Economists aren't the problem on climate change

If everyone thought like economists, we'd be taking much more aggressive action

A number of writers I know and respect have recently argued that economists are among the real villains in the fight against climate change. David Roberts published a “rant” about why economists are bad actors on climate change. Ryan Avent did one a little before that. And even before that, Noah Smith asked, “Why Has Climate Economics Failed Us?”

I find this line of argument puzzling.

I’m on board for generalized complaining about economics. The field as a whole has reached almost no consensus on its two biggest questions: how do you prevent recessions, and how do you generate long-term economic growth? Ask economists about these big picture questions, and they just divide into rival schools of thought and degenerative research programs.

And economists tend to irritate other academics. Because economists have way better outside employment opportunities than other social science PhDs, economics programs have come to attract higher quality applicants, and today, economists have higher GRE scores than other disciplines. These departments are full of smart people using moderately difficult math to tackle all kinds of interesting questions like “Do patients adhere more or less to official medical advice if they have doctors in the family?” (less) or “How effective are DNA databases at deterring crime?” (very).

Since economists no longer accept conceptual boundaries as to what constitutes an economics question, they end up intruding into other fields’ areas of specialization and often do so with little humility or respect for existing literature. Amory Gethin, Clara Martínez-Toledano, and Thomas Piketty recently published a good paper surveying education polarization across 21 western democracies that exhibits zero evidence they are aware political scientists have been covering this for a while.

So economists are kind of annoying.

That said, their skills are genuinely useful for analyzing a bunch of different questions. And when it comes to climate change, the evidence is that economists are much more supportive of climate action than the public or elected officials.

Economists are dovish on climate relative to hard-core climate activists. But that’s in part because hard-core climate activists get pretty goofy at times (see this denunciation of Elon Musk as a colonialist for making electric cars). But more to the point, they are more hawkish than the public or politicians. If everyone had listened to economists, we would have taken more aggressive action against climate change long ago.

Imagine if economists ran the Republican Party

“When you go buy a good, you pay for the resources that go into producing that good,” explains Greg Mankiw, a Harvard economist. “So if something’s made out of metal, you pay for the metal indirectly through the price of that product. When you emit carbon, you are basically using up a resource, a valuable social resource, which is the atmosphere, and what we want you to do is to pay for that resource you use up when you are buying that high carbon-intensive product.”

That’s a far cry from the Green New Deal.

But note that Mankiw is not just a professor at a fancy college. He chaired the Council of Economic Advisors under George W. Bush and was a top advisor on Mitt Romney’s presidential campaign. He organized a bipartisan sign-on letter that also featured Ben Bernanke and Alan Greenspan.

Over the years, a lot of naive or ill-informed people have taken statements and letters like that to mean that a carbon tax is an idea that could potentially secure bipartisan support. It is very clear that this is not the case. These kinds of letters and statements are, for all practical purposes, totally meaningless. But that’s exactly my point — if Republican Party politicians listened more to Republican Party economists, the party’s position on climate change would be drastically more responsible.

Climate activists tend to focus on factional fights within the Democratic Party, but what Republicans think about the world is very important. After all, Republicans win about half the elections (and given the geographical bias of the political system, may win more than half going forward) and dominate the Supreme Court. Shifting the GOP position from “climate change is fake news made up by China” to “climate change should be addressed through a revenue-neutral carbon tax” would have dramatically altered the politics of climate over the past 20 years.

Regressive tax cuts under Bush and Trump probably would have been deeper because of the presence of carbon tax revenue. But Democrats wouldn’t have had to waste time and political capital on the doomed Waxman-Markey cap-and-trade initiative, and they wouldn’t currently be trying to squeeze the Clean Energy Performance Plan into a budget reconciliation bill. They’d be free to let the carbon tax be the hammer and diverge from Republicans primarily by wanting to spend more money on research and deployment.

Most economists aren’t Republicans

The economics field has a weird reputation in academia; it’s so much less left-wing than the other social sciences that people sometimes convince themselves that economists are right-wingers.

But as we’ve covered before, the National Academy of Sciences finds that among economics faculty, registered Democrats outnumber registered Republicans 3:1. In terms of campaign contributions, economists donate 17 times more money to Democrats than to Republicans. Again, this is a much smaller skew than you see in any other field. But it still means economists are incredibly left-wing compared to the general population. Yes, those economist Democrats are mostly moderates, whereas most academic fields have tons of out-and-out leftists. But the basic dynamics of the bell curve are such that in a field that’s way more Democratic than the population as a whole, you’re also going to have way more leftists than in the population as a whole.

In other words, if the general population voted like economists, there would be huge Democratic majorities and more aggressive climate action.

But what kinds of climate action would economists favor? Surveys show that economists from both parties really love carbon taxes. They loved them in 2012, and they still love them in 2021.

Are they dogmatists who say that carbon taxes are the only acceptable solution? No. While a plurality of economists in the IGM survey said pricing carbon is better than subsidizing renewables, a plurality agreed in the same survey that “solar-energy subsidies to date in Germany and other countries have produced net social benefits for the world.”

