Why the world should listen to the voice of economic reason

BOOK REVIEW: Paul Tanseyon The Economists' Voice - Top Economists Take On Today's Problems ,Edited by Joseph E Stiglitz, Aaron S Edlin and J Bradford DeLong; Columbia University Press; £14.95 (€19)

ECONOMICS is a practical subject. It is of little use unless it can inform, and hopefully improve, public policy.

As Cambridge economist Joan Robinson wrote in Economic Philosophymore than 40 years ago: "As a pure subject, it is too difficult to be a rewarding object of study; the beauty of mathematics and the satisfaction of discoveries in the natural sciences are denied to the practitioners of this scrappy, uncertain and ill-disciplined subject. It would never have been developed except in the hope of throwing some light upon questions of policy."

The central contribution which economists can make to public policy is to clarify and inform choices. The Economists' Voicehas recruited a star cast of internationally-renowned economists to address many of today's problems. Although there is a pronounced bias towards domestic US policy issues, two of the questions addressed are of global significance: the Iraq war and climate change.

Joseph Stiglitz, Nobel prizewinner in economics in 2001, points out in his contribution that there is no evidence that the US conducted a rigorous cost-benefit analysis of the cost of going to war in Iraq.

In 2002, the director of the White House national economic council, Larry Lindsey, estimated that the war could cost between $100 billion (€63 billion) and $200 billion, roughly the same order of magnitude as US president George W Bush's recent expansionary fiscal package. His estimates were dismissed as exaggerated, with the US office of management and budget putting the cost of the war at $60 billion. These back-of-the-envelope calculations proved wide of the mark.

Stiglitz subsequently stated to this reviewer that the reason no rigorous cost-benefit analysis of the Iraq war was undertaken by the Bush administration lay in the fact that they implicitly believed they could go to war "for free". After all, the costs of the Gulf war had largely been borne by the Kuwaitis and the Saudis, while a prolonged post-war occupation of Iraq was not contemplated by the administration.

In his most recent book Stiglitz has estimated that the Iraq war will now cost the US $3 trillion. But would these costs, if known in advance, have influenced the US decision to go to war?

Stiglitz says he believes they might have tempered the decision to invade Iraq. He argues that the "coalition of the willing" might have proved less willing to support a costly invasion and prolonged occupation. Without international support, particularly from Britain, the US Congress might have been less anxious to vote for war.

The other major international question discussed in this readable and accessible book is how global climate change should be addressed.

In 2006, Sir Nicholas Stern, himself an eminent economist, published The Economics of Climate Change. In essence, the Stern report argued that the heavy future costs imposed by global warming could be avoided by incurring relatively modest costs today. He thus recommended substantial reductions in carbon dioxide emissions.

The debate on the Stern report quickly became technical. Critics argued that substantive efforts to limit CO2 emissions were not justified, both because of the uncertainty about the costs of future climate change and because these costs would not materialise until far into the future. In particular, they were critical of the manner in which Stern discounted both for uncertainty and for futurity.

In an elegant paper, Kenneth J Arrow, Nobel laureate in economics in 1972, takes apart the arguments advanced by the critics of Stern. Arrow was initially trained as a weather officer and thus possesses a fund of technical knowledge on the dynamics of climate change denied to many other participants in the debate.

On the basis of current emission trends, by 2035 the amount of CO2 in the atmosphere would have doubled since the start of the industrial revolution, prompting a rise in temperature of at least two degrees. If business continues as usual on the emissions front, then CO2 levels in the atmosphere could be three times as high as their pre-industrial revolution levels by the end of this century.

There is a 50 per cent chance that this would be associated with a rise in average temperatures of more than five degrees, roughly the same change in temperature that has occurred since the Ice Age.

Arrow notes that many of the consequences of such global warming are not well known. He says there is a distinct possibility that the Gulf Stream could be reversed, leaving Ireland and the rest of Europe with temperatures resembling those of Greenland. Even with higher discount rates both for uncertainty and futurity than those used by Stern, Arrow concludes that the case for restraining CO2 emissions to present levels "passes a benefit-cost test".

This is a genuinely useful contribution to knowledge and one that has life-changing implications for future generations.