Economics and the Environment
Reaction to Bjorn Lomborg,
"The skeptical environmentalist", CUP 2001
I am not an environmental economist, only an economist who has some
comments on the work of other economists who discuss environmental issues.
Also, my main advice is that democratic nations adopt a constitutional
amendment for an Economic Supreme Court - see DRGTPE
or, if you are in a hurry, the earlier working
paper in html that is improved upon in DRGTPE.
Having an Economic Supreme Court makes that science gets a level playing
field with political management (and economics is the science of management
of the state). Having an Economic Supreme Court makes that we have a better
decision making structure, to settle complex issues like on the environment.
For example, Bjorn Lomborg's book is thick, and the issues are very
complex, and few people will have the time and resources, and the capacities,
to tackle these issues. Those who could tackle the issues, might decline
the challenge, since politicians would not need to listen, and all the
work done could well be fruitless. Hence, we should work towards having
an Economic Supreme Court, well embedded in a democratic structure, that
could provide guidance in such complex issues.
Since we do not have an Economic Supreme Court now, I think that it
is pretty useless that I spend much time on the issue. I would have the
capacity to do so, see my cv, but who
would listen to me ? The following hence is preliminary. But the following
comments are crucial - so if you read this, please pay attention.
Lomborg's book indicates that coping with the environment would cost
about 2% of national income for the next 100 years. I myself have presented
an analysis that solves unemployment and the stagflation issue - see DRGTPE
- and for the US that amounts to perhaps 4% of national income and for
Europe that would be decidedly more. So I can only urge that people also
look into this angle of the DRGTPE argument. However, Roefie Hueting argues
that a proper approach for the environment might well cost 50% of national
income. Bjorn Lomborg's book does not refer to Hueting's analysis. Given
the complexities, we all should hope for an Economic Supreme Court indeed.
The following discussion will look at the Hueting - Lomborg difference.
First note these three angles:
(1) The Club of Rome report 'Limits to growth' was published when I
had just started university. The report caused concern, but later I learned
that it overlooked price and income effects, so I became more of a fan
of Julian Simon. Also, while I was concerned more about the issue of development
and world poverty, it was also obvious that dictatorial regimes prevented
development proper. Hence, I concluded that mass unemployment and stagflation
in the OECD countries were the most important economic issue - and this
became my topic of study. The argument namely is: If we solve unemployment,
then the OECD does no longer need trade barriers to protect its own employment,
and then 'trade not aid' has a better chance to be selected as the proper
policy. Also, if we solve unemployment in a decent way, then the OECD model
of democracy presents a more convincing model for developing countries.
Hence, it was with joy and relief, when I finally could present, after
years of study, an analysis on unemployment that solves it in a democratic
manner (see DRGTPE). It is up to policy
makers whether they adopt this policy, but at least the economic analysis
clearly shows that it would be optimal if they did.
(2) In these last years I also got acquainted with the work of Roefie
Hueting. As me, he is not an environmental economist, since his focus is
not on the interaction of economics and the environment. Instead, he worked
at CBS Statistics Netherlands, and his topic is the statistical measurement
of economic welfare. Taking the environmental data as given, he then considers
the impact on national income accounting. Hueting basically provides a
way to measure welfare if sustainability is the norm. In doing so, he is
critical of the standard environmentalists who appear less versed in economics.
But due to Hueting's work, I have grown more conscious of the environmental
problem again: see my three papers on his work: 1
2 (Seminal) and 3
(3) Interestingly, Bjorn Lomborg
now shows that many current environmental 'data' would be just as overly
alarmist as the Club of Rome report was in the past. The 'data' that Roefie
Hueting's analysis relies on, might not be real data.
I find Lomborgs book lucid, illuminating, balanced, and very useful.
It reads easy, has a clear reasoning, uses the relevant sources, and, indeed,
exposes some rather shocking errors on the part of some participants in
the debate on the environment. However, Lomborg apparently has not studied
Hueting's analysis, and that makes the argument seriously unbalanced again.
Combination of these three angles gives an interesting result.
(a) Both Hueting and Lomborg take the position of statistical scientists.
(b) Hueting is critical of the same environmentalists whom Lomborg criticises,
so there is already the seed of agreement. However, Lomborg criticises
the environmental data and does not question the use of economics, while
Hueting criticises the use of economics and does not question the environmental
(c) Though Lomborg e.g. on page 156 shows him aware of the issue of
increasing scarcity and the rising prices of environmental functions, he
at other points seems to make errors that Hueting has shown us to avoid.
Lomborg relies heavily on the issues of economic growth and the measurement
of welfare, which is precisely Hueting's topic. Lomborg writes: "(...)
only when we are sufficiently rich can we afford the relative luxury of
caring about the environment" (page 33) and "can we start to think about,
worry about and deal with environmental problems" (page 327). Hueting however
shows that national income commonly is meausured in a wrong manner. Lomborg's
graph on page 33 is improper. This is not only so, simply, since the 'high
income' of the US depends upon pollution caused by imports from the poorer
countries - as 'ecological footprints' could correct these. (I have to
be careful here, though, since the 'sustainability index might do precisely
that.) More complex, however, Hueting shows that national income is the
(d) Hueting's analysis remains valid whatever the environmental data.
