Professor Hulsmann : Interventionism and Climate Change

LAW & ECONOMICS / Wednesday, October 21st, 2020

Extracts of the talk published on



In order to get straight to the point, we may assume for the sake of argument that RS are right about all the other questions. Assume therefore that the unchecked COemissions of modern industrial societies would lead to significant global warming. Assume furthermore that this would lead to glacier retreat, decline in polar sea ice, thawing of permafrost and ice sheets in Greenland and the Antarctic, as well as changes in ocean currents, major weather extremes, increased species extinction, and an increased spread of diseases.

Global Warming Has Advantages and Disadvantages

It is readily apparent that the overall package of these changes would create both disadvantages and advantages for humanity as a whole. The disadvantages arise mainly from the costs that arise from adapting to the new conditions, and from the loss of certain areas and cities due to the rising sea level. On the other hand, there would also be advantages from the fact that large parts of the earth’s surface, which previously could only be cultivated at high costs, are now accessible for arable farming and urban development, industrial companies.

These advantages and disadvantages would not affect everyone equally. Sooner or later, many people would have to leave their homes and move to new areas that are favored by global warming in order not to suffer any impairment of their material living conditions. Or they would have to save more or attract foreign capital in order to compensate for the more adverse living conditions by investing more capital. Other people, on the other hand, could stay in their traditional residential area and at the same time enjoy better living conditions. The original landowners in the countries benefiting from the new climate would benefit from the influx of migrants as the value of their land increased. On the other hand, the property value in the disadvantaged countries would fall.

We could expand and deepen such considerations through further details, but the fundamental result would not change. It can be summarized in three points. First, the consequences of global warming mentioned by RS would bring both advantages and disadvantages for the economy as a whole. Second, geographically and socially, these advantages and disadvantages would by no means be egalitarian, but would rather favor some people and disadvantage others. Thirdly, this material inequality could have long-term effects, especially if it could not be offset by migration or increased capital expenditure.

Property Rights and Conflicts

Before we delve deeper into the ideas of the climate activists, we should first clarify a fundamental question relating to the material inequalities that we just emphasized. It is often claimed that inequalities lead to a conflict between the favored and the disadvantaged. However, this is not necessarily the case. Conflict occurs when different people lay claim to the same good. But inequality does not necessarily lead to conflict. It does not lead to conflicts if property rights have clarified from the outset who is entitled to claim which property. Private property is a great cultural achievement, precisely because it curbs conflict and directs human energy into productive endeavors rather than letting it simmer in the management of conflicts.

The inequalities that would arise from global warming à la RS would therefore not necessarily lead to conflict as long as every disadvantaged person respects the property of the beneficiaries. But even if conflicts arose out of envy or unclear property relations, private property would still be the most important means of resolving conflicts. Modern economic history provides impressive evidence of this. In Germany and all other economically highly developed countries, the industrialization of the last two hundred years has entailed enormous changes that have not only brought advantages but also many disadvantages and many inequalities. Nevertheless, the conflicts could be reduced to a minimum, precisely because the principle of private property was respected by almost everyone involved.

The similarities with the climate problem are obvious. In fact, on a smaller scale, industrialization has produced exactly those consequences that, according to RS, would result from global warming for the entire world economy. Industrialization, too, was very profound. Its advantages and disadvantages, too, were by no means egalitarian in geographical and social terms, but rather favored some people and disadvantaged others. It, too, has caused or intensified great social inequalities, and these inequalities, too, could not be completely offset by migration or increased capital expenditure.

Alleged Disadvantages of Global Warming (I): The Limited Adaptability of Humans

What do the climate activists say about the consequences of the climate change they expect? How do they prove the assertion that the effects of human-induced global warming “will be predominantly negative” (p. 88)?

Interestingly, RS are straightforward in admitting that “a warm climate…is a priori no worse or more hostile to life than a colder one” (p. 78). So how do they come to the conclusion that the negative effects “far outweigh” the positive ones (ibid.)? They bring up two considerations.

