David Warsh: Climate change and economic modeling

  Flooding in Marblehead, Mass., during Super Storm Sandy on Oct. 29, 2012.

Flooding in Marblehead, Mass., during Super Storm Sandy on Oct. 29, 2012.


The unexpected pairing of environmental and growth economics by the Nobel committee this year contains many surprises. William Nordhaus and Paul Romer are surprisingly similar in their origins.  Each is a member of an entrepreneurial family in the American West.  Nordhaus is the youngest of four brothers; his father, Robert, was a ski developer and sheep rancher in New Mexico. Romer is the second of seven children; his father, Roy, is a John Deere dealer and former governor of Colorado. Each graduated from an elite high school in the East (Andover and Exeter) before attending college (Yale and the University of Chicago). Both began their graduate studies at the Massachusetts Institute of Technology.

Yet the two economists’ careers could scarcely have been more different.  Nordhaus, 77, is a master of social engagement and consensus.  Romer, who turns 63 on Nov. 7, is a lifelong innovator and frequent disruptor of the intellectual neighborhoods in which he has found himself. Nordhaus is the world’s foremost authority on the economics of climate change.  Romer is a major figure in the history of economics, who after 20 years left economics to become a public intellectual. The Swedes, having put the two together, made it worthwhile to tell them apart.

The most striking thing about Nordhaus is the steadily expanding cone of his influence over 50 years. He immediately returned to Yale after completing his PhD in just four years at MIT and has never left, except for occasional sojourns, the first of them the most significant: 1974-75 at the International Institute for Applied Systems in Vienna, the cradle of climate modeling. He spent two years as a member of the President’s Council of Economic Advisers, 1977-79, served as provost at Yale, 1986-88, and as vice president for finance and administration, there in 1992-93.

As a member of the National Academy of Sciences, Nordhaus served on numerous interdisciplinary committees, including: the Committee on Nuclear and Alternative Energy Systems, the Panel on Policy Implications of Greenhouse Warming, the Committee on National Statistics, the Committee on Data and Research on Illegal Drugs, and the Committee on the Implications for Science and Society of Abrupt Climate Change. In 2014, Nordhaus served as president of the American Economic Association.

He was co-author, with Paul Samuelson, of later editions of the classic textbook Economics, whose 19th and final edition was published in 2009. His most recent books on climate change are A Question of Balance: Weighing the Options on Global Warming Policy (2008) and The Climate Casino: Risk, Uncertainty, and Economics for a Warming World (2013).To call him well-connected is an understatement.

Significantly, Nordhaus began his career working on the same problem that Romer later solved: how to bring knowledge creation within the compass of economic theory, instead of simply assuming its steady increase, as is conventional in macroeconomics modelling even today. “An Economic Theory of Technological Change” appeared in the American Economic Review in 1969; Invention, Growth, and Welfare: A Theoretical Treatment of Technological Change later the same year ($93.34 for an out-of-print copy) but for reasons that have never been entirely clear, Nordhaus’s thesis failed to attract the attention that would have allowed him to pursue the question. By 1972, he was working, with fellow Yale professor (and future Nobel laureate) James Tobin, on incorporating natural resources and household accounts in national income accounting – soon dubbed “green accounting.” In Is Growth Obsolete?, in 1973, the authors concluded,

At present there is no reason to arrest general economic growth to conserve natural resources, although there is good reason to provide proper economic incentives to conserve resources which currently cost their users less than true social cost.

In Vienna, Nordhaus became interested in the problem of global warming. By 1977, inEconomic Growth and Climate: The Carbon Dioxide Problem,” he argued that

In contemplating the future course of economic growth in the West, scientists are divided between one group crying “wolf” and another which denies that species’ existence.  One persistent concern has been that man’s economic activities would reach a scale where the global climate would be significantly affected. Unlike many of the wolf cries, this one, in my opinion, should be taken very seriously.

He has been working on it ever since, developing economic approaches to global warming, including the construction of integrated economic and scientific models to determine the efficient path for coping with climate change. Perhaps it was all but fated, given Nordhaus’s family’s background.  In any event, it was this work for which the Nobel Foundation last month cited Nordhaus.

Along the way, he fought off a cancer that could have killed him, worked well with his MIT classmate Martin Weitzman, another authority on climate change, with a different approach; and provided rhetorical support for Romer’s theorizing about the import of new technologies – in particular, Nordhaus’s 1996 study of the economic history of the cost of an evening of indoor lighting since Babylonian times. Nordhaus “returned to Mesopotamian economics,” his biography notes, with a study published on the eve of the invasion of Iraq in which he projected the cost of the war as high as $2 trillion. It was subsequently estimated to have been $3 trillion or more.

A long-term collaboration with Stanford professor John Weyant  and his Energy Modeling Forum’s summer Snowmass, Colorado, workshops, helped bring major energy companies into the climate change tent.  But corporate participation didn’t prevent Nordhaus, in the final pages of Climate Casino, from comparing ExxonMobil to cigarette manufacturers as having been a “merchant of doubt.”  But that has protected him from biting criticism from those who believe that his cautious approach to measurement issues “enabled climate change denial and delay.” For all his mastery of consensus-building, Nordhaus’s central policy recommendation – a global carbon tax – still has a long way to go.

David Warsh, a longtime columnist and economic historian, is proprietor of Somerville-based economicprincipals.com, where this piece first appeared.