It is time to stop quivering in our boots in pointless fear of the future and just roll up our sleeves and build it.
- Ray Pierrehumbert

Friday, May 4, 2007

Economists

Economist William Nordhaus , among the best of the breed, is giving a talk entitled Measuring the Economic Effects of Global Warming. It will be presented to the Committee on National Statistics of the National Academies (US) in Washington DC on May 10, 3 PM Eastern time. It will be webcast.

Here is a related Policy Forum letter in Science from 2004.

Though I find economists interesting, and I am gratified to see the cost/benefit approach I advocated in the 90s get some traction, I think they are approaching long time scales in a way that is fundamentally wrong.

I have made some progress in identifying and explaining my discomfort with their approach. Here's a contributing event to my new understanding.

Now that I am living a car-based existence in a sprawly and ugly (albeit strangely lovable) town, I get to listen to NPR again. (By the way NPR has a plethora of climate stories on their website.)

Anyway, All Things Considered had some climate stories a couple of evenings ago. One economist stated "in order to deal with the greenhouse problem, we would have to change the entire economic structure of the world!"

Well, duh. The implication that this means we are doomed escapes me altogether. Economics are software, the control system of our society, not its infrastructure.

Maybe a couple of analogies will give you the idea of what I am thinking.

In order to keep our boiler from exploding we're going to have to replace the entire thermostat!

In order for our car to get back on the road we're going to have to replace the entire alternator!

Yeah, and...?

In short, economics should be a branch of engineering, not of science. The pretensions to pure science are confused and counterproductive.

I'll have more to say on this, so stay tuned.

Update - I just had a look at the WGIII SPM,as I ought to do if I'm going to talk about this stuff. It is much better than I expected.

(The WGII muddle didn't leave me expecting much, frankly, but I'm pleasantly surprised with WGIII.)

4 comments:

David Duff said...

I fear you misunderstand the nature of economics which is a descriptive exercise not prescriptive. Rather like the philosophy of war it attempts to lay down universal laws of behaviour but these rarely pass first contact with the enemy! The 'enemy' of most economic theories, particularly mechanistic theories, is, of course, people who, damn them, will persist in following what they believe to be their own self-interest. That's why Karl Marx was a twit, and that is why twits will be the general designation of all those who seek to lay down a set of rules to govern economic behaviour in the face of a theoretical threat that is only dimly understood.

If you want to understand the nature of economics, think of, er, nature!

Michael Tobis said...

Thanks for your comment, David.

economics which is a descriptive exercise not prescriptive.

Yes, that is the exactly common misconception (widely held by economists) that I intend to call into question. It is helpful that you are willing to pop up and say so in such an enequivocal manner.

You will be pleased to note that I am not remotely Marxist. I am an enthusiast for capitalism, and entirely agree with President Gore that our best hope is in unleashing capitalist creativity on our problems.

Questioning the intellectual basis of economics is not the same as questioning the functional basis of modern economic activity, nor advocating a command economy.

Marx was apparently wrong, but that is not sufficient to prove that Milton Friedman was right.

Neither appreciated the consequences of finite resources, so neither theory can be remotely useful in the next couple of centuries.

Michael Tobis said...

A friend, who operates in economists' circles, writes in email, in response to the asteroid article:

begin quote

re: "can't rely entirely on individuals acting from self-interest without careful collective attention to how we set up the reward structure."

the predicate presumes the prior question, i.e. we are concerned to properly set up the reward structure ONLY BECAUSE "we" have determined that the collective outcome is more than the aggregation (albeit emergent) of individual production and consumption decisions and that we value this outcome. therein the challenge to neoclassical economics which assumes the identity of the two. seems to me that environmental analysis, especially under a (quasi) closed system model like yours, takes as its point of departure the contrary: systemic integrity is defined as the desired collective outcome (or an acceptable range of same) and one then works back to define the range and distribution of admissable individual actions within such a contraint. economics then becomes the science of optimizing individual and firm decisions taking these limits into account."

end quote

It's hard reading, but I guess it states my point of view pretty well. What amazes me is that this point of view is treated as controversial in economist circles. I think most of us think it is bloody obvious that in a finite commons maximum global utility is not, in general, attained by everyone seeking individual utility. The interest of the commons has to be introduced into the system, else we will all end up getting bigger and bigger shares of less and less.

inel said...

The question of finite resources is exactly where I come unstuck in discussions with economists, particularly those for whom global warming is seen as an expensive scam. I am working on that and hope to report back something in due course rather more useful than this paltry commiseratory sentence.

When I tasted economics as a branch of engineering, I found it unpleasant. The engineers who took to economics went on to become management consultants and not one (of the many I know) returned to engineering. In short, our lives diverged at the point where economics was accepted or rejected as a major part of our futures.

Economics appears to me to be a branch of political mathematics: using statistics and numbers 'creatively' to justify financial decisions or support policies.

It occurs to me that, curiously, I am writing this on a Bank Holiday in the UK. Economics is a 24-hour-a-day, 365-days-a-year continuous process we are led to believe. Meanwhile, our shops shut early in Britain, and many are still closed on Bank Holidays. So, some can complain, but we get used to the inconvenient truth of reduced hours.

As far as I can tell, the analogy you suggest—replacing your thermostat, or alternator—would be better represented (or perhaps could be viewed by economists) as replacing your entire vehicle, or an enntire nationwide fuel supply system: fraught with change-over costs, worries about lost business, concerns over reduced profits: the list goes on … !

In typical change-averse fashion, it is easier to throw up a list of reasons not to switch than it is to consider dealing with a major problem.

P.S. I also think that there is more than one person in this world of ours who values the common good or 'common weal(th)' above self-interest. Economists always seem to argue (with me at least) that everyone is fundamentally determined to follow their own self-interest. Perhaps that is so: but if my self-interest is defined by my rational acknowledgment that what is good for all is better than anything I could achieve on my own (aka teamwork), then I will vote for the 'common weal(th)'.