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Unlimited Growth and Climate Change Economists Win Nobel Prize

Paul Romer overturns limits-to-growth nonsense, and William Nordhaus projects climate change damages.

EconomicsNobelMedalSveriges RiksbankNew York University economist Paul Romer and Yale economist William Nordhaus have been jointly awarded this year's Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel. Of the two, Romer's contributions are much more fundamental and far-reaching.

Romer won based on his conceptual overthrow of old-fashioned limits-to-growth economics. As the Nobel Committee notes, Romer "showed that growth driven by the accumulation of ideas, unlike growth driven by the accumulation of physical capital, does not have to experience decreasing returns. In other words, ideas-driven growth can be sustained over time." Economic growth and wealth creation is limited only if one believes that human ingenuity is limited.

In my 2001 Reason article "Post-Scarcity Prophet," I explained that Romer's "New Growth Theory shows that economic growth doesn't arise just from adding more labor to more capital, but from new and better ideas expressed as technological progress. Along the way, it transforms economics from a 'dismal science' that describes a world of scarcity and diminishing returns into a discipline that reveals a path toward constant improvement and unlimited potential. Ideas, in Romer's formulation, really do have consequences. Big ones."

As some countries adopted institutions that foster human ingenuity—e.g., free markets, strong property rights, and scientific liberty—economic growth accelerated. Global GDP stood at $3.4 trillion in 1900 (in constant 2011 international dollars). Since then, global economic growth has averaged about 3 percent per year, boosting that figure to more than $116 trillion by 2017.

The Nobel Committee conferred the prize on Nordhaus based on his development of integrated assessment models (IAMs) to project the effects of future climate change on economic growth and the accumulation of wealth. As the committee observes, "Nordhaus' model is now widely spread and is used to simulate how the economy and the climate co-evolve. It is used to examine the consequences of climate policy interventions, for example, carbon taxes."

A year ago, I wrote about a new analysis by Nordhaus and his colleague Andrew Moffatt that used 36 IAMs to project the future costs of climate change. The duo found that the projected increases in average global temperatures—between 3 and 6 degrees Celsius—would reduce global GDP from what it would otherwise have been by between 2 and 8 percent by 2100. To illustrate concretely what such projections would mean, I sketched a scenario in which world population reached 9 billion and global GDP grew at an average rate of 3 percent annually until 2100. In that scenario, world GDP without climate change would rise to $872 trillion and income would be $97,000 per capita. Assuming a 3°C increase in average temperature, that would reduce global GDP from $872 trillion to $854 trillion, and income to $95,000 per capita. At 6°C, the figures would be $800 trillion and $89,000 per capita. Current global GDP per capita is about $10,000.

In an interesting coincidence, the United Nations Intergovernmental Panel on Climate Change today released its new report on Global Warming of 1.5°C. Citing new IAM projections in Chapter 3 of that report, the IPCC asserts that an increase in global average temperature of 3.66°C would result in a global GDP loss of about 2.6 percent by 2100, as compared with 0.3 percent in the 1.5°C scenario and 0.5 percent in the 2°C scenario. Roughly speaking ($872 trillion x 0.026), that means world GDP would be about $23 trillion lower than it would have been had average temperature not risen by 3.66°C.

Oddly, the new IPCC report cites an unpublished study by Tyndall Centre environmental scientist Rachel Warren and her colleagues that suggests mean net present values of climate-change-induced damages (including market impacts, non-market impacts, impacts due to sea level rise, and impacts associated with large scale discontinuities) will increase to $551 trillion if average global temperatures rise by 3.7°C, by $69 trillion if the increase is 2°C, and by $54 trillion if the temperature can be restrained to just 1.5°C.

How seriously should policymakers and the public take IAM projections? Not very, says Massachusetts Institute of Technology economist Robert Pindyck. He acknowledges the models' pedagogical and theoretical usefulness, but he persuasively argues that they "have crucial flaws that make them close to useless as tools for policy analysis." He pointedly adds, "These models can be used to obtain almost any result one desires." These analyses, he concludes, "create a perception of knowledge and precision that is illusory and can fool policymakers into thinking that the forecasts the models generate have some kind of scientific legitimacy."

Ultimately, man-made global warming is an open-access commons problem, the consequences of which will be substantially curtailed by the technologies and wealth created by human ingenuity. In other words, they'll be mitigated by the forces explored by Romer.

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  • SQRLSY One||

    But everyone please keep in mind... If you are not recycling your used toilet paper, YOU are making the baby seals cry!

  • BestUsedCarSales||

    I'm so good, I recycle my new toilet paper. Don't you dare talk down to me.

  • SQRLSY One||

    I recycle my used hemorrhoid ointment, and use it as toothpaste! So there!

  • Chipper Morning Baculum||

    Oh yeah? Well I recycle my jokes on H&R. Beat that.

  • SQRLSY One||

    Well I do hang my head in shame and that I do-do that myself, I am in deep do-do...

    But my old jokes get funnier every time!!!

