The nineteenth-century abolitionist Lorenzo Dow, who spent years wandering the US as a revivalist preacher, once wrote of the American settler’s unholy hunger for more:
And what does he want with more land? Why, he wishes to raise more corn—to feed more hogs—to buy more land—to raise more corn—to feed more hogs—to buy more land—and in this circle he moves until the Almighty stops his hoggish proceedings.
More than a century and a half later, we have had all the hoggish proceedings we can take. Carl Sandburg quoted Dow’s phrase in a 1936 poem critical of American economic mythology, in which a businessman crows about how “it wasn’t luck nor the breaks/nor a convenient public/but it was him, ‘I,’ ‘Me,’/and the idea and the inference is/the pay and the praise should be his.” Since then, the drive for yield, the celebration of those who seek it, and the supplication before the investors who demand it has only intensified. Risks and sacrifices today are supposed to deliver a future of more as soon as possible.
The problem for investors is figuring out how to measure the value of that future and compare the profitability of investments that differ in all sorts of ways: initial costs, rate and timing of returns and final payout, perceived riskiness, and so on. The biggest return is not necessarily the fastest, and the fastest return is not necessarily the biggest. The solution is a process called “discounting,” the subject of Liliana Doganova’s Discounting the Future: The Ascendancy of a Political Technology. The story is more interesting, and the book more important, than its dry title suggests.
Doganova describes discounting as a mechanism through which “the present defeats the future.” The basic intuition behind this “political technology” is that people prefer something now, or sooner, to the same thing later. So the monetary value they assign to the later thing will be lesser, “discounted” at a rate determined by the intensity of their impatience: the higher your discount rate, the more you value present benefits relative to future benefits. The discount rate is not an objective fact, and there is no financial regulation that tells private investors what it should be. (The government does set itself a discount rate—more on that below.) Most private investors choose a rate at least equal to a broad market rate of return—the idea being that it doesn’t make sense to invest if higher returns are readily available elsewhere—or a rate they consider the minimum acceptable level of profitability given the riskiness of the investment: the bigger the gamble, the higher the profits the investment must promise. This makes the discount rate a crucial determinant of where investment goes in the economy. The higher the chosen rate, the more investors demand returns now and not later, and the narrower the range of investments considered “worth it.”
The history of discounting as a financial practice is a little murky. Since it is basically an interest rate operating in reverse—instead of money today growing over time, future money shrinks in value as we work back to the present—it was not until accountants in the sixteenth century started printing interest tables that bankers worked out how to calculate and compare the present values of loans. The Dutch mathematician and accountant Simon Stevin is sometimes credited with first working out what he called “a general rule for finding which is the most profitable of two or more conditions” in the 1580s, but it was only in the 1800s that it became standard practice outside of banking. Rudimentary discounting was used, for example, to determine compensation for slave owners when the British abolished slavery in 1834, and more modern techniques were used to analyze the enormous investments, especially in railway construction, of the early industrial era.
Discounting the Future begins in the mid-nineteenth century, when discounting was solidifying into its modern form, and traces its consolidation and eventual standardization as best practice for both firms and states in the second half of the twentieth century. Doganova uses some seemingly quite mundane examples—German forestry in the 1840s, US management consulting after World War II, mining revenues in Chile under Pinochet, and the contemporary biopharmaceutical industry—to show how discounting works, how it has changed, and why that matters.
Doganova describes the early mode of discounting as a way to deal with the “long temporality” of a resource like a forest, which can be made use of at different timescales. Harvesting wood for pulp does not require large trees (only maximum biomass), but if you want structural timber or woodlands for aristocrats’ hunting grounds, you have to wait for the forest to mature. If the discounting process indicates that pulp has the highest present value, this can lead to short-rotation harvesting, because the value added by letting a forest age doesn’t necessarily compete with the rate at which that aging is discounted. If that’s the case, then it makes sense to cut as soon as the wood is marketable—otherwise you’re losing money. (This is a common motivation for logging old-growth forests.) As Doganova points out, this kind of problem can motivate state regulation of natural resources: when resources are exploited by the poor (whose subsistence needs are immediate) or landowners (who want only to maximize their own profit as soon as possible), government often steps in. As the sole “imperishable” party interested in the sustainability of resources, it is not so prone to myopia and can moderate extraction, which is sort of like lowering the effective discount rate.
