The Top Ten Solutions to the World's Biggest Problems

The final dispatch from the 2008 Copenhagen Consensus Conference

Copenhagen, May 30—Where in the world can we do the most good? Supplying the micronutrients vitamin A and zinc to 80 percent of the 140 million children who lack them in developing countries is ranked as the highest priority by the expert panel at the Copenhagen Consensus 2008 Conference. The cost is $60 million per year, yielding benefits in health and cognitive development of over $1 billion.

Eight leading economists, including five Nobelists, were asked to prioritize 30 different proposed solutions to ten of the world's biggest problems. The proposed solutions were developed by more than 50 specialist scholars over the past two years and were presented as reports to the panel over the past week. Since we live in a world of scarce resources, not all good projects can be funded. So the experts were constrained in their decision making by allocating a budget of an "extra" $75 billion among the solutions over four years.

Number 2 on the list of Copenhagen Consensus 2008 priorities is to widen free trade by means of the Doha Development Agenda. The benefits from trade are enormous. Success at Doha trade negotiations could boost global income by $3 trillion per year, of which $2.5 trillion would go to the developing countries. At the Copenhagen Consensus Center press conference, University of Chicago economist Nancy Stokey explained, "Trade reform is not just for the long run, it would make people in developing countries better off right now. There are large benefits in the short run and the long run benefits are enormous."

Nobelist and University of California, Santa Barbara economist Finn Kydland noted that unless the economies of developing countries grow, they will still be mired in the same problems of poverty ten years from now as they are today. "By reducing trade barriers, income per capita will grow, enabling more people in developing countries to take care of some of these problems for themselves."

The remaining top ten priorities addressed problems of malnutrition, disease control, and the education of women. For example, the number three Copenhagen Consensus priority is fortifying foods with iron and iodized salt. Two billion people do not have enough iron in their diets which results in energy sapping anemia and cognitive deficits in children and adults. Lack of iodine stunts both physical and intellectual growth. More than 30 percent of developing country households do not consume iodized salt. Correcting these mirconutrient deficits would cost $286 million per year. The other seven of the top ten solutions include expanded immunization coverage of children; biofortification; deworming; lowering the price of schooling; increasing girls' schooling; community-based nutrition promotion; and support for women's reproductive roles.

Take solution number seven, lowering the price of schooling. Nobelist and Chapman University economist Vernon Smith emphasized that this solution is not about lowering the cost of schooling, but reducing the price faced by poor parents who have to choose between sending their kids to school and having them work to supply household income. Ways to reduce the price is to supply vouchers or channel more public funds to schools. When Uganda cut school fees by $16 per year (60 percent), enrollment nearly doubled, with most of the increase in enrollment being girls. Smith pointed out that research shows that educating girls increases average productivity more than does educating boys. The cost for this proposed solution is $5.4 billion per year.

So what proposed solutions are at the bottom of the list? At number 30, the lowest priority is a proposal to mitigate man-made global warming by cutting the emissions of greenhouse gases. This ranking caused some consternation among the European journalists at the press conference. Nobelist and University of Maryland economist Thomas Schelling noted that part of the reason for the low ranking is that spending $75 billion on cutting greenhouses gases would achieve almost nothing. In fact, the climate change analysis presented to the panel found that spending $800 billion until 2100 would yield just $685 billion in climate change benefits.

Noting that he has been concerned about climate change for 30 years, Schelling argued that tacking climate change will take public policy responses such as carbon taxes to address the issue. Schelling added, "The best defense against climate change in the developing countries is going to be their own development." He explained that funding education to create a literate labor force boosts the productivity of a country enabling economic growth. Economic growth produces wealth that helps people address and adapt to the problems caused by climate change. Bjorn Lomborg, head of the Copenhagen Consensus Center, pointed out that funding research and development of low-carbon energy technologies is ranked at a respectable number 14 out of the 30 solutions considered.

Also low on the list of priorities are proposals to reduce outdoor air pollution in developing country cities by installing technologies to cut the emissions of particulates from diesel vehicles. Other low ranked solutions included a tobacco tax, improved stoves to reduce indoor air pollution, and extending microfinance. These are not bad proposals, but other proposals were judged to provide more bang for the 75 billion bucks available in the exercise.

The experts chose not to bother ranking any of the proposed solutions to the challenge of transnational terrorism. This is not surprising. Even the scholar (funded by grants from the Department of Homeland Security) who did the benefit cost analysis for the Copenhagen Consensus project found that we get just nine cents of value for every dollar spent trying to stop terrorists. Interestingly, the number 1 priority identified by the experts in the 2004 Copenhagen Consensus was combating HIV/AIDS. That dropped to number 19 in the 2008 ranking.

How does the ranking of solutions by the participants in the Youth Forum compare to the experts' ranking? Youth Forum participants also ranked supplying vitamin A and zinc to poor children in developing countries as their number 1 priority. In general, the Youth Forum placed a stronger emphasis on solutions aimed at preventing disease and malnutrition. Here's the list of the Youth Forum's top ten in order, followed by a number in brackets indicating the experts' ranking of the same solution: vitamin A and zinc supplements [1]; malaria prevention [12]; borehole wells [16]; immunization [4]; health and nutrition programs [not ranked separately by experts]; community-based nutrition promotion [9]; iron and iodine fortification [3]; tuberculosis treatment [13]; total sanitation campaign [20]; HIV combination prevention strategies [19].

