions about risk and benefit.

Adding two million tons of sulfur to the atmosphere sounds reckless, yet this is only about one-twentieth of the annual sulfur pollution from today’s fossil fuels.

Even the Biden White House has signaled that geoengineering is on the table.

Geoengineering remains absurdly cheap, Casey Handmer calculates:

Indeed, if we want to offset the heat of 1 teraton of CO2, we need to launch 1 million tonnes of SO2 per year, costing just $350m/year. This is about 5% of the US’ annual production of sulfur. This costs less than 0.1% on an annual basis of the 40 year program to sequester a trillion tonnes of CO2.

…Stepping beyond the scolds, the gatekeepers, the fatalists and the “nyet” men, we’re going to have to do something like this if we don’t want to ruin the prospects of humanity for 100 generations, so now is the time to think about it.

Detractors claim that geoengineering is playing god, fraught with risk and uncertainty. But these arguments are riddled with omission-commission bias. Carbon emissions are, in essence, a form of inadvertent geoengineering. Solar radiation engineering, by comparison, seems far less perilous. Moreover, we are already doing solar radiation engineering just in reverse: International regulations which required shippers to reduce the sulphur content of marine fuels have likely increased global warming! (See also this useful thread.) . Thus, we’re all geoengineers, consciously or not. The only question is whether we are geoengineering to reduce or to increase global warming.

Germany poll fact of the day

In Germany, the far-right party Alternative for Germany (AfD) party is gaining popularity, with a recent poll putting it in second place – ahead of Chancellor Olaf Scholz’s SPD.

A YouGov poll published on Friday (9 June) found that 20% of German voters would give their vote to the far-right AfD, making it the second-strongest party behind the CDU (28%) and ahead of Scholz’s SPD (19%)…

“We have a unique selling proposition. As opposed to everyone else, we say that sanctions don’t mean harm for Russia but for our own population,” Tino Chrupalla, co-chair of the party, told ZDF.

Do note this:

The number of asylum claims in Germany has increased by 80% between January and March 2023 compared to the same period last year, according to the Federal Office for Migration and Refugees.

And this:

The AfD, which disputes that human activity is a cause of climate change, has also tapped into concerns among some voters about the cost of the transition away from fossil fuels.

AfD leader Tino Chrupalla said more voters appreciated that the policies of the Greens, Scholz’s junior coalition partner which wants a swifter shift away from hydrocarbons, brought “economic war, inflation and de-industrialisation.”

Here is the full story.  Have a nice day…

Plagues Upon the Earth

Kyle Harper’s Plagues Upon the Earth is a remarkable accomplishment that weaves together microbiology, history, and economics to understand the role of diseases in shaping human history. Harper, an established historian known for his first three books on Rome and late antiquity, has an impressive command of virology, bacteriology, and parasitology as well as history and economics. In “Plagues Upon the Earth.” he explains all of these clearly and with many arresting turns of phrase and insights:

There are about seventy-three bacteria among major human pathogens–out of maybe a trillion bacterial species on earth. To imagine bacteria primarily as pathogens is about as fair as thinking of human beings as mostly serial killers.

Despite the tingling fear we still feel in the face of large animals, fire made predators a negligible factor in human population dynamics. The warmth, security and mystic peace you feel around the campfire has been instilled by almost two million years of evolutionary advantage given to us by the flames.

Mosquitos are vampires with wings….The blood heist itself is an amazing feat. Following contrails of carbon dioxide that lead to her mark, the female mosquito lands and starts probing. Once she reaches her target, she inserts her tube-like needle, as flexible as a plumber’s snake, into the skin. She pokes a dozen or more times until she hits her mark. The proboscis itself is moistened with compounds that anesthetize the victim’s skin and deter coagulation. For a tense minute or two, she pulls blood into her gut, taking on several times her own weight, as much as she can carry and still fly. She has stolen a valuable liquid full of energy and free metals. Engorged, she unsteadily makes her getaway, desperate for the nearest vertical plane to land and recuperate, as her body digests the meal and keeps only what is needful for her precious eggs.

