THE Financial Times has an interesting interview with Esther Duflo, who received the Nobel Prize in Economics in 2019. She argues that developed countries have a moral duty to compensate poor countries for the damage caused by carbon emissions:
If you combine these three numbers, you essentially get the monetary value of the cost of carbon in the air. (University of Chicago economist) Michael Greenstone and his team estimated it at $37 per ton. So take $37 per ton, multiply by 14 billion tons of carbon emissions per year: that’s the total footprint, including consumption, of Europe and the United States. And you get about a little over $500 billion a year. This is the damage we impose on poor countries, just the damage linked to mortality. Just from the rich part of the world to the poor part of the world.
So this is what I call a moral debt. This is not what it would cost to adapt; that’s not what it would cost to mitigate. This is what we owe.
She recommends raising these funds by taxing the rich:
The minimum corporate tax has been set at 15 percent (under an international agreement). But originally the number proposed was 25. So I think there may be a little margin. And if you went from 15 percent to 18 percent, you could raise about $200 billion a year.
And then, in February, the G20 discussed Gabriel Zucman and the European Tax Observatory’s proposal for a tax on the super-rich – a 2% per year tax on the wealth of the richest 3,000 billionaires . This would raise $300 billion. So if you combine those two, you get $500 billion.
I sympathize with his claim that Western carbon emissions have harmed poor countries, although as a utilitarian I don’t think in terms of “moral debts.” What does this sentence actually mean? Does this mean that transferring $500 billion from the rich world to the poor world would make the world a better place? If so, why not say so? Why talk about moral debts?
By now I may have upset both sides, the supporters of Duflo’s proposal and the conservatives skeptical of utilitarianism. So let’s look at some specific flaws in Duflo’s approach to public policy.
Duflo is correct that rich countries have imposed significant negative externalities on poor countries, warming the Earth’s climate. But it overlooks the fact that rich countries have also imposed significant positive externalities on poor countries, or that these positive externalities are a problem. order of magnitude larger than negative externalities. Here are three obvious examples:
1. Western technology has made the population of poor countries much larger than it would have been without contact with the West.
2. Western technology has made life expectancy in poor countries much longer than it was before exposure to this technology.
3. Western technology has caused the GDP per capita of poor countries to be much higher than it would have been without this technology.
Thus, if we were to take seriously the idea that externalities cause a moral debt, we would be forced to conclude that the poor world would have to pay significant reparations to the rich world. To me, this idea seems absurd. Certainly, many people I speak with favor China being forced to pay much more for the technology it has borrowed from Western companies. But these people are often silent about the West’s “moral debt” for paper, the compass, gunpowder, printing, and all the other Chinese inventions that have helped shape the modern world.
The story is almost infinitely complex, and any attempt to construct a ledger of net moral debits and credits based on positive and negative externalities will ultimately fail on a host of arbitrary judgments.
A second problem is that Duflo’s proposed tax makes no sense if the underlying problem concerns externalities. Economic theory suggests that the optimal remedy for negative externalities is to impose a tax equal to the external cost – in this case a carbon tax. (This assumes that transaction costs prevent a voluntary solution.) Instead, Duflo proposes a tax on the rich, which would do little or nothing to solve the problem of global warming.
In my opinion, Duflo’s proposal is an illustration of what can go wrong when we replace utilitarian reasoning with deontological reasoning. When it comes to public policy, it is not useful to think in terms of “moral debts”. Rather, there are policies that boost overall global utility and policies that reduce it. A policy that slows capital accumulation without doing anything to combat global warming is unlikely to boost global utility.
PS. I’m not saying that victims should never be compensated for the damages they suffer. Rather, I suggest that compensation systems should be judged on utilitarian grounds. Thus, our legal system is based on the principle that people and businesses are generally liable for specific damages imposed on others.
PP. I guess a wealth tax on billionaires seems “progressive”, especially if the money is given to “poor countries”. But people like Bill Gates give more of their wealth to poor countries than rich governments, and it is likely that (dollar for dollar) his giving is more effective than that of governments. In fairness, Duflo suggests giving the money directly to people in poor countries (which is much better than the approach used in many government-run foreign aid programs), but I suspect that once governments will be involved, money will eventually flow from one government. to another.
