Friday, February 09, 2007

Paul Volcker: curbing global warming need not "devastate economy"

After many years of Macroeconomic/ Time series econometric seminars changes in the chairman of the Fed always get a mention and none more so that the Volcker regime.

It is good therefore to see "financial legend" discussing the US attitude to global warming. Nothing like a bit of rational economics to bring some much needed light to the darker reaches of the global economy. From the International Herald Tribune.

This is one of the best articles I have read for a while for its sheer simplicity and ability to get to the heart of the matter. Whilst Volcker's comments are hopefully common sense to readers of this blog it should be noted that Volcker is a respected and once powerful "financial legend".

Will his speech make any difference? Almost certainly not.

Economist Paul Volcker says steps to curb global warming would not devastate an economy
CAIRO, Egypt: Measures to reduce global warming would not be devastating economically and the United States has been "particularly delinquent" on the issue, Paul Volcker, the former chairman of the U.S. Federal Reserve, said Tuesday.,

Speaking to the American Chamber of Commerce in Egypt, Volcker said the argument that taxes on oil or carbon emissions, for example, would ruin an economy was "fundamentally false."

"First of all, I don't think (such a step) is going to have that much of an impact on the economy overall. Second of all, if you don't do it, you can be sure that the economy will go down the drain in the next 30 years," Volcker said, referring to the impact forecast by a U.N. report last week.

Volcker told some 200 Egyptian and foreign business executives that he had been surprised by the warm winter in New York and the cold weather in Cairo, where temperatures dropped to 48 F (9 Celsius) on Tuesday. "Global warming seems to be catching up with us pretty quickly," he commented.

What may happen to the dollar, and what may happen to growth in China or whatever," he said, raising his voice, "pale into insignificance compared with the question of what happens to this planet over the next 30 or 40 years if no action is taken."

"The scientists seem pretty well agreed that (global warming) is still potentially manageable if we act decisively, beginning now into the next decade or so, by taking measures that are technically and economically feasible."

Leadership had to come from the United States, "and I don't see much evidence of that happening at the moment," said Volcker, who as Federal Reserve chairman in 1979-87 applied politically unpopular measures that brought U.S. inflation under control.

The United States, which produces about one-quarter of the world's greenhouse gases, is widely criticized for refusing to ratify the Kyoto Protocol, a 1997 pact that requires industrial nations to cut global-warming gases by an average 5 percent below 1990 levels by 2012.

Volcker said taxes either on emissions or on petroleum could be effective in reducing global warming, although it would be difficult to reach an international consensus on the desired levels.

"It's an area where in my view the United States has been particularly delinquent," he said, adding it would be wiser to impose a tax on oil, for example, than wait for the market to drive up oil prices. A tax would give the government "some leverage that you can use for other things."

Asked why Americans were so reluctant to act on global warming, Volcker said in an interview afterward that he puzzled over the same question.

"I think any democracy has difficulty focusing on a problem which is not a crisis today but, with a high degree or probability, is going to be a major problem 10, 15, 20 or 30 years from now." This was particularly the case when people feared, exaggeratedly in his opinion, that the immediate effects of tackling the problem would be adverse.

"A lot of people in the United States haven't been convinced that it's a problem. Now I think that is changing. The evidence is becoming so strong that may be we are building a base for a political understanding that hasn't been there before," he said.

It is worth repeating one line from this article:
Asked why Americans were so reluctant to act on global warming, Volcker said in an interview afterward that he puzzled over the same question.

Aren't we all.

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