What I like best about Plagues Upon the Earth is that Harper thinks like an economist. I mean this in two senses. First, his chapters on the Wealth and Health of Nations and Disease and Global Divergence are alone worth the price of admission. In these chapters, Harper brings disease to the fore to understand why some nations are rich and others poor but he is well aware of all the other explanations and weaves the story together with expertise.

The second sense in which Harper thinks like an economist is deeper and more important. He has a model of parasites and their interactions with human beings. That model, of course, is the evolutionary model. To a parasite, human beings are a desirable host:

Just as robbers steal from banks because that is where the money is, parasites exploit human bodies because there are high rewards for being able to do so…. for a parasite, there is now more incentive to exploit humans than ever…look at human energy consumption…in a developed society today, every individual consumer is the rough ecological equivalent to a herd of gazelles.

That parasites are driven by “incentives” would seem to be nearly self-evident but in the hands of a master simple models can lead to surprising hypothesis and conclusions. Harper is the Gary Becker of parasite modeling. Here’s a simple example: human beings have changed their environments tremendously in the past several hundred years but that change in human environment created new incentives and constraints on parasites. Thus, it’s not surprising that most human parasites are new parasites. Chimpanzee parasites today are about the same as those that exploited chimpanzees 100,000 years ago but human parasites are entirely different. Indeed, because the human-host environment has changed, our parasites are more novel, narrow, and nasty than parasites attacking other species.

It’s commonly suggested that one of the reasons we are encountering novel parasites is due to our disruptions of natural ecosystems, venturing into territories previously unexplored by humans, thereby releasing ancient parasites that have lain dormant for millennia. Like the alleged curse of Tutankhamun’s tomb we are unleashing ancient foes! Similarly, concerns are voiced that climate change, through its effect on permafrost melt, may liberate “zombie” parasites poised for retaliation. But ancient parasites are not fit for human hosts as they have not evolved within the context of the contemporary human environment. So, while I don’t trivialize the potential consequences of melting permafrost, I think we should fear much more relatively recent diseases such as measles, cholera, polio, Ebola, AIDS, Zika, and COVID-19. Not to mention whatever entirely new disease evolution is bound to throw in our path.

Indeed, one of the most interesting speculation’s in Plagues Upon the Earth is that “global divergences in health may have reached their maxima in the early twentieth century.” The reason is that urbanization and transportation turned the new diseases of the industrial era, like cholera, tuberculosis and the plague (the latter older diseases but ideally primed for the industrial era) into pandemics (also a relatively recent word) at a time when only a minority of the world had the tools to combat the new diseases.

Science, of course, is giving us greater understanding and control of nature but our very success increases the incentives of parasites to breach our defenses.

[Thus,] the narrative is not one of unbroken progress, but one of countervailing pressures between the negative health feedback of growth and humanity’s rapidly expanding but highly unequal capacities to control threats to our health.

Free Formatting For All on First Submission!

Many years ago I was incredulous when my wife told me she had to format a paper to meet a journal’s guidelines before it was accepted! Who could favor such a dumb policy? In economics, the rule is you make your paper look good but you don’t have to fulfill all the journal’s guidelines until after the paper is accepted. Sensible!

A paper just published in BMC Medicine estimates that this obtrusive norm costs researchers in biomedical journals alone some $230 million a year in wasted time. That’s consistent with an earlier study which estimated that over a billion dollars worth of time was wasted reformatting papers in all scientific fields. Quoting from that earlier study:

Our data show that nearly 91% of authors spend greater than four hours and 65% spend over eight hours on reformatting adjustments before publication…Among the time-consuming processes involved are adjusting manuscript structure (e.g. altering abstract formats), changing figure formats, and complying with word counts that vary significantly depending on the journal. Beyond revising the manuscript itself, authors often have to adjust to specific journal and publisher online requirements (such as re-inputting data for all authors’ email, office addresses, and disclosures). Most authors reported spending “a great deal” of time on this reformatting task. Reformatting for these types of requirements reportedly caused three month or more delay in the publication of nearly one fifth of articles and one to three month delays for over a third of articles.

