Undercover Economist

It’s a mug’s game

Recently I was invited to a large, televised debate about how we should deal with climate change. The circumstances were spectacularly intimidating, with Tory grandees Nigel Lawson and John Redwood poised to respond to my remarks. (Despite my nerves, I resisted the temptation to follow the old public-speaking advice and imagine my fellow panellists naked.) I was the first to speak, so stood up and I talked about the cappuccino I’d bought that morning.

The curious thing about the cappuccino, I observed, is what a remarkably complicated product it is. The milk came from a methane-producing dairy herd, probably somewhere in the UK but perhaps further afield. Behind the scenes stood the farmers, the cattle breeders, the manufacturers of refrigerated tanker trucks and countless unknown others. The coffee was steamed out of Brazilian beans using a machine of Italian manufacture. The machine was electric, although whether the electricity came from coal or gas or tidal power I have no idea. The complexities are endless. (This whole tale is the kind of story economists like to tell each other, originating – I believe – in “I, Pencil”, a 1958 essay by Leonard Read.)

Then there was my choice of where to buy the cappuccino, how to get to the cafe, and whether to buy it at all. Those decisions were shaped by the location of the FT offices and the location of Borough Market.

I droned on about the cappuccino at some length, explaining that to deal with climate change you had to start with the cappuccino. And my opponents being experienced debaters, ribbed me mercilessly. Cappuccinos are small, they observed, while climate change is big.

And so we have big policies. The UK is apparently to reduce carbon emissions by 60 per cent by 2050, a date at which most of the politicians espousing this target will be dead. That dramatic-sounding commitment chimes nicely with the idea that climate change is an existential threat.

But distant targets change nothing.

So I’d like to defend the humble cappuccino as a unit of analysis. Our human economy may have to change substantially to respond to global warming. Yet what is our economy if not the sum of all the cappuccinos?

This is more than a rhetorical point. Our economy – and its emissions of carbon dioxide and methane – is nothing more and nothing less than the sum of all the everyday decisions we make as consumers, producers, entrepreneurs and the rest. If the economy must change, those decisions must change. And a moment’s thought about the cappuccino suggests what a tangled prospect that is.

We could do nothing and hope that climate change turns out to be manageable – broadly the current policy. Or we could put Gordon Brown and David Cameron in charge of telling us what light bulbs we can use, how many flights we can take, or whether our cappuccinos should be made with UHT milk. That bureaucratic approach is not appealing when you add up all the flights and light bulbs and cappuccinos in the country, reflect on the intricacies of their production and the subtle trade-offs that inform our choices to do this or buy that. Gordon Brown and David Cameron just don’t have the information to make our choices for us.

Or the government could set a price for carbon – using taxes or a workable permit trading scheme – and see what happens. The carbon price would influence every decision we make, nudging us towards consuming less and consuming in less carbon-intensive ways. That seems to be the only sensible way to ask the astonishing sophistication of the market to work around the environmental challenge we appear to be facing today. If society must change, so must the cappuccino.

First published at ft.com.