Analyses of the economic effects of global warming by prominent economists are based on patently invalid arguments, profound ignorance of the global response to solar energy and basic misrepresentation of scientific sources. Their conclusion that the effects are minor is egregiously in error and use of their analyses to advise governments has placed the world in peril.
Economist Steve Keen has published a critique (and summary) of analyses by William Nordhaus and others of the effects of global warming on the global economy. Those analyses, incorporated into official IPCC reports, suggest the effects of global warming are minor. Keen’s critique reveals the analyses to be absurdly deficient, reflecting not only profound ignorance but patently invalid arguments and a lack of scholarly integrity.
Nordhaus is very prominent in his profession and is a recipient of a faux-Nobel prize. According to Keen, Nordhaus established a pattern for analysing the effects of global warming in a 1991 paper that many subsequent analyses have followed.
Briefly, Nordhaus and others conflate geography with time, they conflate climate with weather, and they conflate global climate with local temperature. They show no awareness of the complex responses of the atmosphere, oceans and biosphere to changes in the global energy budget. They exclude tipping points and other nonlinear effects for reasons that misrepresent current scientific understanding. Although claiming to have surveyed literature, they exclude for no clear reason studies and authors who predict larger effects.
Nordhaus and his ilk conclude that warming by 4°C would reduce global GDP by between 3% and 7% compared with business and climate as usual. Credible scientists, on the other hand, warn that any warming above 2°C risks potentially catastrophic consequences and 4°C of warming could collapse industrial civilisation and dramatically reduce the human population.
Nordhaus claims that many sectors of the economy, accounting for 87% of GDP, would not be affected at all by global warming, on the basis that they can be conducted in ‘controlled environments’, meaning essentially indoors. That includes all manufacturing, wholesale and retail trade, finance, communication, transportation, government services and underground mining.
Agriculture, forestry, fisheries and some mining are ‘exposed to the weather’, and therefore considered to be affected by global warming. Several approaches are used to estimate those effects.
One approach is to look for correlations of the geography of productivity with local average temperature at the present time. They note local temperature has only a weak relationship with, for example, Gross State Product in the USA. This weak spatial relationship is then used to estimate how production will be affected globally by temporal increases in global temperature.
Thus they conflate climate with weather and local temperature. The presumed equivalence of spatial and temporal temperature variations betrays a fundamental failure of critical scientific thinking. It betrays an obliviousness to the complex responses of the atmosphere, oceans and biosphere to changes in the global solar energy budget. These responses are evident even now, in the forms, for example, of increased intensity of storms and dramatic spikes in bushfire severity. Many people have already experienced substantial breakdowns in communication and transport as a result.
The claimed equivalence of space and time variations implies, for example, that the ecosystems of Ohio would just migrate, rapidly, to Hudsons Bay, or that the Great Barrier Reef would relocate to Tasmania. As it happens the topsoil of Hudsons Bay was scraped south to Ohio by the Laurentide ice sheet and warming will not reverse that process.
In truth some species can move, others cannot, and ecosystems are being torn apart. This results in some going extinct and others being released from controls and becoming plagues and epidemics.
Nordhaus and others use a ‘damage function’ to relate temperature changes to productivity changes. The chosen mathematical form of the function is a quadratic, which is a smoothly varying curve that cannot describe the effects of tipping points, which would cause sharp kinks in the relationship. This form is used for temperature increases up to 3°C or more on the alleged basis that there are no ‘critical tipping elements with a time horizon less than 300 years’ until at least 3°C of warming.
The studies claimed to justify this assertion, by Lenton and others in 2008 and 2019, in fact clearly state that the melting of Arctic sea ice is at risk of tipping with warming between 0.5 and 2°C, and note that at least five other system elements ‘could surprise by exhibiting a nearby tipping point’. Nordhaus and others thus fundamentally misrepresent the scientific studies they invoke.
Nordhaus also attempted surveys of ‘expert’ opinions in 1994 and 2017. In the former, out of 18 respondents 10 were some kind of economist. The estimates of climate effects by the non-economist respondents were 30 times larger than those of the economists, but this did not deter Nordhaus from concluding the effects would be minor. One respondent, an atmospheric scientist, explicitly refused to give an estimate, saying essentially that he marvelled at the naïvety of translating the complexities of atmospheric response into a single global number and thence into effects on economies. The later survey, by Nordhaus and Moffat in 2017, used search methodologies that excluded non-economists.