It’s all very depressing. If we can’t get rid of unproductive paper reformatting standards–which benefit no one–how can we expect to tackle monumental tasks that require navigating complex tradeoffs such as resolving global climate change or making the tax code more just and efficient?

Yet perhaps there is hope. The BMC Medicine paper was covered in Nature and the authors have started a petition to change the reformatting norm. Do your part. Sign the petition! Free formatting for all on first submission!

Identify a Market Failure and Win Prizes!

The University of Chicago’s Market Shaping Accelerator, led by Rachel Glennerster, Michael Kremer, and Chris Snyder (Dartmouth), is offering up to two million dollars in prizes for new pull mechanisms and applications.

Our inaugural MSA Innovation Challenge 2023 will award up to $2,000,000 in total prizes for ideas that identify areas where a pull mechanism would help spur innovation in biosecurity, pandemic preparedness, and climate change, and for teams to design that incentive mechanism from ideation to contract signing.

Participating teams will have access to the world’s leading experts in market shaping and technical support from domain specialists to compete for their part of up to $2 million prize during multiple phases. Top ideas will also gain the MSA’s support in fundraising for the multi-millions or billions of dollars needed to back their pull mechanism.

…Pull mechanisms are policy tools that create incentives for private sector entities to invest in research and development (R&D) and bring solutions to market. Whereas “push” funding pays for inputs (e.g. research grants), “pull” funding pays for outputs and outcomes (i.e. prizes and milestone contracts). These mechanisms “pull” innovation by creating a demand for a specific product or service, which drives private sector investment and efforts towards developing and delivering that product or technological solution.

One example of a pull mechanism is an Advance Market Commitment (AMC), which is a type of contract where a buyer, such as a government or philanthropic organization, commits to purchasing (or subsidizing) a product or service at a certain price and quantity once it becomes available. This commitment creates a market for the product or service, providing a financial incentive for innovators to invest in R&D and develop solutions to meet that demand.

The first round of prizes are $4,000 for an idea!

The submission template asks applicants to identify a market failure where the social value exceeds private incentives and where we know the measurable outcome we want to encourage (e.g. the development of a vaccine, capturing carbon out of the air, etc.). Submissions are accepted from individuals 18 years and older and organizations around the globe whose participation and receipt of funding will not violate applicable law.

See here for more.

Sunday assorted links

1. Building a better NIH.

2. Scott Sumner and Bob Lucas.  And climate change and the Lucas Critique.

3. Dhabas serving U.S. Punjabi truck drivers.

4. Ezra Klein on why coin minting and the like, in response to the debt ceiling, are terrible ideas (NYT).  Ezra is right, and a lot of the other commentary on this issue is simply not very well thought out churlishness.

5. Paul Simon update (Times of London, yes you should subscribe very cheap for U.S. readers).

6. More on Turkey from The New Left Review.  And Acemoglu on the election.

Buying a Coal Mine Gets Easier!

Long time readers will know that I have been advocating for buying a coal mine and shuttering it, especially a coal mine in India or China. The basic idea is that there are plenty of coal mines which are barely profitable so buying and shuttering these mines could be a relatively cheap way to reduce air pollution and climate change (much cheaper, for example, then letting the coal mine produce and then paying for carbon extraction). (I give an example of how this might work with an actual coal mine for sale here).

