On David D. Friedman’s view about climate change

This week David D. Friedman gave two talks at the University of Graz. The first has been on anarcho-capitalism and his proposal for a society organised without any form of public institution (cf. [1]). In his second talk Friedman argued why uncertainty in climate science denies any form of recommendation for climate mitigation and in particular for early action. In this blog post I will essentially focus on his second talk but give some conclusions why I think his proposal for anarcho-capitalism directly feeds into his ‘wait-and-see’ principle regarding climate change.

Argument I: What do we know – the bias of IPCC

What has been most striking to me was his argument regarding the credibility of climate change research. Currently the ‘best guess’ – to use his terminology – is represented by the Assessment Reports carried out by the Intergovernmental Panel on Climate Change (IPCC) which regularly publishes the latest state of knowledge. Friedman unhesitatingly dismissed the work of the climate science community because in his view the research is distorted towards negative externalities. But he even went further saying that climate science is biased due to the prejudice that climate change exclusively will trigger negative externalities. But as a matter of fact, this potential deficiency has led to increased attention by the scientific community in order to outweigh merits and demerits of a changing climate:

The IPCC research process [2]-[3] “multiple stages of review”

“comprehensive, objective and transparent assessment of the current state of knowledge”

“priority is given to peer-reviewed literature”

The IPCC selection of authors [3] authors are selected on the basis of their expertise [and their] detailed CVs”

“composition of author teams aims to reflect a range of scientific, technical and socio-economic views and backgrounds”

“author teams […] include a mix of authors from different regions and from developed and developing countries”

The IPCC AR5 report in figures [2] q.e.d.

Friedman did not even mention (least of all appreciate) this approach of doing peer-reviewed falsification analysis. Furthermore, he particularly challenged the robustness of climate models applied in the five assessment reports. Evidently, ALL MODELS ARE WRONG (see [4] for a nice recap “On mismatches between models and observations”). Friedman knows it, but everyone seriously doing research knows the deficiencies but also the merits of modelling. To continue, his argument was that the ex ante projections from the applied models in the first AR did not match with ex post empirical observations. Even if this argument would be correct (which is not, cf. [5, TFE.3, Figure 1, p. 64]) his claim regarding the misspecification of the AR1 models does not translate into the subliminal claim that improved models in AR2-5 are completely flawed.

To elaborate more on doing projection (not prediction) research by means of modelling, Friedman argued that in face of uncertainty we can never incorporate all potential effects (regardless of the challenge they are related to). The net effect of positive and negative externalities is unclear in the narrow approach of modelling. I totally agree on that but the implications of such a passive attitude towards the ability to actively follow a precautionary principle are devastating. If fate is the only determinant for future well-being, why are there so many efforts and vested interests in shaping its own prospects?

In the case of climate change the challenges ahead are higher by order of magnitudes especially since ‘tipping points’ can cause positive feedback effects additionally triggering forcing [6]. As Hansen [7] puts it: “wait and see and clean up the mess post facto, will not work […] because of inertial effects, warming already in the pipeline, and tipping points”. Hence, “[to avoid] the unmanageable and [to manage] the unavoidable” [8] certainly represents a more rational approach than Friedman’s proposal.

Argument II: From average homogeneity to heterogeneous distribution

Friedman then went on arguing that human species is not optimally adapted to weather conditions because humans are populated in various climate zones over the world. Obviously, there is a range of optimal or acceptable conditions but the point is that, again, passing lower or upper boundaries of this range can lead to severe impacts on humans [9]. A plausible response is migration as a form of adaptation which also Friedman highlighted. But in his argument he essentially disregards any influence to the adaptive capacity of individuals simply assuming homogeneity. He never mentioned one of the decisive points with regards to adaptive capacity which is: where are affected people located on the global cumulative curve of income and wealth.