The biggest difference between the two rankings is that Youth Forum gave the Doha trade negotiations a low priority. Speaking with several participants revealed that trade ended up near the bottom because the youths were concentrating on how to allocate the $75 billion budget. Trade was considered by many to be an issue of "political will" which did not fit into any budgetary category. Interestingly, the experts basically agree with that perception because they deduct no costs from the $75 billion budget when allocating expenditures among their top priorities.

The Copenhagen Consensus process is certainly not perfect. However, its use of benefit cost analysis helps concentrate the attention of policymakers, charitable foundations, and members of the public on the relative urgency and costs of the world's big problems. As the final press release quotes economist Finn Kydland, "It's hard to see how one could do any better in terms of coming up with a well-founded list of where to start for the purpose of the betterment of the dire conditions in much of the rest of the world."

The complete ranking of the 30 proposed solutions to ten of the world's greatest challenges by the Copenhagen Consensus 2008 Conference are available here.

Ronald Bailey is reason's science correspondent. His book Liberation Biology: The Scientific and Moral Case for the Biotech Revolution is now available from Prometheus Books.

Disclosure: Danish taxpayers are paying my travel expenses to attend CC08. There are no conditions placed upon my reporting.

Read reason Science Correspondent Ronald Bailey's previous dispatches from the Copenhagen Consensus Conference 2008:

Where in the World Can We Do the Most Good? , Ronald Bailey, May 26, 2008

Counterterrorism, Conflict Prevention, or Hunger: Which Would You Spend Money On?, Ronald Bailey, May 27, 2008

Does Fashionable Beat Rational When It Comes to Solving the World's Biggest Problems? , Ronald Bailey, May 28, 2008

And the World's Top Priority Is… Free Trade?*, Ronald Bailey, May 29, 2008

Help set the Copenhagen Consensus for 2008! Go here to rank global problems and proposed solutions.

The results will be tabulated and announced next week at reason online.

Comments

[concerntrollsoftheworldunite]

Wow, micronutrients would only cost $60 million/year. That's only 0.5% of Exxon's Q1 profit. I look forward to their contribution to this worthy cause in the service of humanity. It's been vetted by the experts of the Copenhagen Consensus so it must be a good bet.

But seriously folks. You're joking right? The CC is nothing more than an exercise in libertarian masturbation. The best they could some up with is spending chump change on food additives and free trade. Free trade? Free trade in its current incarnation is nothing more than the well-connected greasing the right palms so that their oxes don't get gored (and indeed get very well fed).

I realize that the CC is one giant exercise in saying "LALALALALALA-I can't hear you" in the face of real worldwide issues but it's most recent output is comical in its irrelevance. The world is now spending 3.5 TRILLION dollars per year on oil and the US is spending $200 billion/yr on a pointless war and you're talking about $60 million/yr on nutrients? You'd man the barricades to defend people's god given right to drive SUVs but has it ever occurred to you that thousands of times more money than $60 mil/yr would be available in savings if cars got a few more MPG.

We're gripped in a situation where staggering amounts of money are being mis-allocated in a near lunatic manner and you're talking about ridiculous sideshows like the CC. The best part is, you're probably also against governments spending even a pathetic $60 million a year for those wonderful micro-nutrients. After all, isn't foreign aid usually ineffective?

[ed]

We're gripped in a situation where staggering amounts of money
are being mis-allocated in a near lunatic manner...

...for the feel-good movie of 2008!

[Guy Montag]

We're gripped in a situation where staggering amounts of money
are being mis-allocated in a near lunatic manner...

Yet another great argument for smaller government, from someone who appears to be Left of Rep. Pelosi.

[Andy Craig]

I still don't exactly see what the point of this whole thing was.

Also, since when does the magazine of "free minds and free markets" say that a tobacco tax is a "good proposal"?

[Guy Montag]

Andy Craig,

Was that one before or after they recently proposed increasing the Capital Gains Tax?

[Jack]

Wow, two whole posts before we started getting into irrelevant libertarian purity arguments. Can't possibly imagine how the 25% public support for lib ideas has resulted in diddly squat so far. To be fair though, we have gone half a dozen posts without calling any center-right ideas "socialist"

Domestically, I recall that the best bang for the buck idea was lead abatement. For about a month and a half worth of Iraq we could stamp it out as a problem, and the evidence that it increases IQ and decreases criminality is very strong

[nbdm]

stupid site

[Did you read the article?]

The article I just read did not condone the War on Terror as money well spent. So what's with using it as a launchpad to criticize the ten priorities of the CC?

[Andy Craig]

I think you can safely ignore someone with "concerntrollsoftheworldunite" as their chosen pseudonym.

[Antiglobalist]

Money is the answer?

We need new values that transcend profit alone, like Corrupt (libertarian socialists) suggests:

http://www.corrupt.org/goal

[Chad]

Discount rate. Do you know the meaning of this term? If you do not, then you cannot understand the conclusions of the Consensus, nor why global warming scores so low as a priority.

The discount rate is how much the models assume that benefits lose value if they occur in the future. For example, if a plan costs $1 dollar today and brings $2 in benefits (inflation adjusted) next year, that $2 is "discounted" by a certain percent, because we have to wait. Most of the analysis in the consensus use a 5% discount rate. The global warming section uses 5% for the next couple of decades, then 4% beyond.

