The economist William Nordhaus will receive his profession’s highest honour for research on global warming that’s been hugely influential – and entirely misguided.Nordhaus’ career has been devoted to finding what he calls a “balance” between climate mitigation and GDP growth.Using this logic, Nordhaus long claimed that from the standpoint of “economic rationality” it is “optimal” to keep warming the planet to about 3.5 degrees Celsius overpreindustrial levels – vastly in excess of the 1.5 degrees Celsius threshold that the IPCC insists on.
In the 1990s, Nordhaus invented the first integrated assessment models to explore how economic growth affects carbon emissions, and how climate change in turn affects economic growth. The basic mechanisms that Nordhaus described continue to inform the models that the Intergovernmental Panel on Climate Change (IPCC) uses today. No one disputes that this qualifies as a significant contribution to the field. The question, rather, has to do with how Nordhaus has used his models to argue for a particular policy agenda.
The models showed that if we were to rapidly reduce carbon emissions in line with what scientists say is necessary to avoid climate breakdown – by putting a high tax on carbon, for instance – it would significantly slow down the rate of economic growth. As far as scientists are concerned, that’s not a problem; we should obviously do whatever it takes to avoid climate catastrophe. But for economists like Nordhaus, this is not acceptable. After all, the whole point of neoclassical economics is to do whatever it takes to grow economic output.
So, Nordhaus’s career has been devoted to finding what he calls a “balance” between climate mitigation and GDP growth. In a famous 1991 paper titled “To slow or not to slow,” he argued firmly for the latter option: Let’s not be too eager to slow down global warming, because we don’t want to jeopardise growth.
To justify this conclusion, Nordhaus manipulates what is known as the “discount rate,” which is how economists value the costs of climate breakdown in the present as compared to the future. It might sound arcane, but it’s really quite straightforward. A discount rate of zero means that future generations are valued equally to the present; a high discount rate means that future generations are valued less, or “discounted,” compared with nearer generations.
Nordhaus’ s argument
Nordhaus prefers a high discount rate – very high. Discounting the future allows him to argue that we shouldn’t reduce emissions too quickly, because the economic cost to people today will be higher than the benefit of protecting people in the future. Instead, we should do the opposite: Focus on GDP growth now even if it means locking in future climate catastrophe. This is justifiable, he says, because future generations will then be much richer than we are and therefore better able to manage the problem.
Using this logic, Nordhaus long claimed that from the standpoint of “economic rationality” it is “optimal” to keep warming the planet to about 3.5 degrees Celsius over preindustrial levels – vastly in excess of the 1.5 degrees Celsius threshold that the IPCC insists on.
It sounds morally problematic and flies in the face of scientists’ warnings, but economists and policymakers have lined up behind Nordhaus’s argument. They like it because it gives them licence to carry on with the status quo and delay difficult decisions. President Trump, for instance, has been aggressive in his preference for growth over climate action. This is in large part what explains the fact that nearly 30 years after the first IPCC report was published, global emissions are still going up. It also helps explain why even with the Paris climate agreement in place, and with all of the plans promised by the world’s governments, we’re still headed for about 3.3 degrees Celsius of warming. It’s all eerily similar to the Nordhaus trajectory.
So how do economists get away with believing that these extreme temperatures are somehow okay? Because the Nordhaus model tells us that even the worst catastrophes will not really hurt the global economy all that much. Maybe a percentage point or two at the most, by the end of the century – much less than the cost of immediate action.
How do they figure this? Because if climate breakdown ends up starving and displacing a few hundred million impoverished Africans and Asians, that will register as only a tiny blip in GDP. After all, poor people don’t add much “value” to the global economy. The same goes for things like insects and birds and wildlife, so it doesn’t matter if global warming continues to accelerate mass extinction. From the perspective of capital, what most of us see as tremendous ethical and even existential problems literally don’t count.
