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Cost-Benefit Analysis

Cost-Benefit Analysis

One of my questions in Economics One was why professors called economics a “science.”  Mathematics was an important part of economic modeling, but elegant math sometimes gave an illusion of certainty to estimates based on ambiguous, incomplete data and gut judgments.  Perhaps unfairly, Bertrand Russell opined that there would never be a first-rate economist because that would require being both a first-rate philosopher and a first-rate mathematician, and any sensible person would not go past the first excellence.  First-rate or not, legions of economists are available to tell us what is happening in our economic world and what the future holds.
Danish economist Bjorn Lomborg has applied  his skills to analyze costs and benefits of Kyoto-recommended actions to combat global warming.  Lomborg  looked at the hard science and opined that, yes, we have climate change because of human activities, and, yes, many people will suffer as the planet warms.  His 2007 book “Cool It: the Skeptical Environmentalist’s Guide to Global Warming”  goes on to analyze costs and benefits of Kyoto-prescribed actions  to reduce greenhouse gas emissions, and then evaluates them against his estimated costs and benefits from using those resources on alternative human problems.  Lomborg  comes up with $5 trillion as the total cost  in this century of everyone’s implementing the full Kyoto Protocol and calculates total world benefits from Kyoto-prescribed actions up to 2100 at only $2 trillion.  Bottom line, the Kyoto strictures on greenhouse gas emissions are a bad deal under Lomborg’s assumptions.
The more complex the system, the more likelihood that nasty, unanticipated facts  will intrude and yield unexpected results.  Earth’s climate systems are complex, and while most climate scientists broadly agree that the earth is warming because of human activities,  they differ on the timing and specifics.  For instance, they have identified “positive feedback loops,” such as more heat melting polar ice, exposing more open water, which absorbs more solar energy than reflective ice, which melts more  ice,  and so forth,  but their extent, power and timing are very uncertain.  In the Arctic, scientists have observed  unusual releases  of methane,  which molecule-for-molecule  is a more powerful greenhouse gas than carbon dioxide,  but  calculating how much heat the region’s millions of square miles of permafrost can absorb before  runaway methane venting begins is beyond their abilities.
It’s gutsy, and useful, for economists such as Lomborg to put dollar labels on the costs and benefits of  climate change mitigation projects, and then to balance the estimated net against other human needs.  But the scary reality is that we are engaging in a whole-Earth experiment  testing the limits of natural systems to  support  human population  and lifestyles.  The long term results of that experiment are uncertain, and there are possible longterm costs well beyond Lomborg’s trillions.  Unfortunately, mankind does not have another laboratory to move to if our whole-Earth experiment ends in blowing up the basement.
Image by Jmk7 (Own work) [CC-BY-SA-3.0 (], via Wikimedia Commons

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