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August 5, 2012

The economics of global warming

The Koch Brothers, two of the wealthiest capitalists in the world, and the owners of one of the world’s largest private companies, have been funding research into global warming.

Their contention, and the thesis that received their funding, is that global warming is not a human-made phenomenon. They have been sponsoring a physicist from Berkeley, who has recently recanted and concluded that humans have contributed to global warming over the past two centuries.

Skepticism in science serves an important role. It challenges conventional wisdom, which is often hijacked by populism. Scientists, too, are prone to populism, so those who challenge the results of others keep everybody honest.

Such challenges force the methodologies used to assess global warming to meet the highest rigor. Now, the skeptical scientist, Richard A. Muller, has had his climatological epiphany. Once the leading opponent of the conclusion of human-induced global warming, Muller has now recanted.

His reconsideration was scientific rather than political. Muller, like all humans, is concerned about our footprint on the earth. Nature is maintained in a constant and dynamic balance that can be shifted by human activity. This seems increasingly certain.

This perturbation of nature’s equilibrium creates uncertainties. It also raises economic issues.

An uncertain future is not always bad, even if it is typically destabilizing. An uncertain future just as often produces improvements as hardship. However, humans are risk averse, and would rather maintain the status quo than flip a coin for better or worse. People also invest in the status quo and will go through great lengths to protect their investment and resist change, even if change may be better overall for the economy and society.

For example, we build along Lake Champlain based on an average high water mark of around 100 feet, not 96 feet or 104 feet. When a flood approaches 104 feet, there is much damage to human property.

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