I read this post by my Green New Deal colleague, and friend, Ann Pettifor, yesterday, and with her permission, I share it here because it is so good.
The angst in the Lex column was triggered (in my view) by Keen’s latest humdinger of a report with Carbon Tracker: Loading the Dice Against Pensions. (To read Steve’s work in full, click through to Carbon Tracker’s ‘Supporting Document – How did we get here?)
Keen’s critique of Nordhaus and the economics profession – and the implications for future pension payouts to millions of the world’s savers – begins
#Well, yes. Steve Keen insisted that I must read his breakthrough paper. So I did. And I pointed out that he’s got an error in there about pension valuations. Which is that we already discount those future stock (and bond, asset etc) values by market interest rates. Meaning that the net present value of something that will happen in 30 years is already near zero.
This is, of course, at the heart of both the Nordhaus and Stern economics. We *should not* discount cataclysmic events at market interest rates. Because that makes the NPV tiny and therefore we don’t do enough about it.
But note what that exact same logic leads to. Stern says we should use an interest rate of 1% (or whatever it is) for the costs of climate change. Well, OK. But *we’re still using market interest rates* to discount to the NPV of investments. Meaning that the NPV of Shell’s share price – or oil fields, or reserves – in 30 years’ time is pretty much nothing already. So there won’t be some cataclysmic collapse in the value of Shell because of something in 30 years’ time because the value of that 30 years to Shell’s price is already near zero (hey, try discounting at 7 or 8 % for 30 years).
I had this out with Keen and he went off in a huff at the realisation that I was not worshiping his new paper. But here we’ve the joy of Spud praising Pettifor praising Keen on hte grounds that none of the three of them have a clue about the subject under discussion. Except, of course, Spud is against discounting.
But of course this gets even better:
To forecast that over an 80 year period of expected climate, biodiversity and civilisational collapse, society could confidently expect a rise in per capita GDP (income) four times higher than today is delusional, blind to the science of planetary boundaries.
But all of the models used by the IPCC project *at least* 4 x per capita GDP growth. To the point that if per capita GDP growth doesn’t happen then there isn’t a climate change problem in the first place. Whether you use the SRES, or RCP models (and isn’t there another replacement now?) absolutely all of them assume – ASSUME!- continued GDP growth. And if the growth ain’t there then nor is the climate change.
“Theories that are man-made. And that can be re-made. That will be the theme of my book.”
Fortunately that’s a threat from Pettifor but Jeez, that’s gonna be a doozy, innit?