Semi-Daily Journal Archive

The Blogspot archive of the weblog of J. Bradford DeLong, Professor of Economics and Chair of the PEIS major at U.C. Berkeley, a Research Associate of the National Bureau of Economic Research, and former Deputy Assistant Secretary of the U.S. Treasury.

Monday, December 18, 2006

Do Unto Others...

John Quiggin and Hal Varian are discussing the Stern Review on Global Climate Change and the pure rate of time discount in my email inbox:

Hal Varian: Stern is advocating levying a $70 tax on today's generation to transfer $940 to a future, much wealthier, generation. This is exactly the opposite of the experiment you suggestion. Given the absence of time travel, the relevant transfers are all of from the present to the future.

John Quiggin: At the margin, it's the same question. If you oppose paying $70 now to transfer $940 to wealthy people in the future, you should support taxing wealthy people $940 now to pay $70 to poor people, unless you specifically discount the utility of future generations simply because they are in the future. I'm not saying that this is an implausible preference, just that it indicates the kinds of trade-offs that are involved.

Hal Varian: Here is my problem with 0 social rate of time discount. Suppose I believe that it is ethically neutral to transfer $1 from Brad DeLong to John Quiggin. Furthermore, John and Brad are indifferent between $1 now and $1.10 next year. Should it not be the case that it is ethically neutral to take $1 from Brad DeLong now to give John Quiggin $1.10 in the future? In general, if I discount my own future consumption and I should "treat others as myself" doesn't that mean that I should discount other people's future consumption (just as I do my own)?

My view--which I admit may well be wrong--of this knotty problem is that we are impatient in the sense of valuing the present and near-future much more than we value the distant future, but that we shouldn't do so. Our habits of mind of preferring a bird in the hand to two in the bush come from a time when life was nastier, more brutish, and definitely shorter, and that if you went into the bush to try to get the two birds you might well not come out.

The fact that we want to apply a pure rate of time discount much greater than the risk of extinction to problems of planning for the far future is, I think, a flaw in our reasoning.

So I come down with John rather than with Hal on this one.


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