The backlash

Despite its failings, the Stern report's great merit was its acknowledgment that ethical judgments always underpin economic analysis. In doing so it opened up a small crack in the intellectual monolith, albeit one that never threatened to bring it down. Even so, the report created intense controversy in the economics profession because it was seen by influential conservatives as advocating a 'radical' and 'extremist' response to global warming. Although praised by some less dogmatic stars of the profession, among its higher echelons the Stern report was seen as a threat. 'Fear-mongering', 'patently absurd' and 'destructive' were some of the epithets used. It's worth exploring the main line of attack for what it reveals about the world we have created.

The backlash was led by Yale University economist William Nordhaus. Nordhaus carved out much of his reputation by developing one of the earliest economic models to evaluate climate change policy and has become perhaps the most influential economist in the United States working in the area. When in 1997 some progressive economists prepared a statement urging the United States to take global warming more seriously, securing Nordhaus's endorsement was considered vital and the text was watered down to accommodate his opinions.

The Stern report represented a direct challenge to the softly softly approach advocated by the Yale guru. A few months after its publication Nordhaus wrote a splenetic critique that allowed the conservative segments of the profession to dismiss Stern's arguments.49 Nordhaus accused Stern of abandoning accepted economic principles, writing a 'political' document, making 'extreme assumptions' and reaching 'extreme findings'. The barely suppressed hysteria of Nordhaus's response to Stern's challenge to orthodoxy spills over in suggestions that in commissioning the report the Blair Government was 'perhaps stoking the dying embers of the British Empire', and that the British Government is as fallible in its report on global warming as it was in its white paper on weapons of mass destruction that led to the invasion of Iraq.50

While carried out as a technical dispute over where to set the discount rate—the rate at which future costs and benefits are discounted to make them equivalent to current money values— the underlying argument between Stern and Nordhaus was over the ethical status of private markets. Like all committed neoclassical or free-market economists, Nordhaus believes implicitly that our private behaviour in the marketplace always represents our true preferences so that whatever the market generates is value-free and untouchable. Thus in considering the long-term impacts of policy we must use the interest rate determined by our behaviour in private markets, even if that means the interests of generations more than 50 years hence disappear from the analysis.

The belief that the market is value-free is one that many economists cling to as proof of their 'rigour'. But the determination to create a conceptual system in which real humans— with all of their foibles, biases and irrationalities, not to mention their power relations and political and social institutions—are expunged tells us something important about the character of the economists. It is not that they have driven all emotion from their work but that one particular emotion triumphed, the craving for scientific detachment.51 Commenting on reactions to the Stern report, Julie Nelson refers to the 'hypervaluation of detachment' and points to the way in which economists like Nordhaus are captives of a self-conception characterised by emotional distance, autonomy, 'hard' knowledge, rationality and disinterestedness.52 These were the signal characteristics of the new science that emerged in the seventeenth century and can be captured in a particular term used unashamedly at the time to describe the new worldview—'masculine'. It explains economists' penchant for mathematical formalisation, and the way in which the profession rewards those who are most adept and devoted to that form of analysis. The method has been called objectivism, 'a romantic belief in the possibility of connection-free knowledge from an outside-of-nature, perspective-free viewpoint'.53 More inform ally, it's known as physics envy. In the 1980s the renowned institutional economists Wassily Leontief and John Kenneth Galbraith wrote that 'departments of economics are graduating a generation of idiots savants, brilliant at esoteric mathematics yet innocent of actual economic life'.54

Of course, accepting a discount rate generated by private-market behaviour means endorsing as somehow natural and therefore unchallengeable the prevailing distribution of income and wealth. This is an ethical judgment, yet Nordhaus actually compares the prevailing distribution of incomes with 'the eating habits of marine organisms',55 suggesting the level of inequality in any society follows from some biological law rather