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An Economist's Look at Mythical Man-Made Global Warming(AGW)
Raymond Richman, 10/2/2011

As an economist and a former student of Prof. Milton Friedman at the University  of Chicago, I am by education skeptical about any theory of climate change that explains warming but not cooling. The anthropogenic theory of climate change (AGW) blames man-caused carbon emissions for global warming but cannot explain past periods of global warming and cooling when there were no human beings to blame for climate change. Another economist who shares this view is former Czech President and Prime Minister,Vaclav Klaus, who fought against Communism and recognized in the movement that blames man for causing global warming, a new threat to our freedom saying:

I feel threatened now, not by global warming — I don’t see any — (but) by the global warming doctrine, which I consider a new dangerous attempt to control and mastermind my life and our lives, in the name of controlling the climate or temperature. … I used to live in a similar world called communism. And I know it led to the worst environmental damage the world has ever experienced.” (As quoted in the Herald Sun of Melbourne , 7/28/11)

It not only cannot explain past periods of global warming and cooling, it cannot explain the most recent decade of global cooling. Just fifty years there were allegations that we were entering a period of global cooling. There are reasons to be skeptical.

But even if the AGW theory had some basis, economists have to ask , “What is the best policy to deal with global warming?” Whatever policy is selected should meet the standard economic criteria of economic benefit-cost analysis. World leaders have picked the worst policy --forcing businesses and households into the most costly and ineffective policy -- reducing man-made carbon emissions which has had the effect of lowering living standards of workers around the world.

And there are competing theories of climate change. Many physicists, literally hundreds of them, were skeptical of the AGW theory almost ab initio.  Recently nobel lautreate Ivar Giaever resigned from the American Physical Society because the society, which has 48,000 members, had adopted a policy statement which states: "The evidence is incontrovertible: global warming is occurring." But Prof Giaever, told the society,  "Incontrovertible is not a scientific word. Nothing is incontrovertible in science."

Prof. Swensmark of Denmark published this theory of climate change in 2007. He attributed climate change to the effects of solar magnetic disturbances that affect the amount of cosmic rays that strike the earth’s atmosphere and affect cloud formation. A recent experiment at CERN, the world’s leading nuclear research institution, called CLOUD appears to give credence to his theory. This appeals to me as an economist because it may explain global warming and cooling.

Similarly, historians, geologists, anthropologists, and climate scientists have taken issue with the theory. After all, we owe the Great Lakes to global warming. Global warming is not necessarily catastrophic.

And as scientists like Michael Mann whose hockey stick graph of climate change over the last few thousand years or so was shown to have deliberately left out climate changes which would have made the hockey stick somewhat knobby. He was also one of those “scientists” involved in the University of East Anglia scandal who worked to exclude publication of papers that challenged the AGW theory. They behaved more like Stalinist scientists and ended up chopping off millions of years (tails?) of  climate changes.

Once UN largess convinced many respectable scientists that there really was global warming, indeed not to question the AGW theory, the questions scientists asked were what would be the consequences of continued global warming? As day follows night, new disasters loomed every day. There was no shortage of Chicken Littles. The sky was falling, hurricanes were increasing, there were more floods, tsunamis, you-name-it. Republicans became ardent supporters of policies that cost consumers and legitimate businesses literally a total of trillions of dollars world-wide.  Economists themselves were not immune. Academia found that any research that they proposed that showed how horrific AGW was quickly financed.

Promoters of wind and solar farms and bio-energy plants found they needed to put up very little of their own money. Huge grants and tax savings were offered by state and local governments. And not only in the U.S. but world-wide. A Spanish economist, Prof. Gabriel Calzado Alvarez blew a whistle. According to his  research, for every job created in solar and wind farms2.2 jobs were lost in the private sector. Spain retrenched and just in time or we would be facing the collapse of her economy and Greece’s. And the latest calamity, the bankruptcy of Solyndra leaving the U.S. government holding the bag for some $535 million in guaranteed loans.

Here in the U.S., the federal government approved loan guarantees for hundreds of wind and solar farms. It made a $175 million loan guarantee to a Spanish company Abengoa Solar Inc. to construct Solana, a 250-megawatt, concentrated solar power (CSP) facility located near Gila Bend, Arizona. The total cost of the project will exceed $205 million. President Obama during one of his weekly addresses stated that after years of watching companies build things and create jobs overseas, it’s good news that we’ve attracted a company to our shores to build a plant and create jobs right here in America. Unfortunately, it will create only about 1600 temporary jobs building the plant and only 80 permanent jobs at the facility. To make matters worse, only 70 percent of the plant’s materials will be made in the U.S.  Benefit-sost analysis anyone.