There is an obvious problem with this: Any benefits that occur far in the future will essentially be non-factors. For example, assuming 4% discount, a dollar in benefits in 2100 will only be counted as 2.5 cents in the analysis. It should be quite obvious that combating global warming will fail to provide "positive" cost-benefit if the benefits are reduced artifically by 97.5%.

The long and short of it is that "cost-benefit analysis" do not work over long time scales, because they always devolve into a debate about the discount rate rather than a debate about what the actual issue in question is. Assuming a 3% vs a 4% discount rate makes a world of difference when compounded a hundred times.

[Ebeneezer Scrooge]

So what proposed solutions are at the bottom of the list? At number 30, the lowest priority is a proposal to mitigate man-made global warming by cutting the emissions of greenhouse gases.

Yeah buddy!!!!

Now was anybody listening?

Probably about as much as anybody listened to Ron Paul's campaign.

Troll Uniter may be off the libertarian mark.

Still, the fact that Ron Paul got a very, very tiny audience should be a great big huge wake up call for Libertarians across the board. The biggest single part of the problem that I see can be roughly paraphrased like this:

We're gripped in a situation where staggering amounts of money are being mis-allocated in a near lunatic manner and you're talking about ridiculous sideshows....

Kind of like Ron Paul walking into the RNC and announcing that 9/11 was our fault.

If Libertarians want to change the Iraq problem they need to become actual, genuine, politicians. Bitch about the problem on the campaign trail, but can the "it's our fault" shit. You know this isn't going to sell at the RNC walking in the door -- and if you can't sell your platform then you don't get elected. And if you don't get elected you can't do anything about the f'ing problem.

Unfortunately it appears that most Libertarians would rather sit around and bitch (a form of play, in fact), then actually get themselves into a position where they can do something constructive.

[Stretch]

Unfortunately it appears that most Libertarians would rather sit around and bitch (a form of play, in fact), then actually get themselves into a position where they can do something constructive destructive.

There, fixed that right up for ya.

[MikeP]

For example, assuming 4% discount, a dollar in benefits in 2100 will only be counted as 2.5 cents in the analysis.

That is one way to look at it. Another way to look at it is that a dollar today placed in investments that return 4% will be worth 40 dollars in 2100, at which time it can be spent to alleviate a hell of a lot of consequences of global warming.

It should be quite obvious that combating global warming will fail to provide "positive" cost-benefit if the benefits are reduced artifically by 97.5%.

There is nothing artificial about it. People value a dollar today more than a dollar next year. Indeed, if you don't discount future values, you find yourself rapidly spending the entire present wealth of the world to prevent extremely unlikely future scenarios.

[Neu Mejican]

MikeP and Chad can hash out the discount rate issue.

I will note that priority 14 "funding research and development of low-carbon energy technologies is ranked at a respectable number 14" may be the best way to address priority 30 "mitigate man-made global warming by cutting the emissions of greenhouse gases"

Which makes me wonder how clueless their cost-benefit analysis is...

[MikeP]

Neu Mejican,

Indeed, if that dollar that would be spent on mitigation today -- say, by subsidizing the building of wind farms -- were not taxed from the economy and were instead invested in the world market at its 3-4% growth rate, a collateral effect of that investment may well be technologies that can be used more cheaply to cut future greenhouse gas emissions.

Growing human wealth to make our progeny richer is the best way to handle climate change today. Growing human wealth to make our progeny richer is also the course most likely to lead to less expensive climate change mitigation tomorrow.

[Chad]

MikeP, investing in the "world market" does no good. When you "invest" money, someone else spends it. Let's say we "set aside" a pile of money for our great grandkids, in order to pay them back for the havoc we will wreak on their environment. How are you going to "invest" that money in order to get a return? Well, normally, investing means lending it to someone, who will spend it on something....something that almost certainly won't be around in 90 years for our great grandkids to collect.

The only way your plan could work is if you could invest outside the population in question. But until you find some nice happy space aliens who would borrow something from us today and pay us back 40-fold in 90 years, you plan simply cannot work. Otherwise, we are "lending" to ourselves and when the bill comes due, our great-grandkids will be the ones paying themselves back.

Ultimately, there are only four things that we can leave for our great grand kids - a stable society, information, infrastructure, and natural resources. Little infrastructure we could build today would last that long. Fighting global warming will almost certainly reduce the risk of political instability, will spur innovation that our great grandkids will absolutely need (they WON'T have the dinofuel option), and will greatly preserve natural resources. Leaving them money is meaningless, unless they can use it to collect from US, rather than themselves. And that, of course, is absurd, because we will be dead.

[Kolohe]

I still think they seriously underrated all the 'water and sanitation' ones by underestimating the political and social aspects of the 'winning' ones. I mean, which of the following city agencies is more politically sensitive?
1) Board of Ed
2) Board of Health
3) Board of Water Supply.

I say they are in the order of most to least.

Yet they half the problems they rank as 'most bang for the buck' are all in the first two bureaus.

And the trade thing, I would put in *both* the bureaus of taxation and zoning - which are also the two most politically charged. Don't get me wrong, I love free trade, but I think it shows a real myopia if they think the politically charged nature of the Doha round can be overcome so that it provides enough benefits and incurs few enough costs to earn it the rank it got.

[MikeP]

When you "invest" money, someone else spends it.

When you invest money, someone else uses it. Both you and that someone else fully expects to see the money returned along with interest or dividend. In other words, they expect to grow the investment, usually by growing the economy and reaping the rewards.