Over the past century or so, however, discounting has become primarily a way for business and finance to deal with uncertainty about the future, such as in the biopharmaceutical industry, where the uncertainty of the elaborate process of bringing a drug to market makes investment very risky. Discounting is then mainly addressed to what Doganova calls “the investor’s concern”—the reward they expect for financing the project.
This investor-oriented discounting logic, which dominates market-based economies, tends unsurprisingly to result in relatively high rates, since a higher rate favors short-term returns, which can undermine longer-term planning or benefits that are not easily reduced to money. Doganova is trying to call attention to the contradiction that results: discounting values the future (as the realm in which we will reap our rewards) while simultaneously devaluing the future (because it is worth less to us than the present). In the process it turns the future, and the lives of the humans and nonhumans who inhabit it, into something abstract, analyzed in the laboratory of costs and benefits. As she puts it, discounting twists the question “What should be done?” into the question “Is it worth it?” This leaves us with “a void future, drip-fed with the ‘impacts’ of our actions, but only so as to translate that future back into the present in terms of its value.”
The lack of an in-depth discussion of climate change in Discounting the Future is striking. Although there are hints here and there that it is partly what motivated the book, beyond a couple of brief discussions the most obvious issue urgently requiring investment in the future is largely left aside. Since I expect many of those who pick up the book will do so because they’re concerned about the climate, this is a little surprising. Discounting is how the government evaluates the costs and benefits of the infrastructure and policy essential to any public efforts to address climate change. But discounted at 3.5 percent—a rate common in climate-economy models—an investment that provides a $100 benefit a century from now is worth $3.21 today. If we think as far out as 2300—as many climate models do—then $100 dwindles to a present value of three quarters of a cent in our accounting. In other words, if it cost us one cent to provide a hundred dollars of benefit to the world in 2300, it would not be “worth it.” The rates at which we currently practice discounting mean that the long-term future of humanity, the living world, and the planet itself is not metaphorically but literally valueless.
One of the ways this disastrous practice affects climate policy is in the calculation of the “social cost of carbon,” or SCC. The SCC is the monetary value policymakers attribute to the damages due to the emission of an additional metric ton of carbon into the atmosphere. Emissions generate “social costs,” meaning everyone (not just the emitter) must deal with the warming and environmental degradation they cause. (In economics, “social” means “shared by all of society”: “social costs” are borne by society as a whole.) Since it’s apparently naive to expect emitters to do anything other than try to maximize their own private benefits, the SCC can be used as a measure of what they should be made to pay for the social harms they cause. This is the math behind carbon taxes, which, by imposing a cost that covers emitters’ contributions to global warming, are supposed to force firms and consumers to take into account their climate impact.
The SCC is calculated using a government-determined “social discount rate” that is (hopefully) lower than the rate based on short-term market thinking. There are two main rationales for why most modern governments use social discounting in policy analysis. The first is impatience, or what economists call the “pure rate of time preference.” This arises when the government understands itself as an investor, with concerns about the value of potential returns similar to those of private individuals, even if those returns are not necessarily monetary. The idea is that the government could do lots of things with its money; it is expected to choose what will provide the biggest bang for its buck, preferably before the next election cycle. The second is the explicitly “social” aspect of the social discount rate, which is the (increasingly dubious) assumption that people in the future will be wealthier, so an additional dollar will be less valuable to them than it is to us. On this logic, discounting allows policymakers to account for the “fact” that forgoing some destructive activity now, like restricting the use of fossil fuels in order to limit heat-driven disasters or ocean acidification, will hurt us relatively poor present-dwellers more than it will help those comparatively rich future-dwellers.
It is hard to overstate how important the social discount rate is in contemporary policymaking. As Antony Millner and Geoffrey Heal, experts on the economics of climate change, put it, choosing the social discount rate “amounts to choosing a substantial part of the future itself.” Minor adjustments in the rate make a huge difference, and not just in the realm of climate change. In the US, federal agencies run discounted cost-benefit analyses for all federal projects. A brief issued in February 2024 by Biden’s Council of Economic Advisers, for example, shows how the discount rate the government uses can determine whether vaccine programs merit government support or whether childhood Medicaid enrollment provides a net national economic benefit (because of the higher future taxes paid by adults who were healthy children). Discounted at 2 percent or 3 percent, it does—at 7 percent, the rate the government used before 2003, it does not. One would hope that childhood well-being were not evaluated as a mere “investment,” but unfortunately these numbers matter.
