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 that roughly 30 percent of the entire healthcare bill in this country would be devoted to polio. Between the time of that report and 50 years later, Salk invented vaccines, which now for 5 or 6 cents apiece are the solution to polio. The current share of our healthcare spending that goes to polio is probably one hundredth of 1 percent.
What does that have to do with climate change? I’m not a scientist and I don’t know what the answer is to climate change. But everything we know from the past and what I know from talking to scientists tells me technology is likely to be the solution to climate change.
If climate change is driven by carbon, how do we fight it? We put a lot less carbon in the air. That’s almost exclusively the way people are thinking about the problem now. We affect people’s behavior to produce less carbon either by putting taxes on carbon production, or switching to other kinds of energy that don’t produce carbon. That’s fine but it’s costly. According to the Stern Report, it looks like this approach will cost the economy about $7 trillion.
People are talking about sequestering carbon, putting it in the ground. That’s another idea. But there are also other ways.
I’ve talked to a number of top scientists, people at the intersection of science and business. One guy has two solutions to global warming that he can do for less than a billion dollars today. One of the ideas that has been floated, and I don’t know if it’s right or not, was published in Science, and the guy said we could put sulfur dioxide in the stratosphere, and that has a big effect on cooling the earth. [Editor’s note: See “People in Power,” February 2007, for Dr. Ken Caldeira’s views on this.] It doesn’t take very much sulfur dioxide. By current calculations, what you need are two garden hoses, one at the North Pole and one at the South Pole. If you could just stretch a garden hose to the stratosphere and turn on the spigot, that’s how much sulfur dioxide you need going into the stratosphere to completely reverse global warming.
How do you get it there? The guy in Science had a program that involved taking a bunch of airplanes to the stratosphere and dropping [the SO2]. He concluded by saying it would be a very expensive solution, something like $7 billion. But if he’s right, it’s a thousand times cheaper than what the Kyoto Protocol suggests.
Other scientists have ideas about seeding clouds over the oceans, and ideas about shields. There are seven or eight different ideas, by credible world-renowned scientists, who believe they have pieces of the puzzle for solving climate change. And in each solution we’re talking about a few billion dollars, not a trillion dollars.
But the thing is, how hard have we thought about the technology? Not very hard. We’ve been thinking about it for five or 10 years. [Consider that, compared with] the amount of research that has gone into developing technology for the war on AIDS or cancer.
My conjecture is that our grandchildren will not have heard the words “global warming.” By the time I have grandchildren, global warming will be so thoroughly taken care of, no one will even have heard of it.
That doesn’t help you, right? In the short run, you are dealing with a question that is really about politics.
My impression is the people who are most worried about climate change want to punish mankind for being bad. We are bad people because we are hurting the environment and we should be punished for that. It’s not fair if we can just solve the problem with technology. What I’m proposing for climate change is the equivalent of bariatric surgery for obesity. You don’t have to change your behavior, just find ways to fix the problem. If you can do it, it’s a good solution.
Audience question: Do you think global warming would be bad?
Levitt: That’s an interesting question. Certainly in Chicago I wouldn’t mind it being a little warmer than it is. For most of the developed world I think global warming is probably a good thing. The problem is for most of the developing world, around the equator, the evidence is it’s going to be pretty disastrous for people in low-lying areas.
Change in the climate is bad in general, because people have made investments in the world we live in now. If it got colder it certainly would be bad. If we had another ice age it really would be quite bad. If it’s warmer I think it’s bad because people in Bangladesh live in low-lying areas.
A lot of it is transition costs, though. It’s not clear that once we moved from a transition of one state to the other, living in a cold world to a warm world…
The thing you really fear though is we throw things out of whack and everybody dies. That’s out there and we don’t know if it’s going to happen or not. That is ultimately the real issue. If we just knew it would get hotter by 5 degrees, I don’t think it would be that bad.
The fearsome [risk] of climate change is not in the middle, but at the extreme. The kinds of investments we can make today would be the kinds that reduce the uncertainty. If we could come up with ways that moderate climate change bit by bit, those would be the right kinds of solutions, to see whether they would work.
Audience question: It occurred to me when you were telling that story, the solution to the manure problem a short 100 years later produced a carbon problem from exhaust. So did it solve the problem or just delay it and make it worse?
Levitt: It certainly changed the nature of the problem. But it’s OK if we start other problems by solving the first one.
The overwhelming problem in human existence has been malnourishment and death by disease. Even back at the turn of the century, infant mortality was something like 10 percent. We solved those problems through healthcare and medicine. Now we have problems like overpopulation and obesity, but I will take today’s problems over [the historic] problems any day, and now let’s figure out how to solve [today’s problems].
It may be we’ve just been lucky. We’ve had a good run. For about 20,000 years the standard of living of humankind was almost unchanged until the industrial revolution, when it exploded. And now we live better today than the Roman emperors did.
I might be overly optimistic, but it seems to me the lesson of the last 200 years is if you set a goal, like getting to the moon, and put smart scientists on it, they are remarkably effective at getting to the goal.