Why do you think we are so much richer than people in 1908? Because our great grandparents invested in space aliens?

Ultimately, there are only four things that we can leave for our great grand kids - a stable society, information, infrastructure, and natural resources.

We can also leave them wealth. Or, more to the point since our wealth is an utter pittance compared to theirs, we can leave them a society, culture, and economy that will maximize their wealth.

Or we can choose to burn it all up impoverishing ourselves while deciding for our progeny that they prefer being half as warmed to being twice as wealthy.

[Chad]

Why do you think we are so much richer than people in 1908? Because our great grandparents invested in space aliens?

Because we have more technology than them, and use it to harvest more energy. Now, why do you think we are only a little bit richer than the people of 1973? In the industrialized world, REAL per-capita growth has been very small, and certainly isn't increasing. As I noted, it is all about energy. GDP, economy, wealth production - all stem from how much energy we can command. Our great grandkids will certainly have more technology than us...but barring some miraculous breakthrough, they will not have cheap, easy energy to extract with that technology. It is no longer obvious that they will be ANY richer than us, let alone so much so that our energy use looks like an "utter pittance". The assumption that our great grandkids will be so rich that we just don't need to worry about them is obviously self-serving and likely false. What is more likely to occur is that real economic growth will stagnate in the industrilized nations, while the rest of the world catches up. Increases in technology will be more-or-less offset by increasing difficulty in raw material and energy supply.

We can also leave them wealth

What is "wealth", beyond the four things I mentioned - and three of which will be increased by combating global warming. Leaving them little peices of green paper doesn't help them a whit.

[Neu Mejican]

I know MikeP disagrees.

But the things we should do to mitigate the global warming effects of CO2 are more likely to have a positive effect on the economy than a drag on the economy.

The single largest source of new energy in the last 30 years has been improved fuel efficiency. It will continue to be the most important source of new energy in the next 30 years.

When you invest money, someone else uses it. Both you and that someone else fully expects to see the money returned along with interest or dividend. In other words, they expect to grow the investment, usually by growing the economy and reaping the rewards.

A great use of that money would be to develop new energy technologies. The investors could expect their money returned with interest or a dividend and would be helping to grow the economy while also addressing concerns about global warming.

It ain't some kinda either or proposition.

[Neu Mejican]

MikeP,

a collateral effect of that investment may well be technologies that can be used more cheaply to cut future greenhouse gas emissions

So why argue so hard against investment in those technologies. They won't be developed by anyone as long as the argument is that we should wait on our grandkids to do it. Economies grow because people attempt to solve problems that they see in today's world.

Of course those problems include things that we living today forsee in the future.

[Neu Mejican]

Chad,

Little infrastructure we could build today would last that long.

c.f., The Brooklyn Bridge.

[Chad]

Neu Mejican | May 30, 2008, 9:31pm | #

c.f., The Brooklyn Bridge.

Bridges were actually the first thing on my mind when I chose to include the word "little". But what fraction of our infrastructure do they represent. And in any case, even things such as bridges are constantly being repaired and renewed. Only a fraction of "today's" Brooklyn Bridge will be around 90 years from now. Most buildings have a life cycle on the order of fifty years, after which they are torn down or so heavily renovated that virtually nothing remains from the previous incarnation.

Such kinds of infrastructure represent a small fraction of our wealth anyway. And what do you plan to do? Build a number of nice buildings, and seal them off for 90 years with a note saying "Congratulations! We hope you enjoy your new office building. The air conditioning should protect you from the scorching heat, and the filtration system should keep out the dengue fever and malaria-laden mosquitoes. Cheers!"

[MikeP]

So why argue so hard against investment in those technologies.

I'm all for free markets and investments to address global warming issues. I only argue hard against investments forced by mandate or encouraged by subsidy because those displace investments that are more profitable to the economy as a whole.

[MikeP]

Now, why do you think we are only a little bit richer than the people of 1973?

What do you think the year is? 1975? US GDP per capita today is twice what it was in 1973. And that is with the addition of almost a tenth of the population as immigrants, mostly to the low end of the earnings spectrum. Both the 90% who are from the native population and the 10% who are from the new population saw even higher growth of their cohort per capita GDPs.

As I noted, it is all about energy. GDP, economy, wealth production - all stem from how much energy we can command.

That is plainly wrong. Energy consumed per unit of real GDP has been consistently declining throughout history. See, for example, Figure 2.10 from the IPCC SRES.

What is "wealth", beyond the four things I mentioned - and three of which will be increased by combating global warming.

And all of which will be increased by not combating global warming. I would prefer humanity to make those investments that are most profitable for humanity. It is not at all evident that forcing significant investments into global warming mitigation at this time is better than simply allowing free investments.

[TallDave]

US GDP per capita today is twice what it was in 1973.

And in real terms, we're FAR better off because we have access to all sorts of technology that didn't exist back then.

What is "wealth", beyond the four things I mentioned - and three of which will be increased by combating global warming.

Broken windows fallacy.

http://en.wikipedia.org/wiki/Broken_windows_fallacy

[TallDave]

There is an obvious problem with this: Any benefits that occur far in the future will essentially be non-factors. For example, assuming 4% discount, a dollar in benefits in 2100 will only be counted as 2.5 cents in the analysis. It should be quite obvious that combating global warming will fail to provide "positive" cost-benefit if the benefits are reduced artifically by 97.5%.