What is more, Nordhaus reasons that the sectors most vulnerable to global warming –agricultural, forestry, and fishing – contribute relatively little to global GDP, only about four percent. So even if the entire global agricultural system were to collapse in the future, the costs, in terms of world GDP, would be minimal.
These arguments obviously offend common sense. And indeed, scientists have been quick to critique them. It’s absurd to believe that the global economy would just keep chugging along despite a collapse in the world’s food supply. And mass extinction of species poses a very real threat to the web of life itself, on which all of human civilisation depends. Plus, Nordhaus doesn’t factor in the possibility of feedback loops that could kick in – Arctic methane release, ice-albedo feedback, and others we can’t yet predict – pushing us way beyond 3.5 degrees. No amount of wealth would be enough to help future generations navigate such a total system collapse.
So, what if Nordhaus turns out to be wrong? What if extreme global warming destabilises our civilisation and collapses the economy? The Stern Review, for instance, predicts annual GDP losses could be up to 20 percent per year. If this happens, then we’ll get the worst of both worlds: Future generations will be poorer, and they’ll end up locked in a hothouse Earth. It’s a dangerous gamble with the future of humanity – and the risks are so deadly as to be beyond the power of imagination.
IPCC report
Strangely, in what seems a bizarre coincidence, Nordhaus was announced as the winner of the Nobel Prize on the very same October day that the IPCC published its latest report on climate change. The report is the United Nations’ most urgent yet: It calls for the world to cut emissions in half by 2030, and get to net zero by the middle of the century. While Nordhaus has spent most of the past four decades calling for gradualism to preserve the conditions for economic growth, the IPCC calls for radical and immediate action in order to preserve the conditions for life. Growth versus life. The conflict between economics and science has never been clearer.
In recent years Nordhaus has softened his views somewhat, arguing for a higher carbon tax than he has in the past, even if still much lower than what the IPCC calls for. But his overall position in this debate remains clear. When news of his prize was announced, he admonished his students: “Don’t let anyone distract you from the work at hand, which is economic growth.”
Can’t we have it both ways? Can’t we have economic growth and stay under 1.5 degrees Celsius? Well, that might have been possible a few decades ago, but it’s too late now – we put off the energy transition for far too long, thanks to Nordhaus and the prophets of postponement. The IPCC is clear that we need to completely decarbonise the global economy by the middle of the century. If we continue growing on our present trajectory, the economy will nearly triple in size during that same period. It will be difficult enough to decarbonise the existing global economy so quickly – it’s virtually impossible to imagine doing it three times over.
We need to throw everything we have at the problem. We need massive mobilisation, reminiscent of the wholesale industrial retooling that took place during World War II, to churn out solar panels and wind turbines at an unprecedented rate. Right now, the United States installs about 16 gigawatts of clean power each year. That rate needs to increase more than twelvefold, and it needs to happen immediately. Other countries face a similar challenge.
It is certainly possible. But we’re nowhere near on track – not even close. So why would we make this challenge three times harder for ourselves? Why would we choose to fight this battle facing uphill?
All of this leads us back to a more fundamental question. Economists such as Nordhaus insist that perpetual GDP growth is necessary for human welfare. Three decades of delaying climate action have been justified on this principle. But is it even true? Is GDP growth really our only option?
Remarkably, Nordhaus – like most orthodox economists – has never bothered to consider this question. The growth-is-good mantra is so baked into our consciousness that to question it seems almost crazy. Indeed, growthism is hegemonic to the point of transcending ideology. Politicians on the left and right alike hold it up as the single most important policy objective; they may quarrel about how to make growth happen, and how to distribute its yields, but on the question of growth itself there’s no daylight between them.
Truth about GDP growth
This is starting to change. In recent years, ecological economists have been staking out an alternative vision. We will have a much better chance of accomplishing our climate goals, they say, if rich countries abandon their pursuit of GDP growth. And if we do it right, we can not only protect human well-being but even improve it. Liberating ourselves from the growth imperative may be our best shot at flourishing through the 21st century.
