How an elite clique of math-addled economists hijacked climate policy.
October 29 2023, 8:00 a.m.
William Nordhaus, who turned 82 this year, was the first economist in our time to attempt to quantify the cost of climate change. His climate-modeling wizardry, which won him the Nobel Memorial Prize in Economic Sciences in 2018, has made him one of the world’s most consequential thinkers. His ideas have been adopted by the Intergovernmental Panel on Climate Change, the U.S. Environmental Protection Agency, global risk managers, the financial services industry, and universities worldwide that teach climate economics. Nordhaus’s work literally could affect the lives of billions of people. This is because his quantification of the immediate costs of climate action — as balanced against the long-term economic harms of not acting — is the basis of key proposals to mitigate carbon emissions. It’s not an exaggeration to suggest that the fate of nations and a sizable portion of humanity depends on whether his projections are correct.
The Intergovernmental Panel on Climate Change has assumed Nordhaus is to be trusted. The integrated assessment models used at the IPCC are based on Nordhausian visions of adaptation to warming that only marginally reduces global gross domestic product. If future GDP is barely affected by rising temperatures, there’s less incentive for world governments to act now to reduce emissions.
Nordhaus’s models tell us that at a temperature rise somewhere between 2.7 and 3.5 degrees Celsius, the global economy reaches “optimal” adaptation. What’s optimal in this scenario is that fossil fuels can continue to be burned late into the 21st century, powering economic growth, jobs, and innovation. Humanity, asserts Nordhaus, can adapt to such warming with modest infrastructure investments, gradual social change, and, in wealthy developed countries, little sacrifice. All the while, the world economy expands with the spewing of more carbon.
His models, it turns out, are fatally flawed, and a growing number of Nordhaus’s colleagues are repudiating his work. Joseph Stiglitz, former World Bank chief economist and professor of economics at Columbia University, told me recently that Nordhaus’s projections are “wildly wrong.” Stiglitz singled out as especially bizarre the idea that optimization of the world economy would occur at 3.5 C warming, which physical scientists say would produce global chaos and a kind of climate genocide in the poorest and most vulnerable nations.
In a journal article published last year, Stiglitz and co-authors Nicholas Stern and Charlotte Taylor, of the Grantham Research Institute on Climate Change and the Environment at the London School of Economics and Political Science, declared that Nordhausian integrated assessment models are “inadequate to capture deep uncertainty and extreme risk.” They fail to incorporate “potential loss of lives and livelihoods on immense scale and fundamental transformation and destruction of our natural environment.”
Climate change is one of the instances, Stiglitz and Stern told me in an email, in which “it is generally agreed there is extreme risk — we know there are some really extreme events that could occur — and we know we cannot pretend (i.e., act as if) we know the probabilities. Nordhaus’s work doesn’t appropriately take into account either extreme risk or deep uncertainty.”
In other words, the economist who has been embraced as a guiding light by the global institution tasked with shepherding humanity through the climate crisis, who has been awarded a Nobel for climate costing, who is widely feted as the doyen of his field, doesn’t know what he’s talking about.
Among most scientists, it’s lunacy to discuss optimization of anything anywhere when the globe hits even 2 C warming. Climate researchers Yangyang Xu and Veerabhadran Ramanathan, in a widely cited 2017 paper, defined 1.5 C warming as “dangerous” and 3 C or greater as “catastrophic,” while above 5 C was “beyond catastrophic,” with consequences that include “existential threats.” The late Will Steffen, a pioneering Earth systems thinker, warned alongside many of his colleagues that 2 C was a critical marker. At 2 C warming, we could “activate other tipping elements in a domino-like cascade that could take the Earth system to even higher temperatures.” Such “tipping cascades” could lead quickly to “conditions that would be inhospitable to current human societies,” a scenario known as hothouse Earth.
But the path to hothouse Earth will be long and tortured. When I interviewed him in 2021, Steffen, who died last January at age 75, was concerned about “near-term collapse” of the global food system. Drought and heat have already reduced global cereal production by as much as 10 percent in recent years, according to Steffen. “Food shocks are likely to get much worse,” he wrote in a 2019 piece co-authored with Aled Jones, director of the Global Sustainability Institute at Anglia Ruskin University. “The risk of multi-breadbasket failure is increasing, and rises much faster beyond 1.5 C of global heating. … Such shocks pose grave threats — rocketing food prices, civil unrest, major financial losses, starvation, and death.”
In a 2022 report titled “Climate Endgame: Exploring Catastrophic Climate Change Scenarios,” 11 leading Earth systems and climate scientists, Steffen among them, concluded there is “ample evidence that climate change could become catastrophic … at even modest levels of warming.” According to the report:
Climate change could exacerbate vulnerabilities and cause multiple, indirect stresses (such as economic damage, loss of land, and water and food insecurity) that coalesce into system-wide synchronous failures. … It is plausible that a sudden shift in climate could trigger systems failures that unravel societies across the globe.
What these scientists are describing is global civilizational collapse, possibly in the lifetime of a young or even middle-aged reader of this article.
