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The Cynical Economist:
Getting Our Priorities Straight
By Lykke E. Andersen*,
La Paz, 27
November 2006.
There are many gigantic problems in the world (hunger, diseases,
wars, corruption, lack of safe water, pollution, climate change,
etc.), but there are also
a
great
many
efforts to solve these problems (hundreds of professional
development organizations, thousands of NGOs, millions of
volunteers, billions of dollars of foreign aid).
So, why is progress towards solving these problems so painfully
slow?
One possibility may be that we haven’t gotten our priorities
straight. Clearly we can’t fix everything at once (if we could,
all the problems would already have been solved), so we should
try to apply the limited funds available for fixing global
problems to the areas where they can do the most good.
Setting priorities was exactly the purpose of the Copenhagen
Consensus, arranged by Bjorn Lomborg (author of the The
Skeptical Environmentalist) in 2004. A panel of highly
regarded economists (several of them Nobel Prize laureates)
listened to experts from each field about the magnitude and
urgency of each problem, possible solutions, and the estimated
costs of implementing these solutions
(1). Then each of the 8 panelists ranked the problems
independently and finally they reached a consensus ranking to
which they all agreed.
The top four priorities
in the final
ranking
were the following: Control AIDS, reduce malnutrition,
liberalize trade, and fight malaria. The benefit-cost ratios for
treating these problems would be enormous (40 or more) and $50
billion would go a long way towards solving these problems.
At the very bottom of the list of priorities were the efforts to
reduce global warming. Not because global warming was not
considered a serious problem, but because the solutions proposed
so far are not effective, and because compared to the other
problems, it is not very urgent.
The expert in the climate change area, William Cline
(2), estimated that it would cost $128 trillion (in net
present value terms using a discount rate of 1.5%) to reduce the
rise in temperatures by the year 2300 from the baseline of 7.3°C
to 5.4°C.
He also estimated that the benefits would be twice as high (due
to the low discount rate and extremely long time frame), but
since nobody can predict what the world is going to look like
300 years into the future, the latter number has a lot of
uncertainty associated with it (a standard deviation of at least
$200 trillion, I would guess).
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From the cynical economist’s viewpoint, it therefore looks a
whole lot better to spend $50 billion to tackle some very
serious and urgent problems in poor countries rather than
wasting $128 trillion trying to reduce the average global
temperature by a couple of degrees, with unknown, distant
benefits. Just to be on the safe side, we might want to invest a
$1 billion in climate change research, in order better to
understand our climate, and perhaps $2 billion in research on
how to
manage change and improve our capacity to adapt not only to
climate change, but also to all the other kinds of change that
we are sure to experience in the coming centuries.
If we get our priorities straight now, the costs of climate
change in the future may turn out to be quite limited as people
have long since moved out of the most vulnerable activities
(tropical agriculture), or because a big volcano erupted and
sent temperatures downwards instead of upwards,
or because the present interglacial period ends (as it is
scheduled to this millennium), or because of
any number of unforeseeable developments.
So if you really want to help make the world a better place,
especially for those who are seriously disadvantaged, it would
probably be a good idea to stop contributing to the global
warming hype and instead concentrate on fighting the killer
diseases that wreak so much havoc in developing countries.
(*) Director, Institute for Advanced Development Studies, La
Paz, Bolivia. The author happily receives comments at the
following e-mail:
landersen@inesad.edu.bo.
(1) See the book “How to Spend $50 billion to Make the World a
Better Place” edited by Bjorn Lomborg and published by Cambridge
University Press in 2006.
(2) From the Center for Global Development in Washington, D.C.
and member of the IPCC Working Group III.
Ó
Institute for Advanced Development Studies 2006.
The opinions expressed in this newsletter are those of the
author and do not necessarily coincide with those of the Institute.
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