One economics respondent suggested the reason economists’ and scientists’ estimates of climate effects were so different is because ‘… economists know little about the intricate web of natural ecosystems, whereas natural scientists know equally little about the incredible adaptability of human societies …’.
This is a telling comment, as it relates to the profound misdirection of the field of neoclassical economics, the form that currently dominates world policy. The accurate statement would be that natural scientists know little about the incredible adaptability of the models of human societies used by neoclassical economists. Historians and archaeologists might have a different view of the adaptability of human societies.
Neoclassical economists actually know as little about real human societies as they do about real ecosystems. They hold to an abstract vision of an economy (and society) that self-corrects and returns to a near-equilibrium state after any external shock. It is easy to show that real economies are in fact always far from equilibrium, as are ecosystems, and their behaviours are therefore radically different from the neoclassical vision. This is the topic of Part II.
Dr. Geoff Davies is a retired geophysicist who has explored economics for over two decades. He is the author of Dynamic Earth, Sack the Economists and Economy, Society, Nature; .
Comments
14 responses to “Neoclassical economics I: farcical global warming analyses”
That an opinion is expressed by an economist hardly qualifies him/her to deny the basic laws of physics which govern climate science
Some economists are not familiar with the basic laws of physics, i.e. the black body radiation laws of Planck and Stephen-Boltzmann, nor with the principles of climate science, yet they make climate change predictions
Hi, this article seems a little unfair on economists. Nicholas Stern’s work seems to have had a substantial contribution to motivating governments to pay attention to climate change.
On the other hand, it’s true that many economists criticised Stern’s assumptions about the appropriate discount rate, objecting to Stern’s normative approach (i.e., based on value judgment), preferring an empirical approach based on a discount rate that is consistent with those used in the economy. It’s this controversy that seems to have prevented the economics profession as a whole from speaking out more clearly in favour of acting on climate change.
I always thought that we needed philosophers to resolve this dispute between Stern and his critiques (which included Nordhaus and Weitzman); I’ve long been waiting for philosophers to say something about this controversy.
You seem to overlook the fact that Keen’s and my criticisms are independent of the discount rate. Even with a discount rate, Nordhaus grossly under-estimates the effects of global warming, so his answer is grossly in error.
I agree Stern’s work was better, but this article is not about Stern. Anyway the current discount rate is close to zero.
Regarding the ‘philosophical’ argument, neoclassical economists assume the world is a tidy, predictable place through which they can calculate an optimum path – that is when the discount rate can be invoked. But the world is not tidy, it is unpredictable at the best of times, and any number of disasters might disrupt ‘the best-laid plans of mice and men’, as the past summer should have demonstrated.
The discipline you are looking for is not philosophy, it is experimental psychology, as in Daniel Kahneman’s Thinking Fast and Slow, which is about the way humans deal with risk in an uncertain world, with the goal of survival, not optimality.
It’s not much use choosing your optimum investment if that investment is burned down or washed away. So I think we need to retreat to more basic prudence and risk aversion, more in accord with the gross uncertainty and existential threats bearing down on us.
Hi, you might have misunderstood my comment. In any event, I do agree that even with high discounting, we might have reason to take action on climate change because of “non-linearities”. I think Weitzman’s work has some relevance here.
I would also like to argue that high discounting rates have implications for how much developing countries should be expected to contribute to carbon mitigation efforts. For low income developing countries, it is right that they prioritise the wellbeing of the current generation (especially the impoverished among them) over the wellbeing of future (likely wealthier) generations. So discount rates does have some relevance (in my view).
You rely overly much on the usual ‘if’, ‘might’, ‘could’ and ‘should’, without bothering to present empirical data to support your argument, Geoff. By how much does Nordhaus grossly under-estimate the effects of global warming? Is the planet warming, for that matter?
Our consistent BoM data for Australia reveals a marked cooling trend since the 1860s, with a compensatory reversal over the past 25 years or so. Yes, there are warmer nights compared to the 1960s, but still cooler compared to the 1860s. Go check for yourself.
Last summer we experienced the end of several years of drought; this year is wet again, still nothing to do with ‘global warming’ but ENRO, IOD and SAM. The wildfires down the east coast from Queensland as summer progressed were the result of years of fuel and litter build-up due to bureaucratic bad management; we know that because now Indigenous traditional knowledge is being brought to bear.
To repair your ‘gross uncertainty’, maybe get out into the real world a bit more often, and come to realise there are no existential threats bearing down on us – here you insert the word ‘gross’ again without bothering to quantify the extent – than we have always faced.