The first argument is: “because ecosystems and society are highly adapted to the past climate” (p. 78). Let us quote them further:

Serious problems arise particularly when change takes place so quickly that it overwhelms the adaptability of nature and people….People can adapt to new circumstances—but a rapidly changing climate results in a loss of experience and predictability and can therefore not be used optimally for agriculture. (p. 78)

A global warming curve outside the tolerance window [i.e., the change in global mean temperature initiated by humans should not exceed 2°C overall and at the same time the rate of temperature change for Earth should not be higher than 0.2°C per decade, would] bring about environmental conditions beyond anything that civilized humanity has ever experienced. (p. 97)

[W]ithout limiting climate change to a maximum of 2°C, successful adaptation to climate change would hardly be possible. If it were 3, 4 or even 5°C warmer globally, we would reach temperatures that have not existed on earth for several million years. The limits of adaptability would not only be exceeded for many ecosystems. (p. 113)

These assertions prompt a whole series of questions that RS, unfortunately, do not answer. How exactly do they define human adaptability and its limitations? Is there a way to measure them? What are the causes of adaptability? How do the authors know that human beings could not possibly adapt to a global temperature increase of 4 or 5°C? But even apart from these regrettable shortcomings, the entire argument is fraught with a basic logical contradiction, and it also contradicts historical experience.

RS assert that a radical restructuring of industrial society is warranted because of the limited adaptability of mankind. This assertation is a contradiction in terms. The policies advocated with great emphasis by RS would undoubtedly represent a leap “beyond anything that civilized humanity has ever experienced.” And we are to believe that they are necessary because human beings cannot deal with radically new conditions?

But RS’s argument also contradicts historical experience with industrialization. Industrialization has brought about much stronger and faster changes (albeit on a geographically smaller scale) than we would have to expect in the case of global warming according to the forecasts of climate activists. The adaptability of mankind is clearly much greater than RS assume, and the professors are not making the slightest attempt to prove their assertion in any way. The car, the airplane, space travel, atomic energy, molecular biology, and many other things that shape our living environment today and to which even very simple people have adapted very well, were until relatively recently “beyond anything that civilized humanity has ever experienced.”

The loss of experience and predictability caused by new circumstances is by no means a problem that would arise in a special way from global warming. It is a problem that arises with any kind of large-scale innovation and change. It is a problem that individuals and families, entrepreneurs and employees face every day and which they solve more or less well every day.

Alleged Disadvantages of Global Warming (II): Social and Ethical Problems

The second argument adduced by RS to prove the predominantly negative consequences of global warming concerns its unequal social effects. The industrialized countries in the temperate and cold climates can look forward to better weather, while agriculture in “many subtropical and now arid areas” will have to reckon with losses as a result of heat and lack of water. “This is the moral burden of anthropogenic climate change: the poorest, who have hardly contributed to the problem themselves, may have to pay for climate change with their lives” (p. 75). Elsewhere, RS say in the same way: “In addition, many people will have to suffer from extreme events such as droughts, floods and storms (especially tropical cyclones). The climate change we are causing therefore raises serious ethical questions” (p. 78).

These ethical questions are elaborated on elsewhere, where the consequences of a laissez-faire policy are discussed, that is, a policy that “accepts unchecked climate change with approval” (89). Such a policy, write our authors,

would impose almost all the burdens of the free use of the atmosphere as a garbage dump on the coming generations in the particularly climate-sensitive developing countries. Many non-governmental environmental groups see this perspective as the amoral culmination of the historical exploitation of the “Third World” by the industrialized countries, which are responsible for the majority of the previous greenhouse gas emissions. (pp. 89–90)

This argument is also extremely weak. This becomes clear once we discuss the three basic issues that are actually at stake here.

The first of these issues is whether a person A is allowed to behave or make such decisions as result in disadvantages for another person B. And the usual (as well as correct) answer to that question is: it depends. Companies that compete in the market undoubtedly cause many disadvantages for their competitors. If you marry the woman of your heart, you will make many competitors unhappy. Those who circulate confused thoughts can sometimes throw the politics of an entire country or the entire world on the wrong track. And yet one would hardly conclude from these circumstances that competition among entrepreneurs and courtiers should not be allowed, or that only state-authorized expressions of opinion should be permitted. And this basic consideration can also be applied directly to the climate issue. Obviously, it is not the case that global warming should be rejected or avoided from the outset simply because it brings advantages to some countries and disadvantages to others.

