Monday, April 7, 2008

Econ Talk of the Day- Kenneth Arrow

Kenneth Arrow at World Bank;

Arrow’s discussion focused predominantly on the question of futurity and the uncertainty associated with it. To highlight this, Arrow commented that the same issues and questions that were unknown and of which society was uncertain in 1979 remain so today. He cited the demand for nuclear energy, safety of containment, and even the possibilities of alternative technologies as examples. On the subject of nuclear waste disposal, Arrow underscored the very real possibility of poisoning and killing people due to the accumulation of nuclear waste. But in the practice of burying nuclear waste, today’s society can enjoy reduced energy costs. He questioned the trade off, this discounting of the future and whether it was worth the cost.

Another example Arrow gave regarding the current mode of thinking about the future centered on the emission controls. While it results in increased expenses in manufacturing costs, or what it costs to run one’s car, etc., the payoff is that in the future there will be lower emissions, lower CO2 content, etc. The final product then, said Arrow, is that future generations benefit. He emphasized that this should, be viewed as a permanent cost. The caveat is that if a mistake is made, it’s not correctible. Society’s actions are basically irreversible and the consequences are unknown. The question, he said, is like any other investment. One invests in something and expects something back in the future. That’s positive discounting in the economy, but the real question, Arrow said, is why the future is discounted at a positive rate. What’s the trade off? Citing the theories of various economists and philosophers, Arrow noted the most morally controversial issue is that which extends to future generations. It is the belief that anything in the future is worth less than it is today.

Schelling opened by disagreeing with Arrow’s premise that all future generations to come after us are not morally equal to us, and that nowhere in the world are future generations morally equal to us. Schelling proposed to take the argument a step further, adding that that nowhere in the world are other contemporary people equal to us. He stated that if today’s approach to foreign aid paralleled the way Arrow approaches climate change, the world would be looking at levels of income, marginal utilities of consumption in Bangladesh and Zambia and Nigeria and Ecuador. Yet, he offered, no one ever proposes we deal with Ecuadorians or Bangladeshi’s. Americans, Schelling said, deal with the people of these countries as morally equal to themselves in terms of the claims they make on their wealth. On the subject of climate change, Schelling stated that the dangers of climate change for Americans are exaggerated, arguing that it may be necessary simply to motivate action. Aside from possible catastrophes, Schelling stated that he does not believe the standards of living in the U.S. will be affected by climate change due to the country’s level of productivity, income, and infrastructure.

During the question and answer period questions were asked about policy change, consumption and the possibility of global consensus. Arrow ended the session by stating that the biggest question at hand and which remains unanswered is what caused the great depression. If we don’t know what caused the depression, Arrow said, we cannot be sure that we have control over the future.

Nobel Laureate Arrow Sees `Significant' Climate Change

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