He was quite literally the toast of last year’s EEI Finance conference. Using his bank’s diverse resources (Rothschild vineyards in France), he arranged an unforgettable wine tasting that was a...
Freakonomics author Steven D. Levitt suggests science and market forces will eliminate the climate-change problem with minimal effort.
Prostitution, sumo wrestling and horse manure have one thing in common. Economist Steven D. Levitt has studied them all. Co-author of the hugely successful Freakonomics, Levitt applies orthodox principles of economic theory— i.e., supply-demand dynamics and scarcity pricing—to unorthodox economic questions.
No stranger to controversy, Levitt sparked a firestorm of criticism in 2001 when he demonstrated a correlation between legalized abortion and a reduction in crime rates. Later he analyzed the economics of crack dealing to show how street dealers face enormous physical risks for the equivalent of minimum wage. And his studies of the Ku Klux Klan suggested the infamous organization in the 1920s was comprised mostly of educated professionals, and the group’s actions had little effect on lynching patterns or election results.
Levitt downplays the applicability of his work to the business world. “I have a litany of unsuccessful attempts to get companies to change,” Levitt told a group of utility executives and Wall Street finance professionals at the EEI Financial Conference in November 2007. At the same time, however, he encouraged the industry’s decision-makers to keep an open mind about solutions to the problems they face.
“One thing I truly believe about business is there are rents on the table for people who can figure out how to do things better,” Levitt said. “Not by knowing the answers, but simply by being open to the idea of testing what you are doing and figuring out whether it can be improved. Try things, measure them and let them be evaluated.”
At the end of his speech, Levitt turned to the subject of climate change, and how he thinks market forces ultimately will resolve the issue.
Levitt: If there was ever a group anywhere in the world that would like what I have to say about climate change, I’m hoping it’s this group.
Let me start by talking about horse manure.
In the 1890s, cities were drowning in horse manure. In New York City, there were 200,000 horses. These horses produced 2,500 tons of manure a day. Most of that got left in the streets, and horse manure made cities unlivable. This problem threatened the entire existence of cities. Disease and health issues were enormous and people wondered what would happen to the future of cities.
And then technology came along, and the car and the electric streetcar got invented, and suddenly there were no more horses in New York City. The manure problem disappeared. People never imagined in the 1890s manure would be a distant memory in a decade, and yet in a decade it was solved.
Almost every problem we’ve faced in society over the last 200 years has been solved almost effortlessly by technology. Take healthcare. In the 1930s, an important [study] tried to detail what our spending on health would look like in 40 or 50 years. The conclusion was