The second basic issue is whether the answer to the first question would be different if the disadvantaged party were poor. Again, it depends. Well-capitalized companies compete with weakly capitalized companies. Beautiful girls are advertised not only by handsome and rich but also by ugly and poor men. Bayern Munich has the best soccer team and therefore has the highest income and can therefore always attract the best players. Many other examples can be found without difficulty. Obviously, the rich competitors are allowed to bring their trump cards to bear, even if the underdogs are not responsible for being in a position of weakness. As regards the question of global warming, it follows that it should not be rejected or avoided from the outset only because it brings further advantages to rich countries and further disadvantages to poor countries.

The third basic question is whether the poverty of the Third World was or is caused by the industrialized countries, so that there is a financial debt of the industrialized countries, which could now be at least partially erased by curbing CO2 emissions. This question warrants two answers.

First off, it must be underscored that there is absolutely no necessary connection between the financial obligations of industrialized countries and climate policy. In other words, if such obligations actually did exist, there would be no particular reason to redeem them in the form of climate policy. Transfer payments or direct investments could also be made in the creditor countries without even the slightest restrictions on CO2 emissions.

Second, it should be emphasized that the “historical exploitation of the ‘Third World’ by the industrialized countries” (p. 90) is nothing more than a Marxist wives’ tale. Only if one adopts the standpoint of the completely untenable labor value theory can one come to the idea that the only way to get rich is by exploiting others. In fact, this is clearly not the case. It is not the case with the rich and poor in the same country. Nor does it affect the relationship between rich countries and poor countries. The vast bulk of the raw materials that the consumers of the industrialized countries have obtained from the Third World has been paid, not stolen. During the colonial period, the consumers of the industrialized countries even subsidized the colonies, as they not only paid the costs for the production facilities and plantations in the colonies (through the prices of goods), but also (through the taxes) the expenses for colonial administration. The supposed exploitation of the Third World was indeed a huge grant business for the residents of these countries. Nothing proves this fact more impressively than the economic decline that occurred in many parts of the Third World after the end of the colonial period.

RS turn reality on its head. It could be argued, with much more pertinence, that global warming would bring some late and long-earned benefits to the people of the developed countries. For centuries they have populated cold and inhospitable areas and made them fertile through hard work, while others have made themselves comfortable in the sun. The industrialized countries are now generating higher temperatures through their CO2 emissions and thereby reducing (though unintentionally) the natural adversities that have cost them so much in the past.

Many other remarks and considerations could be added at this point, but it should be clear by now that there is no direct route from climate science to climate policy. Whether they like it or not, climate activists have to go into the fields of lawyers, economists, and philosophers. And here they do not cut a good figure, as far as this can be judged in light of RS’s standard text. Even if global warming were a necessary consequence of unchecked economic development, it is far less clear whether the negative effects of global warming would outweigh its positive effects. In any case, RS did not show it, let alone prove it.


Let us now turn to climate policy. RS recommend a policy that aims to avoid all CO2 emissions as completely as possible through government regulations, bans ,and subsidies (strategy of avoidance). The fundamental alternative is of course not to take such measures and to trust that the market participants will make the most suitable decisions in each case in order to adapt to the then inevitable global warming (strategy of adaptation).

RS reject the laissez-faire strategy of adaptation for the reasons that have just been discussed: people’s inability to adapt and the nonegalitarian effects of global warming. They only briefly mention a few economic counterarguments. They write:

Some economists argue, for example, that it would be much cheaper to relocate the populations of the South Sea islands threatened by rising sea levels to Australia or Indonesia at the expense of the industrialized countries than to burden the economy with restrictions on greenhouse gas emissions. (p. 90)

Indeed, this reasoning sounds quite reasonable. It is just a shame that RS do not name names and refer their readers to those reasonable economists, so that they can form their own opinion. Anyway, the professors from Potsdam cannot agree with these economists. Why? They write:

In doing so, however, the social and ethical problems are forgotten and there is a great danger that such considerations will open a geopolitical Pandora’s box. (p. 90)

Now, one can accuse economists of many things, but they hardly ever forget the ethical and social problems of economic policy. However, the vast majority of economists are not at war with the market system as such or with the ethics of private property. They do not see it as problematic from the outset that people change the world but at the same time also adapt to changes in their social and natural environment. In the eyes of the vast majority of economists—and the vast majority of all other people—it is normal that people move to different places when they discover that they are living in a flood area. This also applies if there were no floods before but now such floods are inadvertently caused by the activities of other people. In some cases, it would apply even if the flood were caused on purpose, because the fundamental question is always whether the polluters have the right to do so.

The German federal government’s migration policy and covid policy offer similar examples. Both have led to a massive change in the social environment in Germany, and many citizens have thereupon decided to move abroad; some have even renounced their citizenship. Both the policy of the government and the reaction of the migrants are seen by the vast majority of the citizens as legitimate. From a logical point of view, there is not the slightest difference to changes in the natural environment that are caused by the actions of some and lead to reactions by others.

And then, to what extent are such considerations opening “a geopolitical Pandora’s box”? What evils could be found in this box? The evil of personal responsibility within the confines of private property? The evil of having to solve problems yourself before asking or forcing a solution from others? Or, lo and behold, the evil of adaptation, i.e., the requirement that every person should adapt to the general development of the world economy and also to the global warming that may arise from this development?

RS only deal briefly and superficially with thoughts of this kind. As they have it, such thoughts arise from an economic utilitarian worldview, while their preferred strategy of avoiding any CO2 emissions supposedly corresponds to scientific thinking. This categorization does not seem to be correct, but that is a secondary question. Let us get to the heart of the matter right away.

According to RS, the strategy of adaptation raises an economic optimization problem at its core. The aim is to maximize the “total benefit of climate protection.” This total benefit is in turn equal to the averted climate damage minus the avoidance and adaptation costs (see p. 91). RS then proceed to criticize this approach with arguments that find our approval and which we therefore do not have to discuss here. However, it would be wrong to infer, as they do, that they have thereby given sufficient reason to reject the laissez-faire strategy of adaptation. The basic shortcoming of their entire argument is the way they state the problem. It is completely inappropriate to reduce the strategy of adaptation to a macroeconomic optimization problem. This is wrong from the start. Adaptation to economic development and global warming is not a mathematical optimization problem for the officials of a central planning commission. Rather, it is a challenge for individual action, for house communities, associations, and companies. It is a challenge that all actors face through initiative and contracts.

The participants in a market economy do not have to worry about the total expected climate damage and adaptation costs. All they have to do is try to find suitable solutions for their own lives. They do not decide on the basis of macroeconomic data, but on the basis of money income and money costs which they believe are associated with various alternative courses of action.

The market economy is the regulatory framework that ensures that such decentralized decisions flow together into a coherent whole; that they complement and correct each other; that they solve the great problems of mankind without losing track of the many small personal goals that also need to be pursued. The market economy has no central plan. It is animated by innumerable plans, which, however, do not stand side by side in juxtaposition, but are related to each other in overlapping networks. In the past it has shown its towering superiority over central government planning. It is therefore only logical for economists to rely on the market when it comes to tackling environmental problems.

This market-based approach clearly has no place in the intellectual orbit on which RS are floating. In their eyes, markets can “only partially find the right answers to the climate-energy problem,” at least if this is to happen “from an internal drive” (104) of the markets. The professors from Potsdam therefore recommend that governments “actively shape the transformation of the energy system: for example, through conditions that divert from catastrophic long-term investment decisions and incentives that lure the available capital into sustainability-promoting companies” (ibid.).

In other words, in their thinking, all problems and solutions are geared to the mindset of central planners—of people like themselves. Their entire policy stands or falls with the conviction that “there is no realistic alternative to the cause-and-effect approach” (95)—that is, to interventionist climate policy.

As we have seen, however, there can be no question of that. There is an alternative. It is called capitalism. And it does not need to tremble at the effects of global warming.

We would love to hear your thoughts on this