One objection, which I noted earlier, was BLM use it or lose it rules:

There are also some crazy “use it or lose it” laws that say that you can’t buy the right to extract a natural resource and not use it. When the high-bidder for an oil and gas lease near Arches National Park turned out to be an environmentalist the BLM cancelled the contract! That’s absurd. The high-bidder is the high-bidder and there should be no discrimination based on the reasons for the bid. See this Science piece.

Well some good news.

The Bureau of Land Management unveiled a draft rule late last month that would place conservation “on equal footing” with energy development and other traditional uses — a proposal that seeks to confront the agency’s long record of prioritizing extraction across the federal estate. A key provision of that rule would grant the BLM, which oversees one-tenth of all land in the United States, the authority to issue “conservation leases” to promote land protection and ecosystem restoration.

The article does a pretty good job of explaining conservation leases but it’s hilarious how the author reflexively labels PERC a right-wing think tank with deep ties to fossil fuels that supports “free market environmentalism” in scare quotes and never feels the need to resolve this with their support of conservation leases. Blank out, as Ayn Rand would say.

Few people have done more to advance the idea of conservation leases than Shawn Regan, vice president of research at the Property and Environment Research Center, or PERC, a right-wing, Montana-based think tank that promotes “free market environmentalism” and has deep ties to fossil fuels. Regan points to Williams’ and DeChristopher’s cases to highlight how legacy “use it or lose it” rules have biased public land management in favor of extraction.

“We have these ‘use it or lose it’ requirements that define ‘use’ in these really narrow ways that preclude conservation groups from participating in the leasing markets that affect the use of vast swaths of the American West,” he told HuffPost. “Conservation should be considered a valid use of public lands, and groups should be able to acquire those leases and decide to conserve them in some form or restore them.”

Regan argues the inability of conservationists to participate in federal land leasing, even when they are willing to pay more than a driller or rancher, has only helped fuel conflict in Western states.

…“Why don’t environmentalists just buy what they want to protect? Well, in many cases they can’t,” Regan said.

Hat tip: Robert Keller.

Update on the New York Times Word Frequency Chart

By David Rozado, who has hit a bunch of home runs lately.  Look at his charts, to my eyes they show woke terminology in the NYT as having peaked and as now declining.  Here goes, they are very different from the earlier charts (also at the link) ending in 2019:

Climate change issues, however, continue to receive more coverage.  Not all of the charts “go my way,” but this is hardly what you would expect if Wokeness were simply rising, rising, rising out of control.  Oh, and check out these trends in pronoun usage.  Also here is more from Rozado, mostly on how the positive sides of woke rhetoric are gaining at the expense of the negative sides.

Advice for the new World Bank chief

From my latest Bloomberg column:

First, contrary to the prevailing wisdom, the World Bank should not make climate change more of a priority. Climate-change issues are more closely associated with rich and middle-income countries than with the poorest countries. The very poorest countries, because they have small economies, do not as a rule emit much carbon. Indoor air pollution, such as burning wood or fuel for heat or cooking, is usually more of a problem. Those emissions can be toxic, and the World Bank should try to help reduce them. But that won’t do much to cut carbon emissions.

The World Health Organization estimates that about seven million people die each year from the direct effects of air pollution. For poorer countries, alleviating that problem should be a greater priority than fighting global climate change.

The reality is that if the World Bank can help elevate some very poor countries into middle-income countries, climate-change problems will become somewhat worse — at least in the short to medium run. “We make climate-change problems worse” is not a marketable slogan. But it is selfish to try to get the World Bank to do more good for the wealthiest nations and less good for the poorest nations, which is essentially what prioritizing climate change would do. And of course the world’s wealthier nations are broadly coincidental with the major shareholders of the World Bank…

If there is any area where the World Bank should double down, it is in public-health interventions. Over the last several decades, the successes have been extraordinary. In Africa, for instance, child mortality rates have plummeted, and many public-health indicators have improved considerably, especially outside of major conflict zones. Why not invest more in what is working?

Recommended, with further arguments at the link.

