[Vision2020] 2018 Economics Nobel: Dynamic Integrated Climate-Economy model, (DICE) "to suggest... gambling with the future of our planet.”

Ted Moffett starbliss at gmail.com
Thu Jan 31 17:36:28 PST 2019

Vision2020 Post: Ted Moffett

2018 Nobel in Economics Is Awarded to William Nordhaus and Paul Romer

By Binyamin Appelbaum <https://www.nytimes.com/by/binyamin-appelbaum>

   - Oct. 8, 2018

WASHINGTON — The Yale economist William D. Nordhaus has spent the better
part of four decades trying to persuade governments to address climate
change, preferably by imposing a tax on carbon emissions.

His careful work has long since convinced most members of his own
profession, and on Monday he was awarded the 2018 Nobel Memorial Prize in
Economic Sciences
<https://www.nobelprize.org/prizes/economics/2018/prize-announcement/> in
recognition of that achievement.

But Professor Nordhaus sadly noted that he hadn’t convinced the government
of his own country.

“The policies are lagging very, very far — miles, miles, miles behind the
science and what needs to be done,” Professor Nordhaus said shortly after
learning of the prize. “It’s hard to be optimistic. And we’re actually
going backward in the United States with the disastrous policies of the
Trump administration.”

Professor Nordhaus shared the prize with Paul M. Romer, an economist at New
York University whose work has demonstrated that government policy plays a
critical role in fostering technological innovation.

The award was announced just hours after a United Nations panel said large
changes in public policy were urgently needed
to limit the catastrophic consequences of rising temperatures. The prize
committee said its choice of laureates was meant to emphasize the need for
international cooperation.

“The message is that it’s needed for countries to cooperate globally to
solve some of these big questions,” said Goran K. Hansson, the secretary
general of the Royal Swedish Academy of Sciences.

That was described as a rebuke to the Trump administration by some
proponents of stronger action to confront climate change. Under President
Trump, the United States has pulled back from global efforts to limit
climate change, and it has moved to reduce controls on pollution.

“Any Nobel Prize linked with global climate change will inevitably be seen
as an international critique of Mr. Trump’s outspoken opposition to
domestic and international climate change action,” said Robert Stavins,
head of the Environmental Economics Program at Harvard.

Professor Romer, for his part, offered a more optimistic take on the
challenges confronting society, saying that his work showed that
governments could drive technological change. He noted the success of
efforts to reduce emissions of ozone-depleting chlorofluorocarbons in the

“One problem today is that people think protecting the environment will be
so costly and so hard that they want to ignore the problem and pretend it
doesn’t exist,” Professor Romer said at a news conference after the
announcement. “Humans are capable of amazing accomplishments if we set our
minds to it.”

The day began with a little comedy, as the Swedes struggled to contact the

Professor Romer said he heard his phone ring, twice, in the early morning
hours, but he did not answer because he assumed it was a spam call. Then he
checked caller ID and saw the call was from Sweden. So he called back and,
after waiting on hold, learned he had won the Nobel Prize.

Professor Nordhaus said he slept in, only learning that he won the prize
when his daughter called.

“She said, ‘It’s so nice!’” Professor Nordhaus recounted, “and I said,

Professor Nordhaus, 77, graduated from Yale in 1963, earned a doctorate in
economics from MIT in 1967 and then returned to Yale as a member of the
economics faculty. He has been there ever since.

In the 1970s, amid rising concern about pollution, economists including
Professor Nordhaus began to argue that taxation was the most effective
remedy: The government should require polluters to pay for damage to the
environment and to public health. The idea remains broadly popular among

“There is basically no alternative to the market solution,” Professor
Nordhaus said Monday.

To assess the costs of climate change, including crop failures and
flooding, Professor Nordhaus developed an economic model he called the
Dynamic Integrated Climate-Economy model, or DICE.

The name, he said, “consciously aimed to suggest that we are gambling with
the future of our planet.”

The approach developed by Professor Nordhaus remains the industry standard.
It undergirds the new United Nations report on the dangers of climate
change, released Monday in South Korea, which warns that avoiding
significant damage will require the international community to quickly
coordinate changes in environmental regulation on a scale that has “no
documented historic precedent.”

