Discounting the future – the cost of global warming

Abstract

This essay begins by suggesting that although the ideas of Hegel appear more mystical and less practical than those of Adam Smith, both philosophies are nevertheless dependent on metaphysical assumptions. Smith's philosophical outlook finds its modern reflection in the notion of commensurability, the idea that social realities, amongst other things, can be indexed by a unitary measure of value. Economic cost–benefit analysis takes commensurability to its logical extreme by claiming that, for instance, the question whether to construct another London airport can be decided by applying a strict commercial analysis, attributing costs and prices to the whole range of environmental and human factors (but what value to place on a Norman church located in the path of the proposed runway?). A particularly intractable aspect of cost–benefit analysis is that, since any large investment project will almost certainly create benefits for some people and disbenefits for others, the analysis must include invidious interpersonal comparisons of utility – and while it might be equitable for those who benefit from such a project to compensate those who are disadvantaged by it, this in practice rarely happens. Finally, global warming due to the emission of greenhouse gases is examined, and it is shown how cost–benefit analysis applied to this situation turns out to be an even more complicated and an even less satisfactory approach. In conclusion it is suggested that, despite the insouciance of economists (which contrasts markedly with the anxieties of the climatologists and earth scientists), the costs of our present rate of consumption of fossil fuels are bound to become enormous.