Alex Epstein’s *Fossil Future*

Bryan Caplan asked me to read this book, and Alex Epstein was kind enough to provide me with a copy of it.  The subtitle is Why Global Human Flourishing Requires More Oil, Coal, and Natural Gas — Not Less.

My overall view is this: it is a good rebuttal to “the unrealistic ones,” who don’t see the benefits of fossil fuels.  But it does not rebut a properly steelmanned case for a transition away from fossil fuels.

I view the steelmanned case as this: we cannot simply keep on producing increasing amounts of carbon emissions for centuries on end.  We thus need some trajectory where — at a pace we can debate — carbon emissions end up declining.  I’ve stressed on MR many times that climate change is not in fact an existential risk, but it could be a civilization-destroying risk if we just keep on boosting carbon emissions without end.  I don’t know a serious scientist who takes issue with that claim.

In a number of places, such as pp.251-252, and most significantly chapter nine, Epstein denies the likelihood of climate apocalypse, but I just don’t see that he has much of a counter to the standard, more quantitative accounts.  He should try to publish his more optimistic take using actual models, and see if it can survive peer review.  Why should I be convinced in the meantime?  I found chapter nine the weakest part of the book.  Maybe he feels he wouldn’t get a fair knock by trying to publish his alternative take through “the standard process,” but as it stands his casual take doesn’t come close to overturning what I consider to be the most rational, consensus-based Bayesian estimate of the consequences of making no transition to green energy.

I am also impressed by how many different kinds of scientists accept these conclusions, and see these conclusions mirrored in their own research.  If you ask say the oceanographers, they will give you a broadly consistent account as the climate scientists proper.

Nor is there, for my taste, enough discussion of how much climate risk we should be willing to take on.  It is not just about “beliefs most likely to be true.”  Note that the less you believe in climate models, the more you should be worried about tail risk.  In these matters, do not assume that uncertainty is the friend of inaction.

So I really do think we need to deviate from the world’s recent course with respect to fossil fuels.  Now, we can believe that claim and simultaneously believe it would be better if Burkina Faso were much richer, even though that likely would be accompanied by more fossil fuel use, at least for a considerable period of time.

Epstein focuses on the Burkina Faso sort of issue, and buries the long-term risk of no real adjustment.  But we do have to adjust.  Why could he not have had the subtitle: “Why Global Human Flourishing Requires More Oil, Coal, and Natural Gas for a while, and Then Less”?  Then I would be happier.  In economic language, you could say he is not considering enough of the margins.

I think he is also too pessimistic about the long-run and even medium-run futures of alternative energy sources.  More generally, I don’t think a few book chapters — by anyone with any point of view — can really settle that.  I find the market data on green investments more convincing than his more abstract arguments (yes, I know a lot of those investments are driven by subsidies and regulation, but there is genuine change afoot).

I worry about his list of experts presented on pp.29-30.  Mostly they are very weak, and this returns to my point about steelmanning.

In his inscription to the book Epstein calls me a contrarian — but he is the contrarian here!  And I believe his position is likely to retain that designation.  There is a lot in the book which is good, and true, nonetheless I fear the final message of the work will lower rather than raise social welfare.

For another point of view, here are various Bryan Caplan posts defending Epstein’s arguments.  In any case, I thank Alex for the book.

The Pile of Talent test

The economist Tyler Cowen suggests a thought experiment to illustrate this point.

Take out a piece of paper. In one column, list all of the major problems this country faces—inequality, political polarization, social distrust, climate change, and so on. In another column, write seven words: “America has more talent than ever before.”

Cowen’s point is that column B is more important than column A. Societies don’t decline when they are in the midst of disruption and mess; they decline when they lose energy. And creative energy is one thing America has in abundance.

Here is the full Atlantic piece from David Brooks, mostly about reason to be optimistic about America.  Of course there is even a stronger version of The Pile of Talent test that you could run for the world as a whole.