Terrible numbers get thrown around. But scientists mean what they say. Kevin Anderson, professor of energy and climate change at the University of Manchester in the U.K. and Uppsala University in Sweden, asserts that “something like 10 percent of the planet’s population — around half a billion people — will survive if global temperatures rise by 4 C.” He notes, with a modicum of hopefulness, that we “will not make all human beings extinct as a few people with the right sort of resources may put themselves in the right parts of the world and survive. But I think it’s extremely unlikely that we wouldn’t have mass death at 4 C.”
Johan Rockström, director of the Potsdam Institute for Climate Impact Research in Germany and a leading researcher on climate tipping points and “safe boundaries” for humanity, projects that in a 4 C warmer world, “it’s difficult to see how we could accommodate a billion people or even half of that.” Global population today stands at 7.6 billion, with 80 million people added every year.
By contrast, when Nordhaus looked at the effects of 6 C warming, he did not forecast horror. Instead, we should expect “damages” of between 8.5 percent and 12.5 percent of world GDP over the course of the 21st century. Writing in the Economic Journal, Stern set Nordhaus straight in the harshest terms: “We could see deaths on a huge scale, migration of billions of people, and severe conflicts around the world,” he wrote. “It is profoundly implausible that numbers around 10 percent of GDP offer a sensible description of the kind of disruption and catastrophe that 6 C of warming could cause.”
In an email to The Intercept, Nordhaus characterized his colleagues’ critiques as “a distorted and inaccurate description of the work and my views. I have long supported carbon pricing and climate-focused [research and development], which are key to slowing climate change. The proposals in my writings have pointed to targets that are FAR more ambitious than current policies.” He declined to elaborate on any distortions or inaccuracies.
To understand the gap between climate scientists and climate economists, one must first understand that most economists — the folks we call mainstream or neoclassical economists — have little knowledge of or interest in how things really work on planet Earth. The problem of their ecological benightedness starts as a matter of training at university, where a typical undergraduate course in economics prepares students for a lifetime of abject ignorance about the complex underpinnings of the thing called the “market.”
Start with your typical textbook for the dismal science — say, the definitive one by Paul Samuelson, co-written with Nordhaus, titled “Economics.” The book is considered “the standard-bearer” of “modern economics principles.” You’ll find in its pages a circular flow diagram that shows “households” and “firms” exchanging money and goods. This is called the market. Households are the owners of land, labor, and capital, which they sell to firms for the manufacture of goods. Households then buy the goods, enriching firms, which allows the firms to buy more land, labor, and capital, enriching households. The quantity in the flow diagram, in ideal circumstances, is ever expanding: The profits of firms grow and so does the income of households.
A simple, imperturbable closed system that’s also ludicrous, fantastical, a fairy tale. In the circular flow diagram of standard economics, nothing enters from the outside to keep it flowing, and nothing exits as a result of the flow. There are no resource inputs from the environment: no oil, coal, or natural gas, no minerals and metals, no water, soil, or food. There are no outputs into the ecosphere: no garbage, no pollution, no greenhouse gasses. That’s because in the circular flow diagram, there is no ecosphere, no environment. The economy is seen as a self-renewing, perpetual-motion merry-go-round set in a vacuum.
The economy is seen as a self-renewing, perpetual-motion merry-go-round set in a vacuum.
“I taught that foolish little diagram to undergraduates at Louisiana State University for 30 years,” the late Herman Daly, one of the 20th century’s great dissenters from standard economics, told me in an interview before his death at age 84 last year. “I thought it was just great. I was well beyond a Ph.D. before it came crashing in on my head that this is a very bad paradigm.”
In the 1970s, working at the University of Maryland, Daly pioneered the field of ecological economics, which models the biophysical reality that delimits all economies. “The human economy,” wrote Daly, “is a fully contained wholly dependent growing subsystem of the non-growing ecosphere” — a commonsense observation that amounted to heresy in mainstream economics. Daly emphasized that the economy depends on nonrenewable resources that are always subject to depletion and a functioning biosphere whose limits need to be respected. His most important contribution to the literature of this renegade economics was his famous (in some circles, infamous) “steady state” model that accounts for biophysical limits to growth. Daly paid the price of heterodoxy. His fellow economists declared him an apostate.
E.F. Schumacher arrived at similar conclusions about mainstream economics in his 1973 book “Small Is Beautiful,” which became a bestseller. “It is inherent in the methodology of economics to ignore man’s dependence on the natural world,” Schumacher wrote, the emphasis his. Economics, said Schumacher, only touches the “surface of society.” It has no capacity to probe the depths of the systemic interactions between civilization and the planet. Faced with the “pressing problems of the times” — the negative environmental effects of growth — economics acts “as a most effective barrier against the understanding of these problems, owing to its addiction to purely quantitative analysis and its timorous refusal to look into the real nature of things.”
Purely quantitative analysis is the amphetamine of the mainstream economist. The steady dosing keeps his pencil sharp and his eyes blind. It has not gone unnoticed that graduate schools produce a kind of ingenious hollowness in economists who race to the finish on the schools’ assembly line. As early as 1991, a report from a commission on “graduate education in economics” warned that the university system in the United States was churning out “too many idiot savants,” economists “skilled in technique but innocent of real economic issues” — unable, that is, to look into the real nature of things.
