It is? How you figure? Because of growing population?

In the long run, the fundamentals are bounded above by GDP growth (earnings can only be 100% of GDP and no more), but it’s not clear to me that equity returns must come down, rather than GDP growth increase. GDP growth is on a long-run slowly accelerating trend. The unusually high equity premium could be a signal from the market that it expects GDP growth to reach 5% real on average before we start seeing untenable relationships between earnings and GDP.

I’ll be interested to read John’s further thoughts on the matter.

I agree with him, and you, in rejecting the idea that we have a duty to maximize the well-being of future generations.

How does an alternative flow of sperm negate the question from #10? Sure certain individuals would not exist given different historical paths, but the question seems to address a more general issue about intergenerational justice. You seem to be using philosophical trickery to avoid the point.

Why wouldn’t various people exist if WW1 hadn’t taken place? I would have supposed that a large number of people might exist who don’t now if WW1 hadn’t taken place. Or do you mean if instead of a WW, we had just let germany and others overrun the land? Color me obtuse, but I don’t get the comment.

Because if WW1 hadn’t taken place, different people would have met different people, people would have had sex at different times, different sperm would have fertilized different ova.

I’m professionally interested in questions like this – in an abstract decision-theoretic framework I think your probably right, but I don’t see why that clearly applies in this case. It seems that in clearly single-case circumstances we may be justified in ignoring low-probability extreme outcomes. For instance, in planning for the outcome of elections, it seems reasonable for people to ignore the chance of a third-party candidate winning an election in most US jurisdictions. But perhaps that’s just because the chance is so extremely small?

And what of the experiments at Brookhaven that had some miniscule chance of creating a black hole that would swallow the earth – was that irrational behavior?

Second, you could make the same point about almost anything covered by economics. The Great Depression involved a similar reduction in GDP. Supposing it could have been predicted well in advance it would have been worth taking some low-cost steps to avoid it.

But surely we can’t be satisfied with this? If the entire impact of climate change is the equivalent of loss of a few years of economic growth, why are we worried? People in the future will be much richer than us in any case. Obviously, a reduction of 20 percent in world GDP can’t capture the whole story here.

I think (but this is something of a side issue) that governments can exploit this arbitrage to some extent, but it’s limited by the availability of investments where the public sector has a comparative advantage or at least no significant disadvantage. This eventually gets you back to a conclusion that the government’s first-best opportunity cost rate is above the bond rate but well below the equity rate.

I can see I’m going to have to write another post on this point.

So with a zero discount rate one can justify any harm or cost to present (and a few next) generations for the sake of the utopia that will finally emerge in some distant time. So we should undertaky ANY program to stem global warning, because in generation n+k the benefits will outweight the cost and all future generations after that will benefit.

(see more here:
http://cepa.newschool.edu/het/essays/growth/optimal/swelfare.htm)

Of course both approaches have their problems. In practice, people have a time preference for whatever reason (intergenerational altruism, impatience) and the interest rate should reflect these preferences. So yeah, looking at rates of return on government bonds should be a good guess, in the ballpark, as John argues above.
Except. Michael Sullivan is poking about something that is also relevant and that’s the Equity Premium Puzzle. The returns on stocks exceed returns on bonds to a degree that cannot be explained by the difference in riskiness. So perhaps, we should use a higher discount rate afterall?
In any case, this would seem to give a lower and upper bound on “reasonable” discount rates and I’d be interested in how sensitive are Stern’s estimates within those ranges. I’ll get to the report itself when I’m done grading.