Powell: The Fed is Independent but for that Reason Must be Limited

An excellent and forceful speech by Federal Reserve Chair Jerome Powell. He defends the Fed’s independence but clearly and directly argues that the only way that deal can be credible is if the Fed stays out of big political issues.

…the case for monetary policy independence lies in the benefits of insulating monetary policy decisions from short-term political considerations.1 Price stability is the bedrock of a healthy economy and provides the public with immeasurable benefits over time. But restoring price stability when inflation is high can require measures that are not popular in the short term as we raise interest rates to slow the economy. The absence of direct political control over our decisions allows us to take these necessary measures without considering short-term political factors. I believe that the benefits of independent monetary policy in the U.S. context are well understood and broadly accepted.2

…It is essential that we stick to our statutory goals and authorities, and that we resist the temptation to broaden our scope to address other important social issues of the day.4 Taking on new goals, however worthy, without a clear statutory mandate would undermine the case for our independence.

…Addressing climate change seems likely to require policies that would have significant distributional and other effects on companies, industries, regions, and nations. Decisions about policies to directly address climate change should be made by the elected branches of government and thus reflect the public’s will as expressed through elections.

At the same time, in my view, the Fed does have narrow, but important, responsibilities regarding climate-related financial risks. These responsibilities are tightly linked to our responsibilities for bank supervision.6 The public reasonably expects supervisors to require that banks understand, and appropriately manage, their material risks, including the financial risks of climate change.

But without explicit congressional legislation, it would be inappropriate for us to use our monetary policy or supervisory tools to promote a greener economy or to achieve other climate-based goals.7 We are not, and will not be, a “climate policymaker.”

My Conversation with Jeremy Grantham

Lots of semi-sparring, engaging throughout.  Here is the audio, video, and transcript.  Here is part of the episode summary:

He joined Tyler to discuss the most binding constraint on the green transition, why we need an alternative to lithium, the important message sent by Biden’s Climate and Taxes Act, the marginal cost basis of green energy, the topsoil crisis in the Midwest, why estimates of the cost of global warming vastly underestimate its effects, why he distrusts economists, the overpricing concentrated in the US stock market, the consequences of Brexit, the revolutionary tactics of Margaret Thatcher, how his grandparents shaped his worldview, why he’s optimistic about American venture capital, the secret to Boston’s success in asset management, how COVID changed his media diet, the political difficulty of passing carbon taxes, and more.

Here is one excerpt:

COWEN: Now, you mentioned major flooding in Jackson, Mississippi. That’s a problem. Right now, as we speak on September 1st, 2022, how much do you think real estate values will decline there as a result of the flooding? What would your prediction be?

GRANTHAM: The history so far on early flooding is that it has little or almost no effect. It’s a bit like going bankrupt: very, very slowly at first and then quite sudden. When you need to buy insurance one day, you will not be able to get it except from government subsidy, and on that day, the house prices will start to decline. Then quite possibly, there’ll be some sort of panic — we do panics pretty well — and the prices will drop like a stone, more than they should. And then, of course, they will rally, and so on and so forth. Business as usual.

COWEN: If I try to seek out the most serious efforts to estimate the costs of global warming, say, by 2200, I end up at the papers of Esteban Rossi-Hansberg. He comes up with figures somewhere between 5 percent and 10 percent of global GDP, which, as you know, is an enormous amount of money, especially come 2200. Now, does that strike you as a fair estimate or an underestimate?

GRANTHAM: It strikes me as utterly trivial and only producible by economists. When economists try, they can be absolutely nitwitted. The guy who got the Nobel Prize for it [William Nordhaus], for his work on climate change — actually he spelled it out. He said, “Even if there was 10 degrees centigrade, it would only cost something in the range of 10 percent of GDP.”

To which I say, “Dudes, we will be long gone as a species at 10 degrees centigrade.” It is quite obvious at 1.1 that we are already having trouble. At 2, we will be struggling and societies will fail here, there, and everywhere. At 3, in a sense, forget about it, and we may have to deal with it, but it will be grievous. At 10 degrees . . .