Controversy inevitably surrounds the social discount rate used in SCC calculations, for the simple reason that it effectively determines the result: in a recent model developed by the think tank Resources for the Future, raising the discount rate from 2 to 3 percent lowers the SCC estimate—and presumably any associated carbon tax—by more than half, from $185 to $80. (1.5 percent results in an SCC of $308. The scale of these differences has nothing to do with whether the SCC is high or low; changing the discount rate by a tiny amount matters enormously no matter what numbers we start with.)
To put this in perspective, the 10,000-mile-long Transcontinental Gas Pipeline, owned by the Texas-based energy giant Williams, pumps 7.3 trillion cubic feet of natural gas from the Gulf Coast to New York City every year. It is responsible for over 300 million tons of greenhouse gas emissions annually. The costs imposed on society are obviously vast no matter what, but the difference in the magnitudes by which they are judged depends on the SCC, which depends in turn on the discount rate. Going by one or the other version of the SCC, Williams is costing Americans either $24 billion or $55.5 billion annually (or $92.4 billion if the discount rate were 1.5 percent). At present, these figures and the differences between them don’t matter at all to Williams, but if someday they lead to a tax or arise in an as-yet-hard-to-imagine class action suit, they certainly will.
From 2003 to 2023 the Office of Management and Budget (OMB) mandated that all public investment be discounted at 3 percent, with the crucial exception that the rate should be 7 percent in “circumstances in which a regulation may displace private capital,” which basically means that where public investment would be more efficient than private profit-seeking—because, say, public institutions already operate at the appropriate scale, or can piggyback on existing infrastructure and research—the private sector should be given a giant (4 percent) head start in the cost-benefit analysis. If a 3 percent discount rate showed, for example, that public cooling stations for extreme heat events were a smart government program, but there were private firms looking to build for-profit cooling stations, then the government should use 7 percent in its calculations—drastically reducing the expected future value of the program. (This long-standing practice of prioritizing the private sector, even if at higher cost to consumers, is premised on the self-interested lie that government investment always “crowds out” private initiative, an idea comprehensively refuted by economists like Mariana Mazzucato and Daniela Gabor.)
This 7 percent discount rate—commonly used by the Trump administration despite the OMB’s recommendations—means our welfare today should be valued at six times that of people in 2050. Probably no one needs reminding, but 2050 is not that far away. In the era of climate change, biodiversity collapse, fraying democratic institutions, and crumbling infrastructure, hardly anyone endorses a rate so high, not even more conservative economists—but this is the rate the Trump administration used in calculations that supposedly showed that rolling back fuel efficiency standards allows the US economy to generate more than six billion additional dollars. Using a 3 percent discount rate, the Obama administration judged the same standards a net benefit.
In early November 2023, the Biden administration issued a revised version, “OMB Circular A-4.” The circular is not nearly so unremarkable as it sounds, because it is the document that provides “guidance to Federal agencies on the development of regulatory analysis.” In other words, it mandates the ways in which agencies assess the budgetary implications of government policy. Cass Sunstein calls the circular “the economic constitution of the United States.” Among other important changes, including the requirement that analysis take account of the distributional and international impacts, the 2023 revision reduced the social discount rate to 2 percent, a move the administration later described as nothing less than “a victory for the American people.” White House–designated victories for the American people happen quite often—they have been almost everyday events during the Trump presidencies—but this actually was an important development. A 2 percent discount rate values the welfare of people in 2050 at about 60 percent of our own, which is still unsettling but at least makes a much stronger case for the long-term and large-scale public investment and climate policy we so desperately need.
The potentially fatal flaw in the new discounting policy structure, however, was that the OMB justified it not as a determination of political or ethical obligations to those who come after us, but as a reflection of market forces. “The real (inflation-adjusted) rate of return on long-term US government debt provides a fair approximation of the social rate of time preference,” it argued, and “over the last thirty years, this rate has averaged around 2.0 percent per year.” Circular A-4 stipulated that the social discount rate will be “regularly and automatically updated according to a moving average of 10-year Treasury rates.” This rationale bound the slightly more future-friendly discount rate both to the historically unprecedented low interest rates of the past decades, which are unlikely to hold in the future, and to the financial markets more generally.