Several times, Friedman pointed to the ‘marginal’ change of global average temperature, again neglecting the distribution of change among space and time. In its latest “Statement on the Status of the Global Climate” the World Meteorological Organisation documents that the global average temperature in 2016 has been 1.1°C above the pre-industrial level earmarking a novel record after the preceding record year of 2015 [10]. In Austria the temperature increase has even reached a 2°C increase in the same period investigated [11]. For some regions, the observed temperature increase is yet above this level [5, Figure SPM.1, p. 6]. And most strikingly is Friedman’s emphasis on ‘marginal’ or ‘slow’ change in temperatures. For the rate of increase since the beginning of the industrialization this is simply not true [5, Figure 5.7, p. 409].

The prospective impacts will vary in magnitude, direction, space and time [12-13]. But let’s focus a fortiori on a positive externality Friedman has been referring to. For the case of food security it is true that most crop yields could increase up to 20-30% [14]. But these numbers have been evaluated under controlled experiments in the laboratory. Where and when crop yield is expected to be increasing is again a question which Friedman did not further elaborate on. Additionally, there is evidence that the protein content of some crops decreases with higher temperatures [14]. Hence, distributional issues and implications are not within Friedman’s analytical approach. This is also reflected in his utilitarian and consequentialist view of the world: if the number of people dying from cold weather conditions decreases stronger due to global warming than the number of people dying from heat stress increases there is clearly a net benefit. Message to the individuals in the latter group: could you please stand up?

Argument III: Directed economic growth and path dependency

All the above makes the case for the complement of adaptation which is mitigation and in particular early action. It is true that at the moment many technological and behavioural changes complying with climate-neutrality are costly. But what Friedman essentially misses is that economic growth (and its associated benefits) not only has a rate but also a direction. For instance, the technologically driven cycle in the US originating in the ‘mission to the moon’ has been a political and social goal. Besides the development of rockets this mission-oriented approach has led to various kinds of state-funded offspring inventions and innovations ranging from telecommunication technologies, photovoltaics and so on [15].

Let me here bridge the gap back to Friedman’s first talk (and the blog post of Timon Scheuer) and then back again to climate change and the mission-oriented approach. In principle, his proposal for a stateless society – in which “private property, individual rights and voluntary co-operation” is solely brought about by bargaining between contract parties – is an interesting case to look at. In essence it is about completely decentralising the use of force or the threat of using force in order to enforce individual rights. A discussion of this proposal would fill several blog posts (again, cf. Timon Scheuer’s contribution). At the moment let me just argue that this proposal clearly feeds into his ‘wait and see’ principle. In his view, people are informed enough in order to react to changing social, economic and climate environments and, self-evidently, there exist ad hoc responses. But what about ‘tipping points’ and the associated irreversibility experienced post facto? Friedman’s anarcho-capitalist society reflected by self-interest at the micro scale and random walk at the macro scale is certainly not preparing in a way that the direction of change tackles the challenges ahead.

References

[1] Friedman, D.D., 1989. The machinery of freedom. Guide to radical capitalism. 2nd edition. Open source: http://www.daviddfriedman.com/The_Machinery_of_Freedom_.pdf [07.06.2017]

[2] https://www.ipcc.ch/report/ar5/wg1/docs/WG1AR5_FactSheet.pdf

[3] https://www.ipcc.ch/news_and_events/docs/factsheets/FS_select_authors.pdf

[4] http://www.realclimate.org/index.php/archives/2013/09/on-mismatches-between-models-and-observations/

[5] http://www.climatechange2013.org/images/report/WG1AR5_ALL_FINAL.pdf

[6] Lenton, T. M., Held, H., Kriegler, E., Hall, J. W., Lucht, W., Rahmstorf, S., & Schellnhuber, H. J. (2008). Tipping elements in the Earth’s climate system. Proceedings of the national Academy of Sciences, 105(6), 1786-1793.

[7] Hansen, J., 2008. Tipping points. Perspective of a Climatologist. Available at: http://www.columbia.edu/~jeh1/2008/StateOfWild_20080428.pdf

[8] Scientific Expert Group on Climate Change, 2007. Confronting Climate Change: Avoiding the Unmanageable and Managing the Unavoidable, Report prepared for the United Nations Commission on Sustainable Development, eds Bierbaum RM, Holdren JP, MacCracken MC, Moss RH, Raven PH (Sigma Xi, Research Triangle Park, NC, and United Nations Foundation, Washington, DC.

