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January 9, 2008
David Warsh, Proprietor


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Down In New Orleans

The annual meetings of the Allied Social Science Association came and went this weekend in New Orleans, the usual intellectual carnival of 60-odd economists’ organizations, large and small, contending under a single broad canopy, and, on the side, a job market for this year’s class of newly-minted PhDs. Thanks to a shortage of hotel rooms (there was a football game and the usual overflow capacity in nearby Biloxi, Miss., is not yet back online), some 8,400 economists gathered, slightly fewer than the 9,000 who were in Chicago the year before. Another 600 or so couldn’t get a room.

If anything, however, the variety of topics was greater, the scene enlivened by the presence of those football teams (and the large attendant marching bands) preparing to play for the national championship. A session on the economics of paid sex markets attracted a crowd (Steven Levitt, of the University of Chicago, ingeniously found that, in summertime Chicago, the supply of prostitutes was elastic) as did one on sports behavior (Christopher Adams, of the Federal Trade Commission, took issue with David Romer’s famous finding that football coaches who routinely order punts on fourth down are surely leaving points on the table; Adams showed why it is so hard to be certain).

A session on the sub-prime lending crisis, featuring such stars as Paul Krugman, of Princeton University and The New York Times; Nouriel Roubini, of New York University; Robert Shiller, of Yale University; and David Wessel, of The Wall Street Journal, attracted an audience of 500 persons. A new luncheon time-slot, the brainchild of the College of Charleston’s Jane Clary, made room for many panels devoted to heterodox economics. Three sessions commemorated distinctive scholars who had died recently – Richard Musgrave, John McMillan, and Kenneth Sokoloff.

A spine of sorts ran through the meetings, in the form of four sessions arranged by John Siegfried, of Vanderbilt University, that are destined to be a book. Its title, “Better Living through Economics,” echoed a famous old Dupont Co. slogan of the 1950s – “Better things for better living, through chemistry” – and its essays were designed to showcase contributions to general wellbeing that economists made in various fields during the past forty years or so. Charles Plott, of Caltech, and Daniel Newlon, of the National Science Foundation, which funded much of the research, led off with general surveys. Then came specialists in various fields: auctions, matching algorithms, airline deregulation, measurement economics, trade, poverty amelioration, pollution control.

But the centerpiece of the convention was a lecture by Nicholas Stern. It is the prerogative of the incoming president, who organizes the meetings, to invite a lecturer to deliver a single plenary address. Avinash Dixit, of Princeton University, chose Stern, long-time professor at Warwick University and the London School of Economics. As adviser to the British government on the economics of climate change and development, Stern recently published an enormous study of global warming that was simultaneously admired for its agenda-setting power and widely criticized by Stern’s fellow economists – Kenneth Arrow, William Nordhaus, Partha Dasgupta and Martin Weitzman among them – for certain of its assumptions about the time horizons and ethical obligations of ordinary human beings, which led ineluctably to his view of the current situation as being one of dire emergency.

Stern’s long and complicated address was masterful, but he did not make available a text, so those who follow this issue closely will have to bide their time to consider in detail what he said. But his basic thrust was clear enough: looking back, he said, he felt his report had underestimated the risks of doing nothing.

The question of what we owe to future generations will not be settled in debates among technical economists, but it has its beginnings there. A particularly lucid review of the differences of opinion among Stern and two of his principal critics — Yale’s Nordhaus and Harvard’s Weitzman, both of whom contributed thoughtful essays to the current issue of the Journal of Economic Literature – is to be found in a particularly acute “Letter from America” by Angus Deaton in the October Newsletter of the Royal Economic Society. Deaton, a Scot, is a professor at Princeton University. “There is an enormous gulf,” he writes, “between the American and British economic professions in the way that they analyze the central questions of public economics.” He continued:

Both Nordhaus and Weitzman express their discomfort with Stern’s taking an explicit ethical position on what the current generation owes to those yet unborn, on the grounds that Stern has no right to impose an ethical position on others. Both Arrow and Weitzman believe that a zero rate of pure time preference, while defensible in theory, is typically only so defended by British economists and philosophers, a comment that is clearly not meant to be taken as any recognition of the superiority of British thinking. The paternalism of any such ethical judgment is certainly a concern, and it seems right to want a more democratic discussion and determination of the ethics of climate policy.

But a judgment needs to be made on some basis, and Arrow, Weitzman and Nordhaus argue that we can find at least some of the relevant evidence in markets, revealed by, as Weitzman writes, “the preferences for present over future utility that people seem to exhibit in their everyday savings and investment behavior.” Even if the markets do not reveal everything we need to know about the present and the future, whatever ethical choices we make need to be consistent with market behavior, because this shows how ordinary people think about these matters….

If zero discounting (with perhaps a touch of paternalism) is the British vice, the refusal to consider ethical questions explicitly but to leave them to the market is surely the American vice. How do the preferences of unborn generations get expressed in the bond market? Do we really want to discriminate across people by their date of birth? And do we really think that savings rates, whether by individuals or governments, are the results of optimal inter-temporal planning, even over their own lives, let alone over those of their unknown descendents, who will live as far in the future as King George III and George Washington lived in the past?

Look for the argument to continue, at levels both high and low. An appropriate and consensual response to global warming is an issue that underlies much of the US presidential campaign this year. And Deaton is the incoming president of the American Economic Association. As such, he will organize the ASSA meetings in San Francisco next January.

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