This is called a “descriptive” approach to discounting. It assumes the “social rate of time preference” is expressed by the markets, in contrast to a “prescriptive” or “normative” approach, which determines the discount rate according to what some moral judgments suggest it should be. Many contributors to the review of OMB’s draft of the circular urged it to take a prescriptive approach, but the OMB ultimately decided against it. When it comes to climate-oriented public investment, not to mention the disintegrating foundations of public infrastructure and the American welfare state, that could have turned out to be disastrous. With this approach, high discount rates remained readily imaginable, even under a relatively climate-conscious administration like Biden’s.
In any event, it was all for naught. In late January 2025, in the early stages of his tantrum of executive orders, Trump issued EO 14192, “Unleashing Prosperity Through Deregulation,” which revoked the revised Circular A-4 in its entirety and directed all federal agencies to use a 7 percent discount rate. Of course, with an administration that has no plans to make any climate- or environment-focused investment, one might say the number hardly matters at all at this point. The wholesale elimination of the government’s environmental commitments is not based on any rigorous accounting.
In fact, even since before Trump some have said that fretting over the discount rate and the SCC is a fool’s errand. Unlike the European Union and a few other jurisdictions, the US has no federal carbon tax. (Twelve states do have some form of tradable emission permit program for specific industrial sectors.) Despite the efforts of many, the climate hardly figured in any meaningful way into American legislation prior to the Inflation Reduction Act (IRA) of 2022. In January 2024 the IRA imposed a charge on methane emissions of $900 per metric ton on the highest emitters, rising to $1,200 in 2025. (Methane, which makes up about one eighth of US greenhouse gas emissions, is twenty-eight times more effective at trapping heat than CO2.) Trump canceled the charge in March 2025 as part of a larger program to disable the IRA, but even in its original Biden form, when it comes to restricting emissions, the act was all carrot (subsidies) and no stick (taxes). There was nothing in it resembling a national carbon tax—not to mention the fact that price or tax policies at the levels necessary to actually bring about the emissions reductions required for real decarbonization are not even being considered, either in the US or anywhere else on the planet. (The March auction of the Regional Greenhouse Gas Initiative, a ten-state arrangement in the northeast US, yielded a carbon price of less than $20 per ton.)
To state the obvious, there is virtually zero chance of any carbon pricing initiatives under the second Trump administration. But it must be said that while a carbon price, even a really high one, could help, it would not solve the problem, and we are not going to fix everything by calculating with the “right” discount rate. Still, Doganova shows that the discount rate can tell us a lot about how we think about the future. Looking closely reveals the limits it imposes on our imaginations. One of the things that discounting makes it difficult to remember is that the people and other species at the far end of our calculations are not just later versions of us, experiencing the benefits or costs of our decisions to invest or consume as if they had been their own. They are different people, living in different communities, with different obligations, constraints, and commitments. Our choices are not substitutes for theirs, and despite the lies we tell ourselves with discounting, we have neither the capacity nor the right to judge their burdens as lesser than our own by any ethical, political-economic, or ecological measure.
To describe the commitment to the future as those of us in the present “sacrificing” ourselves is to fundamentally misrepresent what is at stake. Doganova quotes a report by the international Organisation for Economic Co-operation and Development that blandly claims it is “impossible not to discount,” but Discounting the Future shows that this kind of thinking totally misses the point. By reducing everything we value to the present, we have, as she puts it, decided that our “sacrifices” must be rewarded “regardless of what that future might actually hold.” The measure of an ethically or politically adequate relation to the future cannot be valued at a rate decided by the S&P 500 or the yield on ten-year inflation-protected US government securities. We have unilaterally indebted future generations (and the rest of life on earth) to the present, and the discount rate is the interest we make them pay on a debt we have fabricated out of nothing but our own narcissistic accounting. If we are to listen to an economist at this moment—it’s certainly not required—we are better served by A.C. Pigou, who once remarked that discounting is a sign that “our telescopic faculty is defective.”
English (US) · 