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Paper Notes | The Appallingly Bad Neoclassical Economics of Climate Change
by @ProfSteveKeen
The subprime moment for Neoclassical economics and how citing/quoting Nordhaus became a liability.
https://www.patreon.com/posts/appallingly-bad-38048063
1/44
by @ProfSteveKeen
The subprime moment for Neoclassical economics and how citing/quoting Nordhaus became a liability.
https://www.patreon.com/posts/appallingly-bad-38048063
1/44
2/44 TL;DR, here is @ProfSteveKeen summarizing the findings of his paper in ~17min:
(Link starts at the right time, though the 1st part also provides great educational and entertainment value, i.e. a more general destruction of Neoclassical eCON.)
(Link starts at the right time, though the 1st part also provides great educational and entertainment value, i.e. a more general destruction of Neoclassical eCON.)
3/44 Spoiler alert:
"Given the impact that economists have had on public policy towards climate change, and the immediacy of the threat we now face from climate change, this work could soon be exposed as the most significant and dangerous hoax in the history of science."
"Given the impact that economists have had on public policy towards climate change, and the immediacy of the threat we now face from climate change, this work could soon be exposed as the most significant and dangerous hoax in the history of science."
4/44 Abstract
Economists making up their own stuff to get to their preconceived conclusion that climate change will be no big deal.
Economists making up their own stuff to get to their preconceived conclusion that climate change will be no big deal.
5/44 TL;DR II
My "favorite" crux of their research: finding a correlation between temperature and GDP and using that to forecast GDP damage due to climate change.
My "favorite" crux of their research: finding a correlation between temperature and GDP and using that to forecast GDP damage due to climate change.
6/44 TL;DR III: And one gets a Nobel Prize these days for such appallingly terrible research. (Also, their optimal estimated warming is 4°C - which some scientists think could lead to the collapse of civilization.)
And it also leads to following Twitter exchanges:
And it also leads to following Twitter exchanges:
7/44 While I obviously encourage reading the whole paper, here is most of its content in a Twitter thread to facilitate future referencing.
8/44 1. Introduction
Nordhaus dismissing Limits to Growth & co on the lack of "sound empirical data" and subsequently "making up numbers to support a pre-existing belief". Brilliant.
Nordhaus dismissing Limits to Growth & co on the lack of "sound empirical data" and subsequently "making up numbers to support a pre-existing belief". Brilliant.
9/44 Conducting an experiment on a planetary scale may pose some risks, but Nordhaus & co have nevertheless claimed that their calculations should dictate the proper course of action. (Because it is so solid?)
10/44 Of course they also write for the IPCC. Paraphrased: "Assuming no real damage from climate change, the cumulative damage from climate change is estimated to between 0.2% and 2% income." "Nothing like the coronavirus bro!"
11/44 3. Enumeration: It’s what you don't count that counts
Laying the foundation for confusing weather and climate.
Laying the foundation for confusing weather and climate.
12/44 But first, exclude 87% of GDP, since it happens indoor and won't be affected by CC, using the "of the total body mass, the brain only accounts for 2%, so we might do well even without such a negligible part of our body" logic. (More on that "logic" also at the end.)
13/44 So-called
"experts" on climate are indeed confusing weather and climate. 𝘍𝘰𝘳 𝘵𝘩𝘪𝘳𝘵𝘺 𝘺𝘦𝘢𝘳𝘴.
"experts" on climate are indeed confusing weather and climate. 𝘍𝘰𝘳 𝘵𝘩𝘪𝘳𝘵𝘺 𝘺𝘦𝘢𝘳𝘴.
14/44 4. The "Statistical approach"
Assume your preconceived conclusion that temperature affects GDP.
Assume your preconceived conclusion that temperature affects GDP.
15/44 I.e. the crux of their research here: a solid regression using a negative quadratic relation between temperature and GDP per capita for the US, because why not, it looks kind of right.
16/44 Now generalize that assumption for the world 𝘶𝘴𝘪𝘯𝘨 𝘵𝘩𝘦 𝘴𝘢𝘮𝘦 𝘤𝘰𝘦𝘧𝘧𝘪𝘤𝘪𝘦𝘯𝘵𝘴 𝘦𝘴𝘵𝘪𝘮𝘢𝘵𝘦𝘥 𝘢𝘣𝘰𝘷𝘦.
