Can you really discount the future?

Economists often use a 'discount rate' on their investments, effectively assuming that we value the present more than the future. It is assumed that in the future, people will be better off, so the value of savings will be lower.

The Stern Review turned that around; arguing that because of the chance of catastrophic impacts in the next 100 years from climate change, we should not discount the future at such a high rate. There is the chance that the next generation or the one after that will be worse off, in many ways. Particularly since we will have used up so many finite natural resources.

We come to the issue of intergenerational equity. Can we really 'discount' the future? Do people really value their children more than their grandchildren?

I would argue that is unethical. Of course we should value the present, but also think about the future for our children and grandchildren. We cannot just 'live for the moment' which justifies all kinds of reckless behaviour (and on an individual basis it will shorten your lifetime, for example excessive drinking).

A high discount rate reflects a level of impatience or myopia (short-sightedness). Instead we should be investing in the future, rather than solely focusing on fuelling our ultra-consumerist whims and desires. People used to say things like “a penny saved is a penny earned” - but people seem to have forgotten about those values. Household savings in China are much higher than in the West, perhaps one of the reasons they are doing so well.

Also, if we used a lower discount rate it would obviously make renewable energy investments much more attractive. Instead of continually paying to 'fuel' your boiler or supply, you pay an upfront cost for the equipment and then reap the benefits of free, renewable energy later on (apart from maintenance costs).

How much would it really cost to avert a climate crisis? Most estimates place the cost of mitigating climate change at about 2% of world GDP. Since world GDP is $60trillion, that makes it around $600 Billion.

However, the cost of the “bank bailout” was around $400Bn in the US and £850Bn in the UK according to some estimates! (Source: Reuters) That already exceeds the cost of mitigating climate change over the whole world....

The economists and politicians that run this planet must be crazy.