[9] Parsons, K. (2014). Human thermal environments: the effects of hot, moderate, and cold environments on human health, comfort, and performance. Crc Press.

[10] WMO, 2017. WMO – World Meteorological Organization. Statement on the State of the Global Climate in 2016. WMO-No. 1189. Available at: https://public.wmo.int/en/media/press-release/climate-breaks-multiple-records-2016-global-impacts

[11] APCC. 2014. Österreichischer Sachstandsbericht Klimawandel 2014 (AAR14): Synopse – Das Wichtigste in Kürze. Austrian Panel on Climate Change (APCC), Climate Change Centre Austria, Wien, Österreich.

[12] IPCC, 2014. Summary for policymakers. In: Climate Change 2014: Impacts, Adaptation, and Vulnerability. Part A: Global and Sectoral Aspects. Contribution of Working Group II to the Fifth Assessment Report of the Intergovernmental Panel on Climate Change [Field, C.B., V.R. Barros, D.J. Dokken, K.J. Mach, M.D. Mastrandrea, T.E. Bilir, M. Chatterjee, K.L. Ebi, Y.O. Estrada, R.C. Genova, B. Girma, E.S. Kissel, A.N. Levy, S. MacCracken, P.R. Mastrandrea, and L.L. White (eds.)]. Cambridge University Press, Cambridge, United Kingdom and New York, NY, USA, pp. 1-32.

[13] Zenghelis, D., 2015. 10. Decarbonisation: Innovation and the Economics of Climate Change. The Political Quarterly, 86: 172–190. doi:10.1111/1467-923X.12239

[14] Schmidhuber, J., & Tubiello, F. N. (2007). Global food security under climate change. Proceedings of the National Academy of Sciences, 104(50), 19703-19708. Available at: http://www.pnas.org/content/104/50/19703.full.pdf [07.06.2017]

[15] Mazzucato, M. (2013), “The Entrepreneurial State – Debunking Public vs. Private Sector Myths”, Anthem Press, ISBN 978-0-857282-52-1.

The Case of Anarchy, Case Closed: a comment on a talk by David Friedman.

“All human beings are born free and equal in dignity and rights”. At least as long as David Friedman’s dreams do not come true. In the anarcho-capitalist society he proposed in today’s talk rights are goods and services traded on markets. The rights you are born with are then those your parents are paying for. I invite you to think about the destiny of your dignity, if you are born in such a society without solvent and generous parents. It gives me the creeps just as David Friedman has done, when he indirectly preached against the first article of the Universal Declaration of Human Rights.

It was not only the lack of morality. It was also the lack of consistency. He may dream of a world without a government, but the system he sketched was not such. Publicly elected governments were just substituted by private ones individually selected on hypothetical markets. As if it was not bizarre enough that one has to purchase their basic rights just like one has to choose amongst hopefully affordable insurances, Friedman does not even hesitate to sketch the so-called law enforcement companies like organizations we know from Mafia films – sending strong men to protect their clients and punish their adversaries. We now know pretty well how ruling by private clans work out, from organized crime as well as from feudalism. We know that the “freedom of choice” often did not work out that well for those who tried to use it. We know about the economics of scale, network effects and corresponding concentration of power in cartels and monarchies. So, while I still have no clue how an anarcho-capitalist system should achieve a stable outcome in a world of externalities and asymmetric information, we can at least imagine the lack of liberty in a society where rights are distributed as unequally as property.

Money and bloodline already has enough influence on legislation, jurisdiction and execution. To me, giving up my one-vote-per-head democracy in favour of Friedman’s anarcho-capitalism seems just like the final resignation in favour of a sort of legitimised corruption. I cannot deny that governmental failure is obvious and the average voter knows too little about the true incentives, intentions and efforts of the politicians elected and electable. The transaction costs in favour of a well-informed decision, though, would not necessarily decrease only because the provider of law would be a private company instead of a public party. After all I am thankful for Friedman’s talk, which seems to be science fiction rather than scientific. Not only did he give insights into the theoretical and empirical shortcomings of libertarian thought, but he also encouraged me to stick to Winston Churchill’s quote: “democracy is the worst form of government, except for all the others.”