That's standard NPV analysis and quite valid. A dollar today is worth more than a dollar tomorrow.

If you don't think so, I'll gladly trade you $100,000 today for an ironclad promise of $1M in 2100. I'll even throw in inflation adjustment!

[TallDave]

The assumption that our great grandkids will be so rich that we just don't need to worry about them is obviously self-serving and likely false.

I bet your great-grandparents would be shocked to hear that the poor of today have an obesity problem.

Our great-grandkids will likely be so wealthy by our standards that what we consider wealth today is practically meaningless to them.

[Guy Montag]

There is an emerging school of thought on reversing AGW with human sacrefices, just like the ancients did. If this group did not even consider this as a solution then they might as well be dismissed.

More proof that a government program is needed for this problem that threatens to destroy us all.

[Chad]

What do you think the year is? 1975? US GDP per capita today is twice what it was in 1973. And that is with the addition of almost a tenth of the population as immigrants, mostly to the low end of the earnings spectrum. Both the 90% who are from the native population and the 10% who are from the new population saw even higher growth of their cohort per capita GDPs.

And most of that wealth is concentrated in the hands of the top few percent, who got rich expanding the American corporate structure abroad. There are precious few places left to expand, and we are no longer clear leaders anyway. For the vast majority of us, we are not significantly richer than our parents. Wages are stagnant and have been so for decades. I make more money than my parents combined, yet I could not possibly afford to buy the home they live in. Why is that? A lot of the US GDP over the last thirty years was fueled by borrowed money, and it is coming back to haunt us.

That is plainly wrong. Energy consumed per unit of real GDP has been consistently declining throughout history. See, for example, Figure 2.10 from the IPCC SRES.

Our two statements are not in contradiction. NOBODY is rich without using lots of energy. Look at China. Is there growth rate due to energy efficiency? Absolutely not. Indeed, they are actually becoming LESS efficient. But they are growing like wildfire, because they are consuming more and more and more energy. The same is true for all developing nations. Our great grandchildren will be more efficient than us, but they will have to be just to break even, as they won't have cheap and easy energy sources. If they have twice the efficiency and half the energy resources, they aren't going to be richer than us.

And all of which will be increased by not combating global warming. I would prefer humanity to make those investments that are most profitable for humanity. It is not at all evident that forcing significant investments into global warming mitigation at this time is better than simply allowing free investments.

How can you possibly argue that our great grandkids will have MORE natural resources if we ignore global warming? If we follow your plan, our great grandkids will inherit a world with virtually all of the fossil fuel and mineral resources depleted, devastated ecosystems, and a bunch of half-submerged cities.

Nor would they inherit more information. Indeed, combating global warming would force money and resources into areas with high levels of R&D, and presumably out of cheap Chinese crap and coal plants.

Nor would they inherit more (useful) infrastructure. An aging natural gas power plant will be of no use to them, because there won't be anything to burn.

Nor will they inherit a more stable society. Every indication is that global warming will force migrations and create power struggles over depleted resources.

You are stealing from them, and doing so unabashedly - all to save 15% on your electric bill, which is what I have to pay to purchase wind electricity in a state without a lot of wind resources.

[Chad]

TallDave | May 31, 2008, 3:10am | #

That's standard NPV analysis and quite valid. A dollar today is worth more than a dollar tomorrow.

But why is that true? One perspective would be to say "Well, I could invest a dollar today, and expect to get back $1.05 next year". But as I explained to Mike, that only works when there is someone "outside" to invest with...someone "from whom" you can receive the $1.05. But when we are talking about all of humanity, there is no one "outside" the system to receive the $1.05 from. If we left our great grandkids $100 billion in "the bank" and let it grow at 5% interest to five trillion by 2100, what happens that magic day that "the bank" tries to pay out? Does it flood our great grandkids with energy, raw materials, music, beautiful buildings, sunshine, or anything useful? Nope. It floods them with little peices of green paper that they can use to buy things from each other. In other words, they aren't any better off.

In any case, what is the origin of the 4-5% discount rate? There are actually four reasons that a normal person discounts the future. The market is reflects the sum of normal people.

1: Most people borrow money when they are young and poor, assuming they will get richer as they get older.

2: People are stupid and are irrational about the future.

3: People understand there is a chance that they won't be around to collect the future benefits

4: People understand that there is a chance that the borrower won't be able to pay up

The sum of these leads to the 4-5% discount. But how many of these are appropriate between generations on multi-decade time scales?

#1 applies, as long as you assume people will continue to get rich. But this is questionable. And EVEN IF our descendants continue to get richer, the rate at which they will is almost certainly LESS than what an individual experiences over their lifetime. In going from young adult to retirement, most peoples' incomes increase about 4% a year in real terms, much greater than the under two percent (and declining) growth mature economies are experiencing. So if this factor contributes to a fair multi-generational discount rate AT ALL, it is substantially reduced from personal discount rate.

#2 is fairly straightforward. Numerous studies have shown that people are simply dumb about making sacrifices now for benefits tomorrow. Whether it is people not hitting the gym or whether it is people not screwing in those compact flourescents and installing insulation, people just don't value future benefits as much as they should. To the extent that the discount rate is based on ignorance, it should be removed from any calculation.

#3 is a non-issue in this case. Our great grand-kids will almost certainly be around to reap the consequences of what we sow. This portion of the discount rate should be eliminated.

