There’s no pure economics unpolluted by politics

I agree with almost everything Dan Kahan writes here, where he discusses how people’s attitudes about global warming could be changed by looking at the financial decisions of businesses:

Market actors are economically, not ideologically motivated. Moreover, cognitive biases are likely to cancel out, leaving only the signal associated with informed assessments, by multiple rational and self-interested actors, of the weight and practical importance of the best available evidence on climate.

Kahan points to examples such as “exploitation of oil reserves that can be accessed more readily as polar ice caps melt.” He continues:

The index, btw, has to consist in securities (and the like) that reflect economic opportunities created by global warming.

It cannot include economic opportunities created by government policies to promote carbon-reduction. That market will reflect expectations about political forces, not natural ones (a matter that might be interesting but that isn’t probative of beliefs in whether climate change will occur—only in what sorts of things will occur in democratic politics, which is governed by its own peculiar laws).

I know what he means here but I think you have to be careful in this sort of formulation. Investment decisions always exist in a political context. Tax policy, labor laws, fiscal policy, environmental laws, all of it. I don’t think it makes sense to talk about economic actions in the absence of politics.

5 Responses to There’s no pure economics unpolluted by politics

  1. dmk38 May 28, 2013 at 7:17 pm #

    Yes! To illustrate, consider the difficulty for a hypothetical investor whom we’ll call “AG” in trying to decide what position to take in stocks in the “global warming” index. AG wants to take a long position b/c he is fully persuaded by the science; but he also is tempted to take a short one by his expectation that govts around the world will soon be persuaded by advocacy groups to take dramatic action to counteract it.

    Actually, though, I think this — the prospect of govts doing something — is the only sort of govt action that, across the run of securities & other instruments in the index, would be anything other than noise as far as movement in the index is concerned. The anticipated govt policies (not to mention all other kinds of things) that otherwise would certainly affect the value of individual members of the index should cancel each other out.

    Or maybe not. I’m not really sure!

    • Andrew Gelman May 28, 2013 at 7:45 pm #

      That investor “AG” lost 40% of his life savings in the stock market crash, so I wouldn’t trust his judgment on anything financial . . . (On the other hand, if you consider his life savings to include the current value of his future income stream, he lost much less than 40%.)

  2. dmk38 May 28, 2013 at 10:12 pm #

    Ha! I was thinking another AG — Al Gore! He has a dilemma not only in deciding how to invest but in deciding how to use the index to his (advocacy) advantage: as the index goes up, it simultaneously indicates “belief” in climate change & disbelief the climate-change policy advocates will persuade govts to do anything about it

  3. Justin June 6, 2013 at 8:10 am #

    The global warming issue is tough for me to get a handle on. It definitely feels like things are getting warmer, but what can I do about it? I just have to recycle, try not to waste, and hope that science out paces the global warming.