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Neoclassical economics, part I: farcical global warming analyses

Geoff Davies

Analyses of the economic effects of global warming by some prominent economists are based upon patently invalid arguments, profound ignorance of the global response to solar energy, and basic misrepresentation of scientific sources. The conclusion of these economists that the economic effects are minor is egregiously in error and use of their analyses to advise governments has placed the world in peril.

Source: 42C1-8BDD-CA1061B597FF-768×512.jpeg (from Unsplash)

Economist Steve Keen has published a critique [1] of analyses by William Nordhaus and others of the effects of global warming on the global economy. Those analyses, now incorporated into official IPCC reports, suggest that 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 as well as a lack of scholarly integrity.

William 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 have a tendency to conflate geography with time, they conflate climate with weather, and they conflate global climate with local temperature. They also 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 the literature, they exclude for no clear reason studies and authors who predict larger effects.

Nordhaus and his ilk have concluded that global warming by 4 degC would reduce global GDP by between 3% and 7% compared with continuing business and climate as usual. Credible scientists, on the other hand, warn that any warming above 2 deg C risks potentially catastrophic consequences and 4 deg 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, whole- sale 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 they use is to look for the correlations of the geography of productivity with local average temperature at the present time. They note that local temperature has only a weak relation- ship 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 the dramatic spikes in bushfire severity. Many people have already experienced substantial break- downs 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 Hudson’s Bay, or that the Great Barrier Reef would relocate to Tasmania. As it happens the top- soil of Hudson’s 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 occurs.

The studies that are claimed to justify this assertion are by Lenton and others in 2008 and 2019, which 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 eighteen respondents ten 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 that the effects would be minor. One respondent, who is 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 economic effects. 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 that their behaviours are therefore radically different from the neoclassical vision. This is the topic of Part 2.


Dr Geoff Davies is a retired scientist who has explored economics for more than two decades. He has authored many books.

1. See the following item by Steve Keen.

Source: Pearls and Irritations, 1 Sep 2020 (John Menadue’s public policy journal)

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