#4 is about uncertainty, and should remain. Just like I don't know if my personal investments will pay off, and therefore discount the probably payoffs due to the risk, it is fair to discount the probable payoffs of addressing global warming.

So in the end, more than half of the discount rate that we normally experience simply does not apply in the multi-generational system. The residual that does have a fair justification is probably around 1-1.5%, not the 4-5% used in the calculations. And I am sure you know enough match to know how much difference that will make after being compounded 90 times.

[TallDave]

But why is that true?

That's a bit like asking "Why is gravity true?" It's just a natural law. Having something now is more valuable than having it later.

that only works when there is someone "outside" to invest with

No, it's true regardless.

There are actually four reasons that a normal person discounts the future.

Those are fairly silly. The time value of money is an economics concept that long predates the popularization of consumner debt.

I suggest some economics courses.

[TallDave]

How can you possibly argue that our great grandkids will have MORE natural resources if we ignore global warming?

Because global warming will probably have no significant net negative consequences by 2100.

Indeed, combating global warming would force money and resources into areas with high levels of R&D

Again, broken windows fallacy. We might just as well divert huge amounts of resources into preventing the sun from exploding.

[Chad]

TallDave | May 31, 2008, 1:30pm | #
That's a bit like asking "Why is gravity true?" It's just a natural law. Having something now is more valuable than having it later.

It's a natural law? Surely not. I can easily find a counter example, or two, or a dozen. How about a nice big medium-rare steak. Since I just had lunch, it's not so valuable to me now. Ask me again in six hours. I am sure its value to me will have increased substantially. So no, things are not necessarily more valuble now than later.

No, it's true regardless

You are simply wrong. Tell me, exactly WHO are you going to invest with, in order to pay back our great-grandkids. Or perhaps we need to reduce the problem's complexity for you, because you haven't grasped it yet. Imagine you are the ONLY person on earth. Can you "invest" money and get a 5% return? Nope. No one to invest with. Now imagine a second person appears. Now can you? Sure. Now imagine that person is a totally hot chick, and you marry her and share everything. Can you invest now? Nope. She would be paying the interest that you collect, and you share everything. So now you need a third person. And what happens when you are "married" to everyone on earth? You need some space aliens.

Those are fairly silly. The time value of money is an economics concept that long predates the popularization of consumner debt.

What reasons do you suggest for the existence of the time value of money? They work just as well for businesses.

I suggest some economics courses.

Aced them. Aced my logic courses too. I would recommend you quit claiming something is a "natural law" when it has obvious and plentiful exceptions.

Because global warming will probably have no significant net negative consequences by 2100.

Do you know anything about the Permian extinction? Probably not. 97% of living things died and 90% of species went extinct...due to CO2 and methane-induced global warming. Scientists strongly disagree with your "no significant net negative consequences" conclusion, and more troublesome is the potential for absolute catastrophe, such as happened at the end of the Permian. Of the five major extinctions that have occured in the last 600 million years, four were probably caused by global warming. The fifth was the famous asteroid-induced event that killed off the dinosaurs. In each case, things like rats, cockroaches, and pond scum pretty much made up the bulk of the survivors.
If we continue on our current path, this scenario is not impossible. Indeed, it is at least as likely as your house burning down next year...and you spend considerable money insuring against that.

Again, broken windows fallacy. We might just as well divert huge amounts of resources into preventing the sun from exploding.

No, because we get something of value out of this, unlike breaking a window. Clean air, clean and secure water supplies, better health, stable food supplies, political stability, stable, complex, and intact ecosystems, etc etc etc. Indeed, it has been shown that we could reduce our electricity consumption by nearly a third WITHOUT ANY COST AT ALL, simply by kicking people in the pants and enforcing much stricter building codes.

The broken windows fallacy more appropriately applies to much of NASA, where we spend billions for a few pretty pictures.

[dantealiegri]

Chad:

as to your question of why a dollar is worth more now than next year is; that is the value of the time.

[Thomas Paine\'s Goiter]

Aced them.

The only way this is true is if the professor did not cover the value of time in money. If you don't understand it, there is no way you passed an introductory macro or micro course.

[Chad]

The only way this is true is if the professor did not cover the value of time in money. If you don't understand it, there is no way you passed an introductory macro or micro course.

I do understand it. The question is why it exists, and does it apply to multi-generational situations. The answer is no. The time-value of money is a concept rooted in the human life-cycle. Think about it. If you lived forever, and so did all your trading partners, what would your time-value of money be? The answer is very close to zero, because you have all the time in the world to collect the money, are almost certain that you will get it eventually, and after a brief period at the beginning of your life, your life would reach a steady state, and a dollar today is pretty much the same as a dollar next year.

In the real world, this is not the case. You can't be sure you will be around to collect, you can't be sure the debtor will be around to pay, and the value of a dollar swings around wildly throughout various stages of our lives. THIS is the source of the time-value, and in general, it is not applicable to multi-generational systems.

[Guy Montag]

Yea! We have a new joe/Mr. Nice Guy and his name is Chad. Chad types more than them and says the same crazy socialistic things.

Welcome Chad, looking forward to laughing at you more.

[Chad]

If my unwillingness to risk environmental catastrophy and pass a scorched earth to my grandchildren in order to save a few bucks on gas and electricity makes me a "socialist", I guess that is what I am.

[MikeP]

How can you possibly argue that our great grandkids will have MORE natural resources if we ignore global warming?

