The unrealistic model of William Nordhaus
A model used in advising governments about the economic impact of global warming – Editor
William Nordhaus (born May 31, 1941) is an American economist and Sterling Professor of Economics at Yale University, best known for his work in economic modelling and climate change. He is one of the laureates of the Sveriges Riksbank 2018 prize in the economic sciences in memory of Alfred Nobel (commonly mislabelled as the “Nobel prize in economics”). He received the prize “for integrating climate change into long-run macroeconomic analysis”.
The following critical comments relating to his work and to his receipt of this prize appeared in RWER blogs on 21 September 2019 [a,b].
Nordhaus’ dangerous gamble for humanity’s future (from Steve Keen)
Nordhaus’s transgressions are immense. His ‘damage function’ which he uses to estimate global warming damage is incorrect and uses data that has nothing to do with climate change. Despite this, the Intergovernmental Panel on Climate Change (IPCC) uses his model to advise governments about the economic impact of global warming.
The central problem with Nordhaus’s model is the “damage function”, which is a mathematical fiction that has little to do the real world. By using a spurious method, he has calculated that 2°C of warming will only reduce global economic output (GDP) by 0.9 percent, and that 4°C would cut GDP by 3.6 percent.
These are trivial changes. And if it were true, then there would be little to worry about. This is the reason why Nordhaus has repeatedly argued that from the point of view of economic rationality an “optimal” path would be 3.5°C of warming above preindustrial levels.
Climate scientists, meanwhile, are truly worried about a 2°C increase. They assert that global warming must be kept to 2°C or below, or risk tipping us into a “domino-like cascade that could take the Earth’s system to even higher temperatures”.
Nordhaus’s damage function, however, projects a smooth transition. So it is like describing a canoe trip along a river with a waterfall by saying you will descend seven metres for every kilometre paddled. That would describe the river section of the journey very well, but not the part where you plummet over the waterfall …
It seems that Nordhaus has completely failed to understand climate science.
The only changes he has made to his research over the years have made it less able to handle tipping points.
Nordhaus’ “Nobel Prize” is not a real Nobel Prize (from Ken Patterson)
Willian Nordhaus can’t keep his “Nobel Prize” because he doesn’t have one. Alfred Nobel never set up a prize for economics because he recognised that it is not a science – not even a “dismal science” – and that most research in economics has little to do with the real world, being founded on ideas which are palpably untrue.
What Nordhaus has won is a Swedish Banker’s prize for promoting neo-liberal ideas about money for the benefit of the world’s super rich. It has been called a “Nobel Prize” despite Nobel’s wishes and the efforts of his family to have the title removed.
This economics prize is routinely dished out to people who promote neo-liberal and politically conservative ideas in an attempt to give them added respectability. They have been, to the world’s great loss, successful on this endeavour. It is no surprise that Nordhous’s ideas are so bad, firstly because classical economics is not capable of dealing with the sorts of problem climate change poses to the world; and secondly because the purpose of the award is to give bankers/ financiers/capitalists/plutocrats cover for what they intended to do anyway.
Sources:
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- https://rwer.wordpress.com/2019/09/21/nordhaus-dangerous-gamble-for-humanitys-future/
- https://rwer.wordpress.com/2019/09/21/willian-nordhaus-cant-keep-his-nobel-prize-because-he-doesnt-have-one/
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William Nordhaus, Wikipedia (by Bengt Nyman from Vaxholm, SwedenEM1B6043, CC BY 2.0)
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Comments
Patrick Newman
This is a sophisticated form of denial and one that will nurture crude and corporate deniers for years to come. Except that there may not be years to come. It is important that enlightened economists drill down into the assumptions and corroborated data that is used. For example, what assumptions/ predictions are made about the destruction and replacement of capital due to catastrophic climate events. The reconstruction of Great Abaco Island will see a leap in that micro-economy’s GDP (if it happens).
Jorge Buzaglo
If you factor in all the effects of global warming above 2 deg C, then global GDP might even increase a lot. Think about the dramatic increase in health expenditures, the huge costs associated with palliative and preventive measures, the enormous costs of reconstructing damaged infrastructures, that is, the fantastic increase in all kinds of public investments, etc. It would be a massive global economic big push, to compare (in not only economic terms) to World War II. This speaks about the insanity or stupidity of mainstream economic approaches to global warming. And also about the meaninglessness of GDP in our dire circumstances…
Ken Zimmerman
There is so much wrong with Nordhaus and his “theories,” along with the mathematics he uses and the masters he serves. First, he is an economist. He examines things economically. That’s like the wonderful tool economists invented the cost-benefit study. I have read hundreds of these in environmental assessment reports for the construction of power plants, transmission towers, oil and gas drilling, pipelines, etc. Consider this as an example from Oklahoma. Several grouse reside only in Oklahoma and Alabama near sites that are also prime drilling sites. The environmental assessments all concluded that drilling was an economically valid action to take, since the grouse had no monetary value. This conclusion considers only the needs of oil and gas corporations. Primarily because the studies were performed by engineers trained in economic-engineering. Nordhaus takes this route but on a much bigger scale. Second, Nordhaus’ reputation as an “economic scientist” is undermined if he allows anything other than economic impacts of climate change to be considered. Third, Keen is correct that Nordhaus, “has completely failed to understand climate science.” But this was never Nordhaus’ aim. In fact, it was most likely Nordhaus’ aim to ignore climate science as much as possible. Finally, Nordhaus is a prize-winning economist. But who put up the money for these prizes and the University professorship that Nordhaus was given? It was people like the Koch brothers. In the face of this, the thing that most impresses me about Nordhaus is his audacity. His claims to be protecting human life and the health of the planet, and fighting climate change, are obviously false. But he refuses to give up the claims. Makes you believe the art of lying is not dying, as Mark Twain suggested.
Charlie Thomas
There is no adequate accounting for nonrenewable and non-recyclable waste in main stream economics. Economists continue to prosper, to thrive and to influence our culture and earth with a whole segment of missing information required for understanding the system of the earth. Much as I have enjoyed reading this blog, it still seems that the focus is on the entirely inappropriate economics of mankind’s mental justification of the persistence of wealth at the expense of the great majority of humans and the risk to the future of all creatures. Surely, there is a cure for this failure to account for risk beyond the very short term thinking of economics.