The real difference now from past generations is far too many people growing up watching television, where our forebears were outside observing nature directly.
What is happening here too is the same conflating the author accuses others of doing, when he starts discussing climate change then jumps suddenly into projected rising average global temperature.
From that point instead of discussing how average global temperature affects climate, and what we might be able to do about it, if anything, he launches into “Nordhaus and his ilk” compared to somebody else he calls “credible scientists” said to be warning us of risk of “potentially catastrophic consequences”.
This sort of stuff is nothing more than the same old bickering fear-mongering, based on whoever one wants to believe; still over this now long period without ever correlating predicted events with actual events as they transpire.
As we read on, it soon becomes apparent the author is not even talking about climate or weather, or reported global average temperature increase, merely taking a potshot at ‘neoclasical economics’.
We are right to wonder whether anybody is actually paying attention to any of this stuff, exhibiting willingness to invest even more taxpayers money on remediation schemes patently bereft of return on the investment.
All very true, Geoff. Any comprehensive analysis should also refer to Emissions Trading (Carbon Pricing) and Net Zero, which have been effortlessly coopted by the economists as easy avenues to pursue expansive growth on the non-expansive planet. It is only on independent websites like this one that you will ever see anything other than breathless admiration for Garnaut’s net-zero superpower nostrums.
Thanks Geoff.
I totally agree with you, Karey, and Lord Stern that discounting (to which classical economists seem to be bonded with superglue) is completely inappropriate for intergenerational studies. In fact, not only intergenerational studies, any population level study. Discounting basically asserts that the health, welfare and lives of the here and now population are more important than the health, welfare and lives of populations in different places or different times. My life is more important than my child’s life.
And there are other deficiencies in classical economic analyses: e.g. the fiction of externalities – any and all effects are ‘internalities’ in population level studies and should be appropriately included in the analysis, not pushed aside as ‘not our problem’; treating each issue as independent and ignoring the cumulative and compounding effects on the population, including their physical and social environments, of multiple simultaneous or sequential issues; as Karey also says, the ridiculous emphasis on first the economy and second economic growth, summed up in measuring and monitoring GDP; and summing the results as a single population or societal answer while ignoring any analysis of the winners and losers.
Discounting in economics has nothing to do with assigning decreasing importance to successive generations, merely pointing out that money is inevitably worth more now than money available at this time next year, by precisely the interest rate applying over the period.
Assuming the interest rate to be, say, 5% per annum, for every $100.00 we invest today, delaying a year will mean we pay $105.00 for the same thing.
The admonition is to invest the money now and earn interest paid out of the project’s gain in value, or face progressively rising costs with less and less likelyhood of a return.
As we choose to turn attention instead to future population, there have been some 4 billion children born on the planet since the 1970s, when ‘the future of our children’ started becoming the moral catchcry, except people started having more and more not fewer and fewer children.
The morality argument doesn’t stack up. The dilemma is unmistakable.
I’m pretty sure that since a bit before the 70’s global average birth rates haven’t risen but survival rates have very much. As incomes rise reproduction rates fall pretty much everywhere. There are some constraints especially driven by religion and other archaic social traditions but the trend is mostly strong.
I doubt you’re for persuading or changing your outlook Gil. Deniers like to keep talking about climate change as still something in the future and based on projections and therefore arguably deniable. Instead we have actual warming which has followed quite well the theoretical predictions of several decades. The theory has also improved by virtue of experience and improved techniques.
GH: Need to update your knowledge of population: ‘people started having more and more not fewer and fewer children’; simply wrong.
Credibility does not come from spruiking the old population growth trope, high fertilty and need for nativist immigration restrictions. This is same strategy as climate science deniers do, to avoid environment and fossil fuel related legislative constraints, in helping to restrict global warming.
‘The global average fertility rate is just below 2.5 children per woman today. Over the last 50 years the global fertility rate has halved.’
https://ourworldindata.org/fertility-rate
Thanks Geoff. Very much looking forward to pt.2
Great introduction to the flaws of mainstream economics in relation to climate change impacts. There are many others that could be listed. These include use of discount rates that basically set any costs more than a few years out to zero, despite economists like Stern pointing out they’re not applicable to intergenerational costs. Such mainstream analysis is also flawed by reliance on GDP as a measure of economic welfare, despite it including costs of climate change – like costs of rebuilding after fire, flood and storm damage, and increased health expenditure – as contributions to welfare instead of counting them on the debit side, as authors like Marilyn Waring recommend.