These data are taken as given, and the analysis can be performed whatever
their value. For example, Julian Simon presented the argument of ever lower
prices for raw materials, and Hueting's answer is that the environmental
costs are not included in those prices. Lomborg may show that those costs
would be much lower than commonly stated, but this does not invalidate
the idea that those costs should be included. It would be a great advance
in the statistical measurement of economic growth if this principle could
(e) Hence, if statistician Lomborg adopts the analysis of statistician
Hueting, and national income and economic growth get measured properly,
then the next focus is on properly measuring the environment. Here Lomborg's
critique on environmental statistics becomes relevant. But here the ecologists
must react. Lomborg is rather convincing that a claim concerning 40,000
species is shockingly wrong - but it is not clear whether this claim was
widespread or just from a few people. The true ecological worry may still
be very relevant.
(f) Lomborg argues in the same way as I used to do: "(..) the major
problems remain with hunger and poverty." (page 327) See here my analysis
on unemployment, that shows that the main issues are social and psychological
(DRGTPE). But, subsequently, due to
Hueting's analysis, I have grown more conscious of the environment. Being
rich also requires a certain use of natural resources, and this has an
impact on the environment. Lomborg refers to the DICE/RICE models, but
it is not clear whether this model is adequate. How does CO2 relate to
temperature, and this again to the extinction of species ? And again, national
income should be properly measured in Hueting's fashion. I still discern
a lot of uncertainty.
(g) Lomborg is optimistic about the possibilities of technology. Basically
I am optimistic too, about the combinations of social and technical possibilities.
But the issues of the future should not be confused with the issues of
statistical measurement of the past. In the volume of Van Ierland (eds,
to appear September 2001), Hueting replies to Wilfred Beckermann about
such technological assumptions, and this applies here as well. For statistical
measurement, we should rely on observations (known technology). And for
forcasting technology we should do better than just punch in 2 percent
(h) Concerning the future, indeed, Lomborg has a decent discussion on
the precautionary principle (page 349), but he does not really answer the
key policy question since he does not use a model. He writes: "Of course,
if large-scale ecological catastrophes were looming on the horizon we might
be more inclined to afford the extra margin of safety just for the environment.
But as is documented in this book, such a general conception is built on
a myth." No, the book punches some major balloons, but it does not provide
the econometric model required. Merely referring to DICE/RICE does not
convince, see the argument above. Note that Lomborg himself (page 30) emphasises
that we should use the best data and the best models - but apparently much
work still has to be done.
(i) Lomborg has a discussion on discounting (page 314). Hueting emphasises
that the rate of discount reflects a choice of preference. Zero interest
is a preference for equality of generations, higher interest shows a preference
for current generations. Hueting then adds: But we don't know the preferences.
All kinds of mechanisms, like the prisoners' dilemma, prevent that true
preferences are expressed in the economy. Thus, a statistician must provide
all information, both the national income figure as currently measured,
and the measure that includes the norm for sustainability. (Interestingly,
Lomborg studied the prisoners' dilemma.)
(j) Lomborg uses the word 'risk' in a proper sense. However, he and
other readers still could be interested in my new definition
of risk. (In some respect, this is about how to aggregate risks.)
(k) If we combine the analysis on the environment and the one on poverty,
then there is a really powerful statement - dealing with democracy
and the structure of decision making.
Lomborg writes: "My point is simply to stress that in important fields
of research it can also be difficult to present information which goes
against institutional interest." (page 38).
Of course, this should not happen in science. But apparently, it happened
in the discussion on the environment - and it happened with my own analysis
on unemployment (see here for my protest).
Also, Lomborg writes: "In a surprisingly frank statement the UN states
that "it is not the resources or the economic solutions that are lacking
- it is the political momentum to tackle poverty head-on."" (page 66).
Thus, the same political abuse of science, also causes an abuse that is
deterimental to the basic security of citizens.
I noted that Lomborg also has an interest in voting theory himself,
and I look forward to his reaction to my analysis here. The whole issue
would also be relevant for Lomborg's colleagues at his political science
(l) On taxation, Lomborg discusses the 'double dividend' (page 308).
He refers, among others, to an AER article by Bovenberg and De Mooij. However,
Bovenberg has been vice-director of the Dutch Central Planning Bureau that
has censured my analysis and that has eventually fired me with an abuse
of power (see my protest).
Bovenberg declines responsibility, but he was in a responsible position
and did not do anything about it. Also, since there was no discussion about
my analysis, he apparently does not know the argument of my analysis, and
the AER paper is seriously flawed. Thus, also Lomborgs statements on the
'double dividend' are seriously flawed.
I might write a paper with the better analysis and try to get this accepted
by AER as well. This however would not solve the censoring. And it would
only concern the 'double dividend' while I think that more is involved,
since the impact on the environment runs via taxes and umemployment. It
is better that the censoring is stopped, that the abuse is corrected, that
I am re-instated in my position at the planning bureau, and that a level
playing field is created.
Thomas Cool, September 24, 2001
Cool, Th., “Roefie Hueting
and Sustainable National Income”, a translation from “Roefie Hueting
en het DNI”, included in the series ‘Key Figures in Economics’, Economisch-Statistische
Berichten 24-8-2001, p652-653, NEI, Rotterdam.
Cool, Th., “The seminal contribution
of Roefie Hueting to economic science: Theory and measurement of Sustainable
National Income”, draft November 2000
Cool, Th., "The choice on sustainability: information
or the meta-SWF approach
to a shift of preferences", Report
Cool, Th., internet page on Uncertainty
Ierland, E. van; J. van der Straaten en H. Vollebergh (eds), “Economic
growth and valuation of the environment: a debate”, E. Elgar 2001, to appear
by the end of September 2001
Lomborg, B., "The skeptical environmentalist",
This is a page that was critical
on the original Danish version of Lomborg's book.