  • sharmota4zeb||

  • Rich||

    the IPCC asserts that an increase in global average temperature of 3.66°C would result in a global GDP loss of about 2.6 percent by 2100, as compared with 0.3 percent in the 1.5°C scenario and 0.5 percent in the 2°C scenario.

    I believe that's a transcription error: "asserts" should read "ass hurts".

  • Rich||

    the IPCC asserts that an increase in global average temperature of 3.66°C would result in a global GDP loss of about 2.6 percent by 2100, as compared with 0.3 percent in the 1.5°C scenario and 0.5 percent in the 2°C scenario.

    Credible!

  • ||

    Assume. Scenario. Average. Suggest. Denier.

    It's the language of settled science!

  • CE||

    So people would earn 2 percent less in the worst case climate change? WHy would it matter, with the world ending and all? I thought this was an existential crisis.

  • sharmota4zeb||

    A lower GPD means lower tax revenues. The end of the world is one thing, but the looters have gots to get paid.

  • ||

    "To illustrate concretely what such projections would mean, I sketched a scenario in which world population reached 9 billion and global GDP grew at an average rate of 3 percent annually until 2100. In that scenario, world GDP without climate change would rise to $872 trillion and income would be $97,000 per capita. Assuming a 3°C increase in average temperature, that would reduce global GDP from $872 trillion to $854 trillion, and income to $95,000 per capita. At 6°C, the figures would be $800 trillion and $89,000 per capita. Current global GDP per capita is about $10,000."

    It was to my understanding there would be no math.

    Anyway. There will always be climate change of some kind. Just not the way Al Gore talks about it.

    Whatever. None of this will happen. That's my take. None.

    Future titles to be published: How could we be so wrong? and 'Why climate change changed but not us' and 'Mr. Weatherbee. A life.'

    We may as well give Bullwinkle an award for pulling a rabbit out of a hat.

  • mtrueman||

    "Whatever. None of this will happen. That's my take. None."

    Have you determined that CO2 is not a heat trapping gas? Publish those results and you too will be Sweden bound.

  • ||

    Ah.

    Right. We should all shut up and take it from our authority figures, eh?

    You lefties. If this wasn't for group think you'd have no thinking at all!

  • mtrueman||

    " We should all shut up and take it from our authority figures, eh?"

    Publish your findings and win a prize is all I'm saying.

  • ||

    The way they give those things out? Pass.

    Here's my finding: When you try and predict something as far out as 2100 the chances of you being right are about as high as Shaggy.

    Now give me my fucken trophy bra.

  • mtrueman||

    "Now give me my fucken trophy bra."

    Not so fast, monkey boy. I predict the earth's gravitational constant will be within a point of 9.8. 2100 may seem a long way off to mortals like us, but to gaia, who is all but eternal, it's the merest wink of a loving, maternal eye.

  • Greg F||

    Have you determined that CO2 is not a heat trapping gas?


    That is not the question. The question is does 1 molecule in 2500 have any significant effect? Or better yet. Has the increase from 1 molecule in 3500 to 1 molecule in 2500 had any significant effect? The answer appears to be none that we have been able to measure.

  • mtrueman||

    " The answer appears to be none that we have been able to measure."

    According to the science, increasing the density of CO2 in the atmosphere one predicts an increase in atmospheric temperature. Such a rise has been observed and measured, repeatedly. What more do you want from science?

    Twice you refer to 'significant effect.' Whether something is significant or not depends on who you talk to. And it's effects, plural, that you should be concerned with. The earth and her wonderful atmosphere are complex things.

  • Greg F||

    According to the science, increasing the density of CO2 in the atmosphere one predicts an increase in atmospheric temperature.


    Again you fail to grasp that it is the amount of increase that CO2 contributes that is important.

    Such a rise has been observed and measured, repeatedly.


    The ability to attribute how much of the rise was natural variability and how much is due to CO2 is an unanswered question.

    Twice you refer to 'significant effect.' Whether something is significant or not depends on who you talk to.


    No. It. Does. Not. It depends on if the measured change is less than the uncertainty of the measurements.

    The earth and her wonderful atmosphere are complex things.


    Which makes the simplistic CO2 / temperature global warming crap all the more laughable.

  • mtrueman||

    "The ability to attribute how much of the rise was natural variability and how much is due to CO2 is an unanswered question."

    Natural variation like winter and summer? I don't think it quite the mystery you take it to be.

    If you want more research, you have to spend more money. Are you asking for increasing in funding to climate science? If not your calls for answers are disingenuous.

    And again I point out that words like important and significant are not scientific, the answer depends on who you ask. Let's say for example that this global warming is manifested in longer heat waves in August. Before the intense heat would last ten days, say, but now it's eleven. To us, it's not terribly significant. One extra day really won't mean much of any importance. But to the wheat fields, the extra day could kill the plants, they have limits to heat they tolerate and can't take counter measures like hiding in the shade or turning on the air conditioner. Crop failure, shortages, higher prices, social unrest, famine. At some point these effects can become important to humans.

