Two Misum voices on the announcement of the laureates of the Sveriges Riksbanks prize in economic sciences in memory of Alfred Nobel
"The Nobel Prize to William Nordhaus is a disgrace"
It is often said that awarding the Nobel Peace Prize to Henry Kissinger is the most shameful episode in the prize鈥檚 history, but I wonder if giving the Economics Nobel to William Nordhaus might not be worse. Nordhaus has long been an influential advocate of going slow on climate action, with the motivation that it is better to wait until the future when we鈥檒l be richer. As the Economist described his reasoning in a 2009 article: 鈥淪ince future generations will probably be much richer than we are, it makes no more sense for us to sacrifice our well-being for them than it would to expect 18th-century peasants to go without gruel so we can buy more computers.鈥 Underlying this logic is a conflation of real and monetary resources, where it is implied that we can make ourselves richer by not spending. Transitioning to a sustainable society is about shifting resources from one set of sectors to another (e.g. from fossil fuels to alternatives); it involves spending vast sums of money, but that is just another way of saying that it involves vastly increased investment 鈥 normally viewed as a good thing. You could turn Nordhaus鈥檚 argument around and say that if we are to make investments in climate mitigation, it is better to do so as early as possible to maximize the payoff. Would you rather put a 100 dollars in an index fund today or in 20 years? Nordhaus鈥檚 argument is all the more strange considering that global warming is not linear, but beset by tipping points and feedback loops that could make temperatures rise exponentially. This makes it important invest as much as possible early in the process, before it spins out of control. Nordhaus has changed his tune in recent years 鈥 it turns out waiting wasn鈥檛 so smart after all, and it would have been better to take action decades ago, before it was too late. Oh well. It is interesting that the greatest defender of stalling on climate action is awarded a Nobel prize at the same time as a new IPPC report states that because we have waited so long, avoiding complete climate catastrophe now requires "rapid, far-reaching and unprecedented changes in all aspects of society鈥.
Written by PhD Max Jerneck, max.jerneck@hhs.se
Researcher on the emergence of low carbon energy industries
L盲s Max Jernecks kommentar p氓 svenska 丑盲谤, och en f枚rdjupning av Max Jerneck (fr氓n den 11 oktober) 丑盲谤.
How Nordhaus and Romer can cool the global warming
The significance of Nordhaus and Romer winning the Nobel Prize in Economics 2018, on the day after the publication of the , adds a positive dimension towards meeting the global environmental challenges. This report calls for the impact of global warming to be limited to 1.5掳C, whichrequires a strengthened global response to the threat of climate change, sustainable development and efforts to eradicate poverty. Nordhaus鈥 research on economic analysis of climate change propagates the use of carbon taxation to reduce emissions whereas Romer鈥檚 research shows how well-regulated markets can lead to technological development and sustainable economic growth.
Nordhaus has done extensive work on climate change models. His work on in 鈥溾 raises the critical issue of sustainability. Refining his earlier work, Nordhaus developed a general approach to estimating the costs of climate change (). He argues that climate change should be considered a 鈥済lobal public good,鈥 but should not be regulated, through a command-and-control approach. Instead, the market forces should be employed by agreeing on a global price (by trade or taxes) for burning carbon that reflects its full cost (including externalities). Nordhaus has also written part of the that gave the US government the right to regulate as yet unmentioned pollutants in the future.
Romer鈥檚 work furthers our understanding of the long-term determinants of economic growth and the importance of technological change and innovations. He demonstrates how economic forces govern the willingness of firms to produce new ideas and innovations. His led to the development of the endogenous growth theory, that explains how ideas are different and require specific conditions to thrive in a market. Romer explains that the non-rival nature of ideas can boost ongoing and 鈥渆ndogenous鈥 economic growth. His research has generated further research into the regulations and policies that encourage new ideas and long-term prosperity. Romer鈥檚 work on economics of growth has led to the concept of , an economic region with external or foreign governance, so as to enforce the rule of law and stimulate economic growth. Romerargues that policy makers should stop trying to adjust the business cycle and instead focus on promoting new technology.
Agenda 2030 Sustainable Development Goals, Paris Agreement and the IPCC special report 鈥 all point to the incremental environmental challenges. While Nordhaus and Romer suggest that market forces can resolve these challenges through carbon taxation and technological development, Nordhaus himself warns of problems. In a , Nordhaus cautions that it is 鈥渦nlikely鈥 that nations can achieve the 2掳Ctarget outlined in the Paris Agreement and acknowledges that the 鈥渃arbon price needed to achieve current targets has risen over time as policies have been delayed.鈥
Written by Professor Ranjula Bali Swain, ranjula.bali@hhs.se
Visiting Professor at Misum, leading the research platform on Innovating Markets. She is also a Professor of Economics at S枚dert枚rn University, Stockholm
More info? Call Tinni Ernsj枚枚 Rappe, 0708-36 66 41
