Economics is not a value-free science

Bjorn Lomborg reduces everything to numbers. But by putting a price on the priceless, we risk losing it

Oliver Tickell
guardian.co.uk,
Friday August 29 2008 13:15 BST

To a hammer, every problem looks like a nail. To Bjorn Lomborg, every problem is reducible to a cost benefit analysis. At the end of it a number emerges – if it is positive, there is a benefit, if it is negative, there is a cost. Faced with a choice of policy options, all we have to do is to carry out a cost benefit analysis of the alternatives, and go with the biggest number. All other considerations are extraneous.
In Lomborg's world, the numbers he plays with take on a godlike role as representations of Platonic truths. But they are, of course, no such thing. Reality is complex and tangled – so your model has to be a highly simplified before it is even computable. Numerous assumptions must be made, and fudge factors applied. All of these inevitably reflect the values of the modeller. And so do the numbers that emerge at the end of the exercise.
For example, Lomborg's analysis of climate change impacts is entirely indifferent as to who wins and who loses. All that matters is the sum of gains and losses. This automatically places a far higher value on the interests of rich countries, where assets are valuable and incomes are high, than on those of poor countries, where assets are cheap and incomes low.
It would thus be a benefit to increase the gross product of the USA ($14tn) by 1% – a gain of $140bn – while halving the combined gross products of Nigeria ($200bn) and Bangladesh ($70bn) – a loss of $135bn. A small increment in the incomes of 300 million mainly rich people outweighs a collapse in the incomes of 300 million mainly poor people.
And then how do you put a price on Venice? On the life of a child? On the biodiversity of all those ecosystems and species at risk from climate change, from coral reefs to tropical forests, from penguins to polar bears? For the sake of simplicity many economists simply ignore the issue. And so the invaluable becomes without value.
Economic methods also systematically undervalue the future. Typically economists value a gain a year hence as worth a few percent less than the same gain right now. Applied over a longer time span, this makes a gain worth taking today if balanced by a loss 10 times greater in a century's time, or by a loss 10,000 times greater after four centuries. The Lomborgian oracle speaks: profit now, even at the risk of ruinous catastrophe a few hundred years' hence.
This may explain why Lomborg's discussion of sea-level rise stops at 2100, at which time the IPCC conservatively projects a sea-level rise of under 0.6m. Potential sea-level rises of tens of metres by 2300 simply don't matter, as the costs, however huge, can be discounted to the point of irrelevance. Just as the disastrous losses of the world's poorest billion people under the regime of drought, flood, storm and famine predicted by the IPCC is as nothing to a small increment in the wealth of the richest billion.
Not that I disagree with Lomborg about everything. He proposes a tenfold increase in expenditure on energy R&D, which he has argued elsewhere, should be financed by a global $2 carbon tax, raising some $50 billion. This is a perfectly sensible suggestion, and indeed financing for energy R&D on this scale forms part of the package of measures proposed in Kyoto2.
But this alone is an insufficient response. Clean energy sources need to be deployed as well as developed, and especially in poor countries that will otherwise commit to fossil fuel based economies. Experience shows that R&D spending will produce some wonderful new technologies, but it is only with mass production that they will become commercially competitive against fossil fuels. This deployment phase will require additional spending in poor countries many times greater than the initial R&D cost, and will need to be stimulated in the developed world by a long-term carbon cap.
The global carbon market, or a carbon tax as proposed by Lomborg, is the obvious place to look for the funds to finance our clean energy revolution. We also we need to help poor people, and poor countries, adapt to the climate change to which the Earth is already committed, to the tune of $100 billion per year. The same goes for programmes to preserve forests, maintain peatlands and sequester carbon into soils – essential measures to buffer continuing emissions from fossil fuels, increase the biosphere's resilience in the face of climate change, and conserve biodiversity.
Lomborg already supports one component of the Kyoto2 package. If he considers it with an open mind, further points of agreement may yet emerge. But first he needs recognise that economics is not a pure, value-free science. Economic models reflect the values of their creators. If an economic model tells us that it is correct to risk extinguishing much of the world's life, and perhaps the human species in the process, it is not because life is uncompetitive – the fault is in the economics.