To our great great grandparents, petroleum was that stuff you painted the bottom of your boat with, not something to fuel automobiles. To our grandparents, sand was that stuff you threw on your driveway to get traction in the winter, not something that can be plastered on the top and sides of buildings to get cheap energy.

Knowledge begets resources.

[MikeP]

But as I explained to Mike, that only works when there is someone "outside" to invest with...someone "from whom" you can receive the $1.05. But when we are talking about all of humanity, there is no one "outside" the system to receive the $1.05 from.

Say my vocation is drawing water from a stream and trading it for food. With my buckets I draw just enough water to buy just enough food to get by.

One week I decide to spend only half my time drawing water, going somewhat hungry in the process. With the other half of my time, I construct an Archimedean screw. With that tool I can draw 10% more water per day than before, allowing me to trade for more than food after a few weeks of catching up.

That is an investment I made entirely in myself. I did not give any green pieces of paper to any second person or to any space aliens. I don't expect any green pieces of paper back.

I invested wealth from consumption today into a capital improvement, and I reap greater wealth in the future because of it.

That is what investing in humanity's future is like. It has precious little to do with dollars in a bank.

[MikeP]

Imagine you are the ONLY person on earth. Can you "invest" money and get a 5% return? Nope. No one to invest with.

I hope my above example shows this to be as silly as it sounds. No, you can't invest money. Yes, you can invest time, as well as any other resource at your disposal.

[Chad]

One week I decide to spend only half my time drawing water, going somewhat hungry in the process. With the other half of my time, I construct an Archimedean screw. With that tool I can draw 10% more water per day than before, allowing me to trade for more than food after a few weeks of catching up.

Ahh, so now you are back to leaving them physical goods - infrastructure. Great, we can possibly leave our great-grandkids infrastructure. But we better build the right things...things that will last and be useful post-oil. Otherwise we are leaving them junk that they will have to tear down and recycle or bury.

So what can we build NOW that will LAST and be USEFUL a hundred years from now as well as today? A robust public transportation and renewable energy infrastructure. As a positive feedback, this will result in our great grandkids also receiving more natural resources, more and more useful information, and more social stability. They will be far richer if we do this, and far poorer if we rape the planet to save a few bucks on energy.

You finally admit the point - you can't leave them money. Money is not wealth, but a medium of exchange. Today, it is a medium of exchange between members of our generation. A hundred years from now, it will be the medium of exchange between our great-grandkids. But it can't be the medium of exchange between us and them.

[MikeP]

You finally admit the point - you can't leave them money.

I thought you brought up that deluded notion. Then I looked upthread and saw that I indeed used a long term investment example as another perspective on the discount rate. I can see how you might think I was talking about a bank. But I of course wasn't. I was talking about investments in the world economy -- completely internal -- that yield greater wealth in the future. As I would have thought was obvious.

But I am perplexed... If you think that world economic growth over the next century will be nil because of energy starvation, why do you think global warming is a problem? Isn't it self-limiting from your perspective?

[DannyK]

Arguing with these guys about climate change is silly.

First, because Hit & Run is a hangout for a lot of Inhofe-style deniers and delayers who regard climate change as something cooked up by socialists to wreck the economy in order to, um, do bad things.

Second, they don't know much about climate science, probably because of point one. One thing they don't understand is that the risks associated with increased CO2 don't go up linearly -- at some point between 350 and 450 PPM, you hit some serious positive feedback loops and both temperature and CO2 go up much faster, taking the planet to places we really don't want to see. Some of these tipping points include the thawing of the tundra, the loss of polar ice cover, and saturation of the ocean's "carbon sink." This, by the way, is why global warming is not a "self-limited problem".

Third, a lot of H&R posters are techno-optimists. I'm one too, but I'm more skeptical that the advance of technology and growth of the free market will automatically create fixes to pressing problems. I'd love it if somebody came out with "carbon-eating trees" that could suck up all the excess CO2 without causing problems of their own, but I don't think we should count on it.

By the way, what's Bob Barr's position on global warming? Since he's anti-Wiccan, he may be the only pro-warming candidate in the race.

[st4rbux]

I do understand it. The question is why it exists, and does it apply to multi-generational situations. The answer is no.

I suppose that settles it, much like AGW 'consensus'. Can you site any papers or references that support this theory?

I'll agree that calling time value a 'natural law' is a stretch, but unless Chad can site some legitimate opposition to it by finance/economics academics, I think we have to accept it as valid financial theory.

I, for one, couldn't believe the discount rate was so low -- 4% to 5%? In my finance courses, weighted average cost of capital (used for the discount rate) came out upwards of 12-15%, plus a risk factor...

[Scott66]

"Smith pointed out that research shows that educating girls increases average productivity more than does educating boys."

Bullshit there is no legitimate study that shows and such thing.

[Chad]

I suppose that settles it, much like AGW 'consensus'. Can you site any papers or references that support this theory?

I'll agree that calling time value a 'natural law' is a stretch, but unless Chad can site some legitimate opposition to it by finance/economics academics, I think we have to accept it as valid financial theory.

The book based on the previous round of the Copenhagen Consensus was full of discussion concerning this debate. Likewise, the difference in conclusion between the new Consensus and last year's Stern report also largely hinged on the debate about discount rates.

In any case, even when you read the new Consensus section concerning AGW, you find the following:

1: It was found to pass a cost-benefit analysis under every scenario but one. Strangely, this is the one Bailey and Reason highlighted. No bias there or anything... Indeed, it passed by a wide margin under most scenarios, sometimes up to six or seven fold.

