Economist John Kenneth Galbraith once said that “the only function of economic forecasting is to make astrology look respectable.” Unfortunately, when some economists turn their sights on the economics of climate change, their unreliable methods imperil not just the economic life of humankind but its very existence.
I have written previously about this phenomenon in 2007 about how economists underestimate the critical importance of small (by economic value) but critical parts of the economy such as agriculture, forestry, and energy and in 2012 about how unsuited our current infrastructure is to the unfolding climate.
The trouble is that against all evidence, some climate economists keep building castles in the sky. Nobel Prize winner William Nordhaus is among the most prominent economists working on climate change and its economic effects. In short, Nordhaus, who is mentioned both in my 2007 and 2012 pieces, tells us not to worry too much about climate change. It will be cheaper to adapt to it than to prevent it or slow it down.
The problem with Nordhaus’ thinking (and that of many others like him) is that he cannot conceive of abrupt discontinuities in the workings of the planet or the workings of human society. In short, he cannot conceive that climate change could alter our environment so thoroughly and disrupt our agriculture so completely that it would lead to catastrophic results.
It is for this failure of imagination that economist Steven Keen recently took Nordhaus to task, showing through a careful critique of Nordhaus’ equations, that even those equations demonstrate catastrophe ahead when provisioned with the proper numbers and understanding. When Keen adds in what we know about tipping points in the climate system, he finds that Nordhaus’ own equations reveal that “[a]t 3 degrees, damages are 8 times as high. At 4 degrees, the ratio doesn’t matter, because the tipping point function says there would be no economy.” What a difference understanding the nonlinearity of the climate system makes!
A report in Yale Climate Connections mentions Nordhaus and others whose models seem to predict absurd things. One author calculated that when using Nordhaus’ model, “not until global warming reached 19 degrees C (34 degrees F – a global temperature that is virtually incompatible with life) did the model yield a 50% reduction in economic output.”
The articles explains, “Put simply, it’s difficult to project the economic impacts resulting from circumstances which are themselves unprecedented.”
So, how shall we proceed? The Yale piece suggests the following:
In 2013, Stanford’s Jonathan Koomey published a paper suggesting that instead of relying on economic cost-benefit analyses, climate policy should be shaped by “working forward toward a goal” like the Paris climate targets. In this framework, economics would be used for evaluating the most cost-effective policies to meet the targets, rather than for setting goals or arguing that all policies are too expensive…
Koomey points to the dangers that lurk not just in the economic analysis of climate, but in economic analysis of just about everything: Instead of choosing the goals we find desirable, we are letting economists choose them for us. That is a recipe for unrestrained growth at the expense of our health and the health of the biosphere upon which our every existence depends.
Photo: Dunvegan Castle on the Isle of Skye in the mist. Panoramic image made from own photos using hugin and enblend.. (2007) By Klaus with K via Wikimedia Commons https://commons.wikimedia.org/wiki/File:Dunvegan_Castle_in_the_mist01editcrop_2007-08-22.jpg