The limits of economics

Freeman Dyson has a review in the New York Times Review of Books this week (June 12) of two climate change books:

A Question of Balance: Weighing the Options on Global Warming Policies
by William Nordhaus
Yale University Press, 234 pp., $28.00

Global Warming: Looking Beyond Kyoto
edited by Ernesto Zedillo
Yale Center for the Study of Globalization/Brookings Institution Press, 237 pp., $26.95 (paper)

Read the review for yourself to get background, without which the following won't make sense. I'd summarize it for you, but it's a good read.

The problem with Nordhaus's analysis is threefold
(1) Stern was partly right about discount rates. Any rational individual using a discount rate could justify imposing nearly infinite suffering on some future generation–not the RISK of suffering but the guarantee of suffering. That displeases Stern. But if we don't use discount rates for intertemporal problem-solving, then even the most minor inconvenience to future generations, suffered in perpetuity, would justify immense sacrifice today. That bothers Nordhaus. There's no easy mathematical solution to this, but there are political, democratic, and practical solutions. Intertemporal cost-benefit analysis has too much hidden ethical content to be relied upon as a truth-machine.

(2) One improvement on cost-benefit analysis of the risk of catastrophic, irreversible consequences was offered this year by Marty Weitzman of Harvard, in the Journal of Economic Literature and in papers on his website ( He diffuses the Dyson argument that that the difference between Nicholas Stern and William Nordhaus’s conclusions all boil down to a choice of discount rates and a specification of the utility function. Weitzman argues from theoretical economic grounds that the self-reinforcing nature of “runaway” global warming, the unlimited nature of the downside, is the key feature that renders Nordhaus-style analysis insupportable. Weitzman’s argument is an improvement on CBA, only in that it rigorously delineates certain situations where the specification of a utility function is shown to be completely arbitrary. It calls for more theoretical work. In practice, civilizations avoid risks with unlimited downsides by backing away. It may work in practice, but does it work in theory?

(3) And Nordhaus assumes, as he must, that there is some alternative investment opportunity for the resources that would be sacrificed in the fight against global warming–you know all the tired-but-true critiques of the weakness in that assumption–
–that unlimited growth is possible and is good for us,
–that there are plenty more natural resources to be drawn into the human economy to support such growth,
–that the average rate of financial return for investments in the economy is somehow ethically neutral (disregarding environmental externalities, unjust policies, poorly-specified property rights, etc.) and is therefore a worthwhile comparator.

As for Dyson, he suffers from a little tooo much techo-optimism, which explains why he seems to plump for the genetically-engineered carbon-eating trees. Those sound good to me too. Dyson has in the past suggested genetically-engineered trees which can grow on comets and which can grow their own greenhouses, so that we can colonize the asteroid belt. That sounds like fun too. My wife and I have decided instead of buying a conventional house next, we’ll save on the price of land by having a TARDIS disguised as a British police box. It’s much roomier than an RV, but you could still put it on a trailer and park it at your friends’ houses, and you can engage in time travel too.

Dyson’s nullius-in-verba argument is misapplied I think. Dyson seems to apply it to climate scinece. I’d like to think that scientific progress doesn’t give us any final word, but that it rarely moves backward. After 100+ years of progress in climatology, we have made some advances. But the argument could certainly be applied to the economics of climate change, about which our ideas are crude, vague, and controversial.

Dyson will find lots of environmentalists on board with his suggestion that global warming alarmism has become a test of the faith. My friends who work on ecosystem restoration, endangered species, and clean water don’t feel a lot of love right now, and precious little institutional support. Making climate a priority is well grounded. We can take steps to get on the right road on climate, and then get back to those other issues. It’s worth our concentation right now.


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