2: For the negatives of AGW, as far as I could tell, they only included increased flooding, increased "water stress" (ie, droughts, increased disease and affect on food crops. The benefits of combating AGW were reductions in these effects. This leads to two problems. First, there is a long list of other negative effects that were not included, unless I am missing something. Nothing was counted for ecosystem failures, extinctions, reduced biodiversity, etc. Second, their data was based on the most recent IPCC report, which was based on data from 2004 or before. It is now widely recognized that ice is melting far faster than was predicted under even the worst-case scenarios from 2004.

3: Again, as far as I can tell, nothing was credited for the ancillary benefits of many renewable technologies. Switching to wind, solar, geothermal, public transport etc will not only have an affect on AGW, but also reduce other pollutants such as mercury, SOx, NOx, particulates, etc while improving human health. Since many of these benefits would be essentially immediate, they would help a lot in dealing with the absurd discounts.

In short, even without counting a lot of benefits (perhaps because they are impossible to measure), combating AGW is an economic winner.

As a final note, there is one key difference between combating AGW and just about everything on the list. Even from a libertarian point of view, there is nothing wrong with the government requiring action against global warming. After all, your CO2 doesn't stay on your property - you are "forcing" it on everyone else and have a responsibility to clean it up or compensate for what you have done.

On the other hand, most of the other items on the list are simply charity - problems that you or I have no responsibility for nor would benefit directly from if solved. While maybe I think you SHOULD donate some micronutrients to starving Somalis, the case that I should force you to do such is much weaker.

[cbmclean]

But I am perplexed... If you think that world economic growth over the next century will be nil because of energy starvation, why do you think global warming is a problem? Isn't it self-limiting from your perspective?

Not necessarily. CO2 is quite durable in the atmosphere, and the thermal inertia of the hydrosphere is impressive. If say, we completely ran out of cheap energy by 2100, the CO2 pumped into the atmosphere in 1950 will still be causing problems. (At least some of it), eithe rdirectly or in the form on the increased heat content of the hydrosphere.

[MikeP]

If say, we completely ran out of cheap energy by 2100, the CO2 pumped into the atmosphere in 1950 will still be causing problems.

Chad's position is not that we will run out of cheap energy by 2100. It is that we will see no economic growth by 2100 because we won't have the energy to burn.

Since the IPCC estimates of 3?C warming, 16" of sea level rise, etc., etc., etc., over the next century are based on a predicted 11-fold increase in per-capita economic growth unrestricted by the lack of carbon fuels, it is beyond belief that a shortage of cheap energy that completely ends economic growth would admit anything close to the same consequences.

[zak]

Noproblem with terrorism? Hold the next CC in Islamabad!

[Ramesh Raghuvanshi]

Reading the article on top ten solution to the world problems I laughed myself half an hour.Is these solution can really slove all world`s problems?
First question I want to ask these renown experts, who created these problems in the world?First you created pollution and now you are finding solution.
In my openion all experts who gather in that conference are completely ignorant the real cause of ten world problem.
Whole western culture is based on fear, and this fear leading them to new and new dangerious weaponery,to increase pyseudo happiness, pyseudo health of western people, they are destroying nature, undeveloped countries.First reduce this psychlogical fear from western psyche,diminish selifishness, learn some wisdom,then only you can find out correct solution to top tin world`s problems.

[Dick Harriff]

A similar result was published in 1994 by the Harvard School of Public Health. This study showed that public health strategies were much more cost effective than broad spectrum environmental strategies. For example, to avoid three latent cancers in ten years from benzene exposure, refiners were tasked with $6 billion in refinery retrofits. This would have paid for almost all of the public health strategies.

On the political front taking away US ag subsidies and protection would not only help less developed countries by encouraging their ag production and independence, it would also more that pay for most suggested nationalized health plans in the US.

[discount]

!!!! "By the way, what's Bob Barr's position on global warming? Since he's anti-Wiccan, he may be the only pro-warming candidate in the race."

[love,laughter,life]

you idiots,
the worlds biggest problem is the destruction of our forests ,,
they are the lungs of the plant when they are gone so are we

[love,laughter,life]

the education of our children is also right up there but it needs to be simplified ...example the math the children bring home ,the parents don't even undertand

[love,laughter,life]

world hunger is also important the people must be taught to raise there own food instead of spending millions airdropping it for years to the undeveloped countries

[love,laughter,life]

believing in god is also a problem in the world he gave me the answers to the above

[f0rgven1]

If one really tries to reason solutions, they may be found in the Holy Bible. Jesus Christ, God Almighty has provided solutions to the world's woes. Our present troubles are the culmination of sin, originated (by man) long ago. Christ solved the problem of sin by suffering, dying, and resurrection. Christ is the only one through which we may be saved. Paul the Apostle wrote in Romans 10:9-13: "That if thou shalt confess with thy mouth the Lord Jesus, and shalt believe in thine heart that God hath raised him from the dead, thou shalt be saved. 10For with the heart man believeth unto righteousness; and with the mouth confession is made unto salvation. 11For the scripture saith, Whosoever believeth on him shall not be ashamed. 12For there is no difference between the Jew and the Greek: for the same Lord over all is rich unto all that call upon him. 13For whosoever shall call upon the name of the Lord shall be saved."