Can robots pay taxes?

Bill Gates thinks robots should pay taxes. My first reaction was: Mr Gates obviously doesn’t know much economics. If he did, he would know that things do not pay taxes. Only people do.

Robots, so I thought, are machines. They don’t have an income of their own, they don’t consume stuff. The income they help produce goes to whoever owns the robot. If I own a robot, my willingness to let it (him? her?) work for a firm increases with the robot wage rate, the amount of money I receive per hour of work done by my robot. A tax on robot wages would shift the supply curve of robot labor up (or, if you prefer, to the left), increasing for each given amount of robot labor the wage rate employers must pay to get it. The gross robot wage increases, although probably by less than the tax rate, depending on how elastic the demand for robot labor is. Assuming that the demand elasticity is not infinite, the tax burden will be split between the robot owners and the employers of robots. So the robot tax would just be another form of a capital tax, which would partly be shifted to other factors of production, including human labor. In no real sense would it „tax robots“.

Now there are good reasons to believe that we are approaching the “technological singularity“, a scenario in which robots become smarter than humans. Some experts on artificial intelligence reckon we might be only 30 years away from that. I have exactly zero qualifications to judge the plausibility of that claim, but I don’t see any obvious reason why it couldn’t happen.

Suppose the singularity does happen. Then it seems quite ridiculous to assume that humans own robots. More likely, it would be the robots who own humans. Indeed, we can only hope the super-intelligent robots would treat us a little better than we are treating less intelligent life-forms now. Let’s assume, for the sake of argument, that humans will co-exist with the super robots as equals, at least for a while. Then robots would effectively become another class of people competing with us in the market place for jobs and goods. In such a world, robots are capable of bearing a tax in the sense that they would have to cut back on their consumption (whatever it is robots consume) when faced with a tax. But even in this, admittedly unlikely, scenario, it would be the case that humans feel some of the burden of the robot tax. This is because even super-intelligent robots will react to incentives. Why, given that they are super intelligent, they should react much better to incentives than homo sapiens with all its cognitive biases. If we tax their labor, they will supply less of it, which hurts humans.

So yes, robots could pay taxes. But only if they are intelligent and powerful enough to resist being held as slaves by humans, and not as intelligent and powerful as would allow them to enslave humans. Not a very likely scenario I guess.

PS: If you are curious what AI is currently capable of doing, here is some AI-produced poetry.

 

Penalty taking: some game theory and hypothesis testing

One of my colleagues sent me an article in the Financial Times from March 17 entitled “How to save a penalty: the truth about football’s toughest shot. On star goalie Diego Alves, game theory and the science of the spot kick.” I found the article interesting for two reasons.

  1. It has a fun discussion of the psychology and game theory of taking penalty kicks. It points to the paper by Ignacio Palacios-Huerta in which he shows that professional soccer players take penalties in a way that is consistent with Nash equilibrium (or minmax) behavior. The FT article also includes an interesting interview with Ignacio Palacios-Huerta and his “analysis of ideal penalty-taking strategies for the then Chelsea manager Avram Grant before the Champions League final against Manchester United in 2008.”
  2. The FT article highlights Diego Alves, Valencia’s goalkeeper, and argues that he is particularly good at stopping penalties. The FT article argues that Diego Alves’ stopping record (he stopped 22 of 46 penalties – a very high number compared to the average stopping rate of 25% of all goalkeepers combined) cannot be explained by chance alone.

In this blog post I want to comment on the 2nd point. It is actually wrong. And it is wrong for an interesting reason. Moreover the mistake made is very easy to make and is a very common one.

Continue reading

Three thoughts on free trade

The Wachau is a roughly 40km long and narrow part of the Danube valley in Austria. It produces and sells essentially only three things: beauty, wine, and apricots. With “producing and selling beauty” I mean that it tries to and manages to attract tourists. Its wine-growing and trading goes back a long way.

Except for perhaps in pre-historic times, it seems that the Wachau was never autarkic, meaning there was always trade (and probably also migration) between the Wachau and the world around it.