It’s a staggering idea – and could be a complete game-changer. But what would a post-growth economy look like?
The first step is to realise that high levels of GDP are in fact not necessary for high levels of human well-being. True, social indicators are generally correlated with GDP per capita, but it’s a saturation curve: Past a certain point, more GDP adds little to human well-being. Take the United States, for example. In 1975, America’s GDP per capita was only half its present levels, in real terms. And yet wages were higher, happiness levels were higher, and the poverty rate was lower.
Even more interestingly, some countries have high levels of human development with relatively low GDP per capita – and we the United States can learn a lot from them. Europe’s GDP per capita is 40 percent less than that of the United States, and yet it has better social indicators in virtually every category. Costa Rica has higher life expectancy than the United States and happiness levels that rival Scandinavia, with one-fifth of America’s GDP per capita.
How is this possible? It all comes down to distribution. In 1975, America gave a greater share of national income to workers than it does today. And Europe invests more in social goods like public health care and education than the United States does. This raises the question: If Europe can outperform the United States with significantly less income, then does the American economy really need to keep growing?
If human welfare is what we’re after, growth certainly isn’t the most efficient way to get there. Rich countries already have more than enough – the problem is that it’s all locked up at the top, where it contributes almost nothing to people’s well-being. There is another way. We can improve people’s lives right now, without any additional growth at all, simply by distributing existing income more fairly. In fact, there’s no a priori reason why the United States couldn’t scale down particularly destructive output (beef, McMansions, SUVs), reducing total energy demand and making the energy transition significantly easier, while at the same time outperforming Europe on social indicators.
If we think about the growth conundrum from this angle, then it comes down to a much more obvious choice: between living in a more equitable society, on the one hand, and risking climate catastrophe on the other. I imagine that most people would have little difficulty choosing between the two.
Of course, one might change tacks and argue that growth is the only way to mobilise the financial resources necessary for the energy transition, and the only way to get the technological innovation we need to make our economies more efficient. Indeed, this is a key part of Nordhaus’s argument.
But it doesn’t make sense to grow the GDP and just blindly hope that it will end up invested in solar panel factories. If that’s how the Allies had approached the need for tanks and aircraft during World War II, the Nazis would be in charge of Europe right now. On the contrary, this kind of mobilisation requires government policy to guide and direct existing financial resources.
And if the objective is to achieve specific kinds of technological innovation, it makes more sense to invest in those directly, or incentivise innovation with targeted policy measures, rather than to grow the whole economy indiscriminately and pray for a specific outcome. Think about it: Is it really reasonable to grow the plastics industry, the timber industry, and the advertising industry in order to get more efficient solar panels? Does it really make sense to grow dirty things in order to get clean things? We have to be smarter than that.
Over and over again, it turns out that economists’ insistence on the necessity of growth is strikingly under-justified. People like Nordhaus are ready to risk everything – literally – for the sake of something that we don’t really even need.
Would there be political support for a post-growth agenda? Most politicians assume the answer is no. They assume that people want growth, which is why that’s virtually all they ever talk about. But they haven’t looked at the data. A striking new poll from Yale’s Program on Climate Change Communication shows that 70 percent of Americans believe that environmental protection is more important than growth – and this is true even in deeply Republican states. Another poll has found that 70 percent of people in middle- and high-income nations believe that overconsumption is putting our planet and society at risk. Similar majorities also believe that we should strive to buy and own less, and that doing so would not compromise our well-being.
These are remarkable results. And they confirm what decades of research in anthropology and psychology has been telling us: that to most people what matters is having good health, intimate relationships, meaningful work, access to nature, time to spend doing what they love, and – increasingly – an ecology that is stable and safe for themselves and their children. The good news is that, at least in high-income countries, we don’t need growth to deliver these things.
We are at a crossroads. Nordhaus, and many world leaders, remain wedded to the obsolete dogmas of the last century. But scientists are clear that this is no longer good enough – and the rest of the world is ready for something better.
(Source: Foreign Policy)