The Energy Department has closed a $1.6 billion loan guarantee for BrightSource Energy’s 370-megawatt Ivanpah project now under construction on federal land in the Mojave Desert in California as well as a $1.2 billion loan guarantee for SunPower’s 250-megawatt photovoltaic California Valley Solar Ranch. In February,  a 290-megawatt photovoltaic power plant being built by NRG Solar, a unit of NRG Energy, in Arizona obtained a $967 million federal loan guarantee. All of these plants received additional subsidies from the states and federal government.

As an economist, I am hard-pressed to describe the economic system that these plants represent. I think of Hitler and Goering, of Mussolini, of Lenin’s New Economic Plan, and of China. It is a mixture of socialism and capitalism. It is a capitalism with no private risks for all practical purposes. I think of Pres. Obama’s intervention in the bankruptcy of GM and Chrysler. It needs a name. State capitalism, or closer to the administration’s heart, perhaps social-capitalism.  

One thing is sure, it is an economic disaster in the making. The diversion of such enormous resources is lowering the standard of living of the American worker, indeed of workers around the world. Our economy is stagnating, few jobs are being created. In the largest wind and solar farms, what environmentalists call sustainable jobs averages about 40 jobs. Even with 200 plants, the sustainable jobs come to only 8,000 jobs for an expenditure of a million or so dollars per job. Few domestic and foreign corporations are investing in the U.S. This is one of the unintended consequence of the new social-capitalist green economy.

For all practical purposes, the wind and solar farms will pay no taxes. There is a lot of propaganda some coming from the President himself that the fossil fuel industry enjoys more subsidies than wind or solar or biofuel. What the President and the non-economist analysts overlook is that fossil fuel firms pay huge amounts of state and federal income and excise taxes while the green plants pay nothing at all.

  

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Comment by Kevin Hearle, 10/4/2011:

Welcome to the club America, in New Zealand we have an Emmisions Trading Scheme(ETS) that had no cost benefit analysis, The ETS has been shown by our academics to be totally ineffective in changing the temperature of the earth (are we supprised). What our ETS is effective in doing is raising prices, increasing poverty and making our exports uncompetitive in world markets. This comes at a time when our economy has been hit by the costs of the Christchurch earthquake (8% of GDP)and the global financial meltdown.  The misallocation of resource into ETS will further erode our already failing health, education and welfare system which is already not delivering first world outcomes.  What we should fear is not AGW but the Environmentalist / Political solutions to problems the complexity of which are far beyond those who are in the policy and decision making roles. For New Zealand the threat is economic not environmental. One piece of advice DON'T GO DOWN THE ETS TRACK.

Response to this comment by Raymond Richman, 10/5/2011:
Thanks for your comment. Your advice is very good; I won't go down the ETS track!  


Comment by Zach, 10/5/2011:

I'd like to begin by saying that I respect your commitment to free market principles and to the cause of liberty. However, I would just like to point out anthropogenic climate change is not as simple as you paint it. The economic responses to climate change are entirely different than the scientific debate on the nature of climate change. I agree with much of your distaste for the engineered economy of highly politicized environmentalism... yet, some of your statements worry me from a scientific perspective. First of all, climate change is happening (both warming & cooling) in different ways in different parts of the world. Ocean currents play a huge role in the transfer of heat; and as temperatue/sea levels change, these also will be affected. This can be make some places hotter and others cooler at the same time. And, as you ended this article, your main support for fossil fuel firms seems to be profit above all else - do you really trust profit motives and market forces to protect the environment?

Additionally, many scientists humbly admit that our knowledge of Earth's carbon cycle is incomplete... however, it should be noted that the carbon cycle has been affected by mankind, and other issues such as ozone depletion and changes in patterns of land-use are well accepted facts. My question to you would be: if global climate change is reasonably established and agreed upon in honest debate, then how do you propose that humans adjust to this?

Market forces clearly can not manage environmental preservations. For example, awareness of rainforest biodiversity does not affect it being cut down; less developed and developing nations have many poor people who see the environment not as a thing to protect, but as the only resource available to them as an alternative to their families starving; or the fact that the US government had to federally establish national parks to protect wilderness... all of this seems to say that market forces are not trustworthy to manage the environment, because economically, the actors involved are destroying their respective environment for economically rational purposes in their perspective of bounded rationality.

Any earth systems scientist worth his salt will tell you that the main driver of Earth's climate systems is the sun, and that man's contribution to the global carbon cycle is relatively small. However, to say that man's influence is small does not mean it is unimportant, or should go unmonitored. If you are eventually convinced of climate change being somewhat effected by human industry, then what do you recommend that free market economies do about these carbon emissions? Developing countries will always choose immediate alleviation of poverty rather than to protect their environments... any one who has experienced true poverty of the kind you see in the LEDCs would do the same.  Other than non-market coercion, how could it be accomplished?