I also ask him why, if bubbles are so easy to spot, he isn’t richer than he already is…

*Risky Business*

The subtitle is Why Insurance Markets Fail and What To Do About It, and the authors are the highly regarded Liran Einav, Amy Finkelstein, Ray Fisman.  The level is a bit above what could make this book a bestseller, but I consider that a good thing.  The book in fact is a classic example of how to present economic research in readable, digestible form and should be regarded as such.

I do have a few qualms, but please note these are outweighed by the very high quality of the core material:

1. I think the authors underestimate how rapidly “Big Data” is shifting the information asymmetries away from consumers/policyholders.  This is related to my recent remarks on AI.

1b. For reasons stemming from #1, insurance/surveillance/control, including from employers, will rise in importance as an issue, and soon.  I don’t get a sense of that from reading this book.  We might alleviate selection problems, while creating other difficulties including ethical dilemmas.

2. I would like to see more on moral hazard.

3. I also would want to see more — much more — on the public choice reasons why government insurance markets so often fail — the authors should consider their own title!  Should the Florida government really be propping up insurance contracts and insurance markets to protect homeowners against climate change-related losses?  No matter what your view, this kind of issue is under-discussed.  How about the FDIC?  Bailout-related moral hazard issues?  Those are hardly “small potatoes.”  I get that isn’t “the book they set out to write,” but still I worry that the final picture they present is misleading when it comes to market failure vs. government failure.  Adverse selection is really just one part of insurance markets, but this book doesn’t teach you that.

3b. Isn’t excess liability through our court system another major reason why insurance markets fail?  We needed a Price-Anderson Act, where government assumes a lot of the liability, to support our nuclear power sector, even though coal alternatives were riskier and more harmful, both short run and long run.  In terms of actual importance, hasn’t this been a major, major factor?

3c. Are restrictions on “boil in oil” contracts (no matter what you think of them ethically) another factor in institutional failure here?  Maybe that is one way of making America safe for bungee jumping.  Or we can follow New Zealand, and limit liability here altogether.  The interaction of insurance and liability law is a major issue, and we have not been getting it right.

4. The authors absolutely do consider “positive selection” (e.g., it is the responsible people who buy life insurance, thus leading to a favorable customer pool), but I would give it more emphasis.  If you believe that income inequality, “deaths of despair,” and educational polarization are growing problems, this phenomenon likely is becoming more important.

4b. How about more concessions in the Obamacare analysis?  For years I read that a weaker mandate would cause the system to collapse.  Yet the Republicans significantly cut back on mandate enforcement and the system seems to be getting along OK, at least from that point of view.  (In fact, politically speaking Trump arguably saved Obamacare.)  What did everyone miss?  Did they overrate adverse selection arguments and underrate positive selection?  It seems that was a major failing of the economics profession, which if anything was more insistent on “the three legs of the stool” than policymakers were.  The authors do cover this all at length, but they can’t bring themselves to note “we got down to 7-8 percent uninsured, the whole thing actually worked out OK, and the economists didn’t quite get it right.”

5. There are plenty of cases when expected “insurance” markets do not exist, and we cannot boil those down to adverse selection.  Why don’t all those Bob Shiller proposals happen?  (Is it really inside information about gdp?  That seems doubtful.)  Why aren’t there more prediction markets?  Why have so many proposed futures contracts on exchanges failed?  These all would seem to serve insurance-like purposes, among their other functions.  Yet their supply seems skimpy, at least relative to an economist’s expectations.  Why?  Perhaps there is more to failed insurance markets than meets the eye.

I know authors can fit only so much into a book, but if I can fit this much into a blog post…I would like to see more!  And I think that would result in a more realistic policy balance as well, and draw attention to major issues other than adverse selection.