17/44 5. Expert Opinions—Real and Imagined
Next, conducting surveys of "experts". Some of them obviously not really caring about environmental issues:
"For my answer, the existence value [of species] is irrelevant—I don’t care about ants except for drugs"
— Larry Summers.
![17/44 5. Expert Opinions—Real and ImaginedNext, conducting surveys of "experts". Some of them obviously not really caring about environmental issues:"For my answer, the existence value [of species] is irrelevant—I don’t care about ants except for drugs"— Larry Summers.](https://pbs.twimg.com/media/EcGLSp-XkAEEB4A.png "17/44 5. Expert Opinions—Real and ImaginedNext, conducting surveys of \"experts\". Some of them obviously not really caring about environmental issues:\"For my answer, the existence value [of species] is irrelevant—I don’t care about ants except for drugs\"— Larry Summers.")
Next, conducting surveys of "experts". Some of them obviously not really caring about environmental issues:
"For my answer, the existence value [of species] is irrelevant—I don’t care about ants except for drugs"
— Larry Summers.
18/44 Actual natural scientists are much more worried about the impact of climate change than economists. One wonders why.
19/44 It's because while "economists know little about the intricate web of natural ecosystems, 𝘯𝘢𝘵𝘶𝘳𝘢𝘭 𝘴𝘤𝘪𝘦𝘯𝘵𝘪𝘴𝘵𝘴 𝘬𝘯𝘰𝘸 𝘦𝘲𝘶𝘢𝘭𝘭𝘺 𝘭𝘪𝘵𝘵𝘭𝘦 𝘢𝘣𝘰𝘶𝘵 𝘵𝘩𝘦 𝘪𝘯𝘤𝘳𝘦𝘥𝘪𝘣𝘭𝘦 𝘢𝘥𝘢𝘱𝘵𝘢𝘣𝘪𝘭𝘪𝘵𝘺 𝘰𝘧 𝘩𝘶𝘮𝘢𝘯 𝘴𝘰𝘤𝘪𝘦𝘵𝘪𝘦𝘴".
20/44 6. Damage functions
For the next survey, they simply ignored natural scientists altogether...
For the next survey, they simply ignored natural scientists altogether...
21/44 ... and used that survey to fine-tune their "damage function" ...
22/44 ... by of course misrepresenting the scientific literature to be able to use that nice quadratic damage function ...
23/44 ... although the "real" science explicitly discourages using such function because of tipping points that might be triggered already this century (contrary to what Nordhaus claims, regardless of if that even really matters).
24/44 Side note, it is estimated that an ice-free arctic ocean would add the equivalent warming of ~1000 Gt of CO2 (in 2019 we emitted 36 Gt).
https://agupubs.onlinelibrary.wiley.com/doi/abs/10.1029/2019GL082914
https://agupubs.onlinelibrary.wiley.com/doi/abs/10.1029/2019GL082914
25/44 7. How Low Can You Go?
And that's not it. Nordhaus has consistently lowered the parameters in his damage function (called DICE) to reduce his already trivial predictions of the damage to GDP from climate change.
And that's not it. Nordhaus has consistently lowered the parameters in his damage function (called DICE) to reduce his already trivial predictions of the damage to GDP from climate change.
26/44 I.e. "his prediction for the impact on GDP of a 4°C increase in temperature" (his "optimal estimate" for temperature rise) "was reduced from a 7% fall in 1992 to a 3.6% fall in 2018" (while actual scientists expect civilization to collapse in that scenario).
27/44 8. Deconstructing Neoclassical Delusions: GDP and Energy
And now to the "real" factor that is relevant to GDP: energy. Again the quote:
"Labour without energy is a corpse, while capital without energy is a sculpture".
And now to the "real" factor that is relevant to GDP: energy. Again the quote:
"Labour without energy is a corpse, while capital without energy is a sculpture".
28/44 Energy production and GDP have a correlation coefficient of 0.997.