Response to this comment by Raymond Richman, 10/5/2011:
Thanks for your extrended comment. You raise a number of issues. I have great faith in market forces dealing with environmental problems. One of the principal economic problems of so-called green energy is that wind,  solar, and bio-diesel require at least five decades before they can compete with energy from fossil fuels as the latter become more expensive.  Spending on it now is like digging holes and filling them up again and claiming you've created jobs. Worse, so much research has gone into green projects that it has been at the expense of research that really pays off in jobs and higher living standards. Some subsidies are worthwhile that pass the conditions of benefit-cost analysis and that the private sector cannot do or won't do. The huge subsidies to green energy researach and projects could have gone into research and projects that reduce the damage from hurricanes, tornados, etc. or even prevent them. As for rain forest biodiversity worth keeping, I have not given it much thought. But why are poor people unable to find productive jobs in a climate that supports such diversity? Sounds like their leaders are the problem.  
Response to this comment by Zach, 10/5/2011:
Many apologies for extended comments. I'm afraid I must be long-winded again. Sorry! I am not sure I share your faith in market forces dealing favorably with environmental issues. I am an American who has been living here in Southeast Asia for 5 years, and one of the things I often see on menus is sharkfin soup. Fishermen cut off the fins of endangered species of sharks and then toss the rest of the bodies back into the ocean. The demand for sharkfin soup is a negative market force that is driving the extinction of important animals in the natural ecosystems. Western countries have banned such practices. I could make several examples of this same thing (poachers, Chinese factories cutting cost by dumping, Japanese whalers, slash & burn agriculture, etc...), but maybe if you shared with me some examples that support your faith in environmental market forces, I could be persuaded. As for why a "climate that supports such diversity" does not have jobs, I would ask how familiar you are with development issues. The vast majority of undeveloped nations are in the tropics, while the vast majority of wealthy developed nations are in temperate latitudes and higher. Places like Cambodia (which I visit often) and Uganda (where I used to live) have huge problems with malaria, dengue fever, etc... as well as monsoon floods, and a host of other issues that make economic development in these areas much more difficult. It is a well established fact in development studies that this is so. The climate that supports diversity is the problem. To blame their leaders in such cases ignores the problem of what is actually happening, and that while their leaders are definitely problematic, it does not mean that environmental protections can not be attempted at the same time we try to fix the leadership problem.   My current home, Singapore, is the world's only exception to tropical climate development - and that is because they are strategically located for trade, and do not rely on natural resources for their economy like most of the undeveloped world; so the methods for Singapore's growth would not be transferrable to other places. Thus, if you allow market forces to prevail in these areas, then you get the common problems we see now, which are people sacrificing the environment for economic gain (which they desperately need). It seems like a lose-lose situation. This situation seems to shed light on the global warming issue: the developed world NEEDS carbon fuels to function (for now), yet that need is being shown to potentially have bad consequences for the environment (assuming that climate change scientists reach consensus in the near future). Thus, market forces are at odds with the sustainability of the market. System dynamics would call this a self-reinforcing feedback loop; that the more the economy grows the more it has the potential to harm the environment. Markets mostly only see short term gain, and should not be interrupted in the short term as it helps with the most efficient allocation of resources - yet, other issues such as long-term sustainability might be outside of the scope of most people in the market. Shouldn't we focus on more important things than the bottom line of profit in cases like these? You even say that some subsidies are worthwhile; so shouldn't the issue be HOW/WHEN and not IF to give subsidies for green technology?


Comment by , 2/19/2012:

Dear Dr Richnond - Just heard you on with my old friend Ron Morris and was happy to find your writings.  I am an old Pitt grad in Business - 1960.  I think Dr Kavaler taught Economics, but I wasn't much a a student until I was graduated and studied for the CPA exam and later Night Law School at Duquesne.  There is nothing like "fear of failure" as a motivation to get serious about studying.

I was happy to hear your perspectives.  Your view on the Great Depression was particulary interesting as you were old enough to have lived it.  I just finished reading "The forgotten Man" which parallels your views.

As I scanned some of your other views - I too am concerned with the "new capitalisn" that this government has created.  I agree that Fascism is the model - the industrialists of Nazi Germany profited under The Fuhrer so long as they made no waves and sold their soul.  I recently watched the movie Atlas Shrugged with three of my Grand children (and a boyriend of my Granddaughter)  I gave them each a copy of the book and a copy of the Constitution and shared my concerns from 1960 that the Communists with their ability to simplify and command might "outproduce us".  I also shared with them what I saw in East Germany when our singing group toured after the wall came down.  40 years of communism had drained the German work spirit and productivity.

I hope that what we are seeing in China will meet the same end as I consider that true capitalism is required for freedom

Please count me as a Blog follower and I will share it with my sons and friends!

Sincerely,

Ed Graf




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