  • Greg F||

    Natural variation like winter and summer?


    No. Your ignorant but due to your arrogance you don't know when to shut up. You don't even know what natural variability is. The climate changes and has always changed. How do you think all that oil in the Arctic got there? How did Greenland get its name?

    According to the IPCC half the warming was prior to 1950 and was due to natural variability. The IPCC considers 1950 as the start of human caused warming.

    I don't think it quite the mystery you take it to be.


    I don't think it is a mystery that you don't even know what the IPCC has asserted. That you are completely oblivious to the to the fact of natural variability. Your ignorant.

    And again I point out that words like important and significant are not scientific ...


    And I will point out that Statistical significance is used in science all the time. I never said "important" so I have no idea where you pulled that shit out of. Perhaps you should address climate scientist use of the non scientific "worse then we thought" or "unprecedented" that riddles the peer review literature.

    Let's say for example ...


    Making up some hypothetical is not an argument.

  • mtrueman||

    "No. Your ignorant but due to your arrogance you don't know when to shut up."

    You don't need to respond to my comments if you don't want to discuss climate change.

    "You don't even know what natural variability is."

    I have some idea. When climate changes there is a cause, or perhaps several causes. It seems a copout to me to attribute causes to some unidentified 'natural variation' and leave it at that. It's also a copout to criticize our lack or knowledge without calling for more funding for research. Do you think we should know more about climate or not?

    You are not writing about statistical significance. 'Significant effect' were the very words you used, twice, as I've already pointed out. What effects are significant or not significant depends on who you are asking.

    "Making up some hypothetical is not an argument."

    Wheat's sensitivity to heat is no hypothetical. It's real. Wheat can't take the measures to counter intense heat that we humans take for granted. They can't move indoors to get out of the sun, being rooted in the ground as plant life typically is.

  • sharmota4zeb||

    Experts in New Jersey thought that we should mitigate flood risks by prohibiting home construction in the Highlands. Then Hurricane Sandy happened.

    Sometimes, it's quicker to step back and let someone else argue for you.

  • Chipper Morning Baculum||

    A central bank prize in economics is like a Bill Cosby award for women empowerment.

  • sharmota4zeb||

    +1

  • Woody Chip Hurrrrr?||

    Since then, global economic growth has averaged about 3 percent per year


    the IPCC asserts that an increase in global average temperature of 3.66°C would result in a global GDP loss of about 2.6 percent by 2100


    So by their own worst case estimate, not even one year's GDP growth. And yet they want to spend several year's GDP to mitigate this effect?

    Buncha fucking morons.

  • Aloysious||

    In my 2001 Reason article...

    That was, like, before some people were even born. Ancient history, dood.

  • BestUsedCarSales||

    Like. it was longer than 20 minutes ago? Like, can't we just get over this nonsense?

  • Aloysious||

    That was, like, so long ago that Baileysaurus pounded that thingy out on, like, a Smith Corona. Or something.

  • Ron Bailey||

    A: I prefer to think that my reporting on the significance of Romer's work was way ahead of its time. :-)

  • sharmota4zeb||

    Granted, it was BF ... Before Facebook.

  • Fats of Fury||

    Might as well hand out Nobels for Alchemy and reading entrails to portend the future.

  • CE||

    Since this guy actually made bounded predictions (with and without climate change), will they rescind the medal when he turns out to have been mistaken?

  • ||

    This made me laugh. They did take Lance Armstrong's awards away when they found out he cheated. Seems like the Nobel committee should be more rigorous than the International Cycling Union.

    Unless it is a joke of an organization. Gauntlet thrown down.

  • sharmota4zeb||

    To summarize:

    When we pay someone $50 to write something instead of thinking about it ourselves, we're part of a movement to massively increase global wealth, because ideas are great!

    When we spend $50 to waterproof a shed in the back yard when climate change leads to more rain, we've suffered part of a massive global decrease in wealth, because we shouldn't be making it rain.

  • BambiB||

    Economic growth and wealth creation is limited only if one believes that human ingenuity is limited.


    But human ingenuity IS limited. It may be a large field. It may be difficult to bound. But it is bounded. There are limits. Because the number of neurons in all the brains in the world is a finite number, ingenuity IS limited.

  • mtrueman||

    It's worse than that. Technological innovation must come at a faster and faster pace in order to sustain the system. The days when we can wait 1000 years for the iron age to supplant the bronze age are long past. The economy today demands nothing less than constant change.

  • BambiB||

    What's NOT limited is human stupidity.

  • Bob Armstrong||

    Do those IAMs include the substantial and undeniable greening of the planet and increases in agricultural yields due to an extra molecule per 10k of air of the source of carbon to the biosphere ?

  • DrZ||

    Sea level has been rising steadily for at least he last 8000 years, I believe the rate is a relatively constant 10 cm/ century. As of late, this rate has not changed. Are "scientists" claiming that the industrial revolution started sea level to rise 8000 yrs ago? Just wondering.

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