Or just consider a real-world policy initiative. The European Union rolled out an ambitious target of total decarbonization by 2050. Critics say it will be a big drag on economic growth. But economists say it’s probably fine.

Any way you look at it, if economists ran the world, climate policy would be much more hawkish. The reason actual climate policy is not hawkish enough is the mass public.

Understanding the carbon tax issue

One big beef here is that economists are very enthusiastic about carbon pricing, while activists have come to recognize it as a political dead-end that they should resist. That’s a big part of Roberts’ criticism of economists, and here’s a longer Roberts piece specifically on the carbon tax. I completely agree with this take (see my “Popularism for moderates: The case of the carbon tax”), but I think a lot of leftist types get the point of this wrong.

Economists support carbon taxes while the public does not because economists take climate change much more seriously than the average voter does.

It’s true that since the average voter does not take climate change very seriously, policy entrepreneurs need to find ways of getting things done other than the most straightforward one. But the problem here is with the voters, not with the economists.

Also note that the left’s view of this is rather new. Back in 2014, Bernie Sanders was writing op-eds titled “Why We Need a Carbon Tax.” Bill McKibben was a big carbon tax guy. Practical politicians and activists moved away from this position because it wasn’t politically workable. But they, like economists, recognized that it was a good idea. If economists had greater sway over politics, we would have implemented a carbon tax years ago. Emissions would be lower today, and the global stockpile of emissions would be lower, too, so we’d have a longer runway to finalize the transition to net-zero emissions.

This is related to another issue Smith raises, which is that he believes climate economics excessively discounts the future:

One obvious problem with DICE models, or at least with the numbers [Wiliam] Nordhaus plugged into his DICE models, is that they assume a high discount rate. The discount rate is the degree to which we don’t care about the future — the higher the discount rate, the more we disregard what happens in 20 or 50 years. DICE models get their discount rate from interest rates, which represent how much the investors who are currently alive and investing in the market care about the future. If investors’ bond purchases don’t reflect concerns about whether their great-grandchildren live in an infernal hellscape, DICE doesn’t care about it either. 

I agree that this discounting of the future is bad (I will gesture vaguely in the direction of Derek Parfit’s “Reasons and Persons” rather than argue the point). But when it comes to the carbon tax, this is exactly the problem with the voters. Pricing asks you to pay now for benefits in the future, and people don’t want to do that.

In other words, while I think Nordhaus is discounting the future more than he should, he is discounting it less than the mass public or the world’s governments. Don’t take my word for it, read Nordhaus’ Nobel Prize lecture:

The international community is a long way from adopting a climate club or an analogous arrangement that will slow the ominous march of climate change (as seen in the fgures above and elsewhere). Obstacles include ignorance, the distortions of democracy by anti-environmental interests and political contributions, free-riding among those looking to the interests of their country, and short-sightedness among those who discount the interests of the future. Global warming is a trillion-dollar problem requiring a trillion-dollar solution, and the battle for hearts, minds, and votes will be fierce.

Nordhaus is not the problem! Meanwhile, the Institute for Policy Integrity survey showed that most economists agree with me and Smith that the DICE discount rate is too high.

The pointless fight with the near enemy

In other words, the structure of the debate is that the Nobel Prize climate economics guy thinks national governments are not doing enough to fight climate change. Most economists, however, think they should be doing even more than he does. It’s true that the climate activist community is even more hawkish on climate change than that. But so what? What are the actual stakes in the debate between “we should do more than the political system will allow for” versus “we should do much more than the political system will allow for”?

As far as I can tell: nothing.

The conceit of a lot of this anti-economist punditry seems to be that if only economists ratcheted up their alarm levels even further, that would move the public or the political system. But why? The political system is already not doing what economists want on climate, because the public is worse informed on the science than economists are, and because the public is more short-sighted than economists think we ought to be.

As a person who is interested in abstract ideas, I do enjoy trying to understand debates between natural scientists who think economists are underrating the tail risks of global warming and economists who think natural scientists are underrating the humanitarian benefits of economic growth. But this debate is not relevant to the actual political sticking points or to the actually available policy options. I get that activists find it annoying when technocrats tell them things like “blocking the Keystone XL pipeline won’t have any impact on global emissions,” but that’s not anything particular to economists. There’s a perennial tension between activist imperatives and actual policy analysis, and you need both.

There is a school of thought, led by Naomi Klein, that says climate change is a symptom and capitalism is the disease. And it’s definitely true that if you want to overthrow capitalism, economists are mostly going to disagree with you.

But on balance, it seems to me that Klein-style arguments that associate tackling climate change with the general-purpose, far-left ideas that most people reject have been a much larger practical impediment to acting on climate change than anything coming out of the economics world. The actual things we need to do to address climate change — investing in clean new technologies and finding (probably stealthy) ways to raise the price of dirty ones — are perfectly compatible with capitalism and with most people continuing their lives. That’s a nice reassuring message that people might agree with and that even Republican economists endorse. But unfortunately, economists don’t decide climate policy.