The Nobel committee cited Professor Nordhaus for showing “the most
efficient remedy for problems caused by greenhouse gases is a global scheme
of universally imposed carbon taxes.”

Professor Nordhaus has also worked on broader issues related to economic
growth. In a paper <http://www.nber.org/chapters/c6064.pdf> published in
1996, he showed that traditional measurements of growth understated
improvements in the quality of life.

He used the example of artificial light, calculating that the amount of
work required to produce a given amount of illumination had decreased much
more sharply than the standard measures of the price of light. His
technique was also unusual: He created his own fires, for example acquiring
an authentic Roman oil lamp to measure the light it produced.

Professor Romer, 62, was honored for loosely related work on the
determinants of economic development.

Economists who studied the broad workings of the economy understood that
the pace of innovation was influenced by human behavior, but they had not
mastered the details. As a result, they often treated innovation as manna
from heaven, and not a legitimate subject of public policy.

Professor Romer received his bachelor’s degree and doctorate from the
University of Chicago. He has spoken publicly about his struggles with
dyslexia, joking that he found the strength to keep writing by telling
himself, “If Neil Young can make a living as a singer, I can make a living
as a writer.”

He said he was attracted to growth theory because he was intrigued by the
acceleration of innovation that is a hallmark of the modern era. In papers
in the 1980s and 1990s, Professor Romer developed the idea that nations
could foster innovation by investing in research and by writing laws
governing the ownership of intellectual property that rewarded innovation,
but not excessively.

He argued that differences in policy helped to explain differences in
economic growth.

In an interview, Professor Romer said the value of his work was in being
precise about a broadly intuitive idea. “It helps to see connections that
weren’t obvious at first,” he said.

In particular, his work elucidated the benefits of scale. While a community
might meet its own material needs, larger communities will still tend to
produce more and better ideas. “It isn’t just that we exchange mutton for
port,” Professor Romer said of the benefits of international trade.
“Probably the most important part of globalization is the sharing of
knowledge that billions of people can all pursue in parallel.”

In advocating for his ideas about growth, Professor Romer has sometimes
courted controversy, telling one interviewer in the 1990s, “I’m quite happy
to offend everyone.”

In a 2015 essay
<https://paulromer.net/wp-content/uploads/2015/05/Mathiness.pdf>, he
criticized some other economists, including those with different ideas
about the determinants of growth, for the sin of “mathiness,” which he
described as the use of math to obscure rather than clarify underlying
ideas. “The style that I am calling mathiness lets academic politics
masquerade as science,” he wrote.

In 2016, Professor Romer was named chief economist of the World Bank, a
prestigious perch for a development economist. But he resigned 15 months
later, in January 2018, after suggesting the bank’s positive evaluation of
Chile’s economic policies had been influenced by political considerations

There are broad commonalities in the contributions of Professor Romer and
Professor Nordhaus.

The prize committee emphasized that both men, in their work, have argued
that markets are imperfect and that government intervention can improve

Joshua Gans, an economist at the University of Toronto, said both men also
had helped to reduce the barriers to government intervention: In the case
of climate change, by estimating the costs of inaction; in the case of
innovation, by estimating the benefits of action.

“Each showed how a careful accounting of economic forces can lead to
progress,” Mr. Gans wrote

But both men still struggle to sell their ideas to policymakers.

Professor Romer, who is the son of Roy Romer, a former Colorado governor,
said economists needed to cultivate and husband a reputation as “umpires in
the fact business” rather than openly campaigning.

Professor Nordhaus lamented that that approach did not seem to be enough.

“We understand the science, we understand the effects of climate change,”
he said. “But we don’t understand how to bring countries together.”
*Correction:* *Oct. 8, 2018*

Because of an editing error, an earlier version of this article misstated,
in one instance, Paul D. Romer’s age. As noted elsewhere in the article, he
is 62, not 77; William D. Nordhaus is 77.

Coral Davenport contributed reporting.
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