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So Spud quotes a friend quoting a friend and that’s great insight

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?

20 thoughts on “So Spud quotes a friend quoting a friend and that’s great insight”

  1. Dennis, Who Has A Degree In Economics

    Just read Steve Keen’s Wikipedia entry. An undistinguished career in his chosen field followed by grifting gullible lefties in lieu of retirement. It appears he’s Spud with a PhD.

    The only thing that jumped out at me was the fact that Keen taught Economics at a university that came to think closing the Economics Department altogether was a Good Idea. Steve must have been a real dynamo in the classroom for that to transpire…

  2. an 80 year period of expected climate, biodiversity and civilisational collapse

    No-one outside of the Proper Climate Loonies expects any of those things to collapse. The actual IPCC reports tend to be fairly measured but get drowned by the bleating from the UN and the PCLs. The new IPCC new chairman admitted recently that missing Net Zero by 2050 was no biggie.

    Not that it matters either way, because China has officially declared that the Paris Agreement can do one* so there is literally no point in the UK making the slightest change in its behaviour. We might as well reopen the coal mines.

    *Chairman Pooh says China will deal with climate change “in its own way” which I suspect will involve building loads of coal plants and using the power to build EVs for sale to numpties in the West.

  3. “the Nordhaus and Stern economics”

    Discounting future cash flows is such an elementary idea that it’s only just classifiable as Economics.

    I learned it on a short Management course I went to during a university long vacation. That was before I’d attended any economics lectures. I mean, bloody hell, we’d all ‘done’ compound interest at the beginning of secondary school. Same thing, really.

  4. @MC
    We might as well reopen the coal mines.
    No, that would be a really bad idea! We should import the coal from places where it would be much much cheaper than our played out mines and supply could not be held to ransom by the NUM.

  5. Bloke in North Dorset

    Sort of, AndyF.

    The main reason that NUM strikes hit so hard and so fast was that coal was transported to power stations on an almost JIT basis and usually the train drivers came out in sympathy*. So even when the breakaway Nottinghamshire miners didn’t strike their coal couldn’t get to power stations. That’s why Maggie had to wait to take on the NUM, they had to wait until stocks had been built up on site.

    That’s also why there was such big and violent protests at Nottinghamshire pits, they were trying to stop lorries getting through, not the workers.

    Buying coal overseas means it still has to be transported to power stations so we’re at the mercy of train drivers again.

    *This is why rail strikes aren’t as effective now and mostly a yawn. Yes, commuters can now work from home, but it was always about transporting coal nd people got to work by other means. .

  6. It does occur, if you’re discounting the value of money to near zero over a thirty year period, then you should be doing the same with predictions.

  7. Tim, the “real” discount rate for “risk-free” assets is close to zero, thanks to politicians meddling in the market via QE and Bank Rate. Even the “special offer” from my Building Society only available to pre-existing members for those saving a fixed amount per month with a modest maximum (a way to compensate loyal customers) has an interest rate below inflation.
    So discounting the value of Shell’s 30-year-away assets should be done at 0%+the Risk Premium – nothing like 7%.
    Nordhaus wants a negative Risk Premium because he wants us to believe that all of the risk is of failure to act.

  8. To quadruple GDP over 80 years would require a compound growth rate of just under 1and3/4% per annum, to create a rise four times higher than today would require a compound growth rate just over 2%. Either is not just possible but highly probable. I need to quote both because the inability or unwillingness of Murphy to write clear correct English results in ambiguity (is 4x the amount or the increase?)

  9. Nordhaus wants a negative Risk Premium because he wants us to believe that all of the risk is of failure to act.
    Oh really, John. As with all of this stuff, numbers are picked out of the air to achieved what is desired to be achieved. The method is crafted to produce the number. Policy based evidence not evidence based policy.
    Economists? If dodgy car dealers are economists, sure, economists.

  10. @ bis
    Sorry, I cannot put it into words of one syllable, some of them have two or three. Nordhaus picked a discount rate in order to convince us that the damage will be more important than the economic growth that causes it.
    You seem to assume that I was saying something different.
    Now whether or not Nordhaus was right to do this is a totally different question.
    That of which we can be certain is that anyone on the far side of Nordhaus is intellectually unsound (and most of them are also morally wrong).

  11. MC

    If you want to reopen the coal mines, you could try underground gasification of coal.

    After all dear old Vladimir Ilyich was a staunch supporter.

  12. @BiND
    they were trying to stop lorries getting through, not the workers

    Yes. There was a Scottish truck firm, based in Stonehaven iirc, that defied NUM and transported imported coal. Every time we saw one we gave driver a thumbs up

  13. The Nottinghamshire miners didn’t “break the strike”…they abided by the rules of the strike vote.

    I’m from God’s Own County, I’m sick of hearing the lies of noble miners sticking it to the Man!

    Bollocks on stilts

  14. Bloke in North Dorset

    “The Nottinghamshire miners didn’t “break the strike”…they abided by the rules of the strike vote.”

    Good point and I stand corrected.

  15. Spud has been putting his time to good use.

    In his latest blog he has prepared a chart looking at the number of companies in the UK per million people between 1971 and 2021.

    Elsewhere we are warned that his book on suggested reforms to the tax system is now ‘book length’.

  16. @Ryan “the lies of noble miners sticking it to the Man!”

    Indeed, the common left-wing myth is that the miners’ strike was the whole of the UK united against evil Maggie.

    I enjoy pointing out that not only did no other union go on strike in support of the miners’ strike, not even all the miners went on strike in support of the miners’ strike.

    And that (as a % of their workforce) more miners lost their jobs in both the 11 years before and the 11 years after than during the 11 years Maggie was PM.

  17. “Meaning that the net present value of something that will happen in 30 years is already near zero.”

    Hmmm. So someone who intends to retire at 60, and is currently 30 or younger, should not contribute to a pension?

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