Now suppose, counter-factually, that the Wachau were and had always been completely cut-off from the world. What would the Wachau be like?

Continue reading

In praise of internet ads

On my recent trip to the United States my flight got canceled. The airline didn’t give any reason for the cancelation, offered no compensation for the resulting delay. Plus, my baggage was lost on the way, probably due to the fact that I was rebooked on a different flight involving two other airlines.

A week after the incident I noticed that a particular ad appeared again and again on my Facebook feed. It simply said “Flight delayed or canceled? Find out if you are entitled to compensation. We can help you start your claim for free.” So I clicked on it, even though I’m usually very skeptical of internet ads. The site behind the link looked reputable to me. I quickly googled “AirHelp fraud” or some similar phrase to see if there are any warnings or complaints about the company, but couldn’t find any.

So I decided to trust the site, filled out a simple online form asking me some details about my flight and uploaded a copy of my ticket. Within a week, I received a message that the airline had agreed to pay me 163 dollars in compensation. AirHelp charged 40 dollars in service fees. The whole thing cost me no more than 30 minutes of my time.

Two things I took away from this story: 1) Annoying as internet ads may be, they sometimes are really useful. Had I not seen the ad, I probably wouldn’t have bothered to contact the airline at all, and if I did, I would have spent hours on the phone talking to some customer service agent in India or, worse, some lawyer. Take this as an example that advertisement can create value for consumers. 2) The internet really does change the service industry profoundly. It’s evident that companies like AirHelp increase competition for service providers, especially highly regulated ones such as lawyering. We (or I, at least) used to think such services require a lot of local, personal interaction which the internet can never substitute for. It turns out more and more that this is wrong, which is probably bad news for lawyers and other service providers. More competition is always harmful for suppliers, hence the fierce resistance against Uber and Airbnb.

PS: I did spend hours on the phone talking to some customer service agent in India about my bag – but that’s a different story.

Me, myself and economics: Political Conscience

I have already mentioned that it is rather deceptive to discuss economic issues as if they were completely independent from normative judges. Several instruments and analyses regularly applied by economists strongly resort to assumptions and thereby beliefs and opinions. Several outcomes and issues discussed in economics strongly depend on the underlying set of institutions and thereby on the politicians responsible for them.

This is not a critique. My critique is rather reserved for those guys who try to exploit the relinquished political conscience of an economist in favour of an accusation – restate it and belie it as it would be something bad. Some probably do it intentionally and fully aware of their formal mistake. They accuse us of a normative bias because they know that others, less educated with regard to this issue, will follow their lead: tabooing political statements as if they would jar with the objectivity of science. The true intention, though, may be rather contrary directed. Instead of protecting science from political dependency the ulterior motive may be to protect certain political conditions from scientific discussion. The best to keep people from questioning a given set of institutions seems to be preventing critical thoughts about it in the first place.

If I, for example, once again dare to question the actual distribution of wealth and property rights, there is a high chance for an accusation that my request is politically motivated. The accusation may be right or wrong. Anyway, it bears no surplus for the scientific discussion. If economic outcomes depend on property rights, and property rights are determined by politically passed laws, any discussion of economic outcomes is logically linked to politics. Supressing the discussion thereby is not less politically motivated than forcing it. If there is a political dimension anyway, keeping quiet about it may serve an individual strategy but not consistency or even objectivity.

Do not get me wrong! I do not request that every discussion of an economic outcome should turn into a political discussion. All I want to state is that especially progressive economists will not be able to spare it all the time. The moment they request a change in economic settings or behaviour, there is a high chance that they implicitly demand political action. This does not imply political dependency for the one who states the request. It is the economic sphere that depends on the political sphere, not necessarily the economist who realizes and communicates this fact.

To this effect, do not evaluate our work over our explicit or implicit political requests only. Rather control for the assumptions we state in our models and analysis. Verify which interdependencies are incorporated and which are neglected. Check whether you can share our beliefs and follow our derivations. But do not render a technical or professional judgement based on our political conscience. If you want to judge economists with regard to political conscience, start with those who do not have one or try to hide it, because they seemingly did not get what economics is about.