Mark Carney, the Governor of the Bank of England, used a climate change analogy I have not heard before: calling it the Tragedy of the Horizon. He was echoing the "tragedy of the commons," which is economist-speak for the recurring devastation of commonly owned (i.e., not privately owned) pasture land in England several hundred years ago. Everyone had the incentive to exploit the pasture land in the present; no-one had an incentive to preserve it for future use. This also explains the challenge of addressing climate change now. As Carney says in an appeal to business and finance to get real about the consequences of climate change:
“A classic problem in environmental economics is the tragedy of the commons. The solution to it lies in property rights and supply management. Climate change is the Tragedy of the Horizon.
We don’t need an army of actuaries to tell us that the catastrophic impacts of climate change will be felt beyond the traditional horizons of most actors – imposing a cost on future generations that the current generation has no direct incentive to fix. That means beyond:
• the business cycle;
• the political cycle; and
• the horizon of technocratic authorities, like central banks, who are bound by their mandates.
The horizon for monetary policy extends out to 2-3 years. For financial stability it is a bit longer, but typically only to the outer boundaries of the credit cycle – about a decade. In other words, once climate change becomes a defining issue for financial stability, it may already be too late.”