29/44 And since the overwhelming majority of the used energy is fossil fuel-based (85%), GDP also highly correlates with CO2 emissions (correlation 0.998).
30/44 Which themselves correlate rather well with temperature (correlation 0.992).
31/44 So simplified, if we were to want to stop emissions today because of our concern for climate change, GDP would drop by 85%. If the growth of the 𝘴𝘩𝘢𝘳𝘦 of renewables would persist at 3% until 2050 and we then stop emissions, GDP would still drop by 50%.
32/44 9. Deconstructing Neoclassical Delusions: Statistics
"The "cross-sectional approach" of using the coefficients from the geographic temperature to GDP relationship as a proxy for the global temperature to GDP relationship is similarly unjustified."
"The "cross-sectional approach" of using the coefficients from the geographic temperature to GDP relationship as a proxy for the global temperature to GDP relationship is similarly unjustified."
33/44 Leading to the following absurd Twitter exchanges. You can't make this up.
34/44 Again, contrast "economics" vs. climate science.
35/44 10. Econometrics before Ecology
Realize one absurdity and dive straight into the next one: linear extrapolation of the past into the future.
Realize one absurdity and dive straight into the next one: linear extrapolation of the past into the future.
36/44 "The linearity of their projection is evident: it presumes no structural change in the relationship between global temperature and GDP, even as temperature rises by 3.2°C, over their time horizon of 80 years."
37/44 Again, not taking into account any "rare disaster event" when the temperature increase itself is the disaster...
"The failure of this paper to account for the obvious discontinuities was acknowledged by one of the authors":
"The failure of this paper to account for the obvious discontinuities was acknowledged by one of the authors":
38/44 And one study that at least considers non-linearity, but still likes extrapolations from the past.
"These 2 recent papers show the authors delighting in the ecstasy of econometrics, while failing to appreciate the irrelevance of their framework to the question at hand."
"These 2 recent papers show the authors delighting in the ecstasy of econometrics, while failing to appreciate the irrelevance of their framework to the question at hand."
39/44 11. GIGO: Garbage In, Garbage Out
"The numerical estimates to which they fitted their inappropriate models are, as shown here, utterly unrelated to the phenomenon of global warming."
"The numerical estimates to which they fitted their inappropriate models are, as shown here, utterly unrelated to the phenomenon of global warming."
40/44 12. Simplifying Assumptions and the Refereeing Process: the Poachers becomes the Gatekeepers
"The kind of assumptions that Neoclassical economists frequently make, are ones where if the assumption is false, then the theory itself is invalidated."
"The kind of assumptions that Neoclassical economists frequently make, are ones where if the assumption is false, then the theory itself is invalidated."
41/44 Which is clearly the case here and everything unravels from there.
"Climate change will be at least one order of magnitude more damaging to the economy than their numbers imply. And it could be far, far worse."
"Climate change will be at least one order of magnitude more damaging to the economy than their numbers imply. And it could be far, far worse."
42/44 "Referees who accept Friedman's dictum that "a theory cannot be tested by the "realism" of its "assumptions"" were unlikely to reject a paper because of its assumptions."
And once the first paper got accepted, it went downhill from there with group-think & co.
And once the first paper got accepted, it went downhill from there with group-think & co.
43/44 13. Conclusion: Drastically underestimating economic damages from Global Warming
"If climate change does lead to the catastrophic outcomes that some scientists now openly contemplate, ...
"If climate change does lead to the catastrophic outcomes that some scientists now openly contemplate, ...
44/44 ... then these Neoclassical economists will be complicit in causing the greatest crisis, not merely in the history of capitalism, but potentially in the history of life on Earth."
Unfortunately, this paper shines light only onto a fraction of the enormous amount of nonsense Nordhaus managed to produce in his career. Another great read on how economies "could do well" without resources and energy altogether. https://twitter.com/Gordon90s/status/1274509517636722688
Of course, all this gives much more context to this quote from "Merchants of Doubt". https://twitter.com/Gordon90s/status/1221126835234320385
Or on Richard Tol's overall stance on climate change from his Wikipedia page:
https://en.wikipedia.org/wiki/Richard_Tol
https://en.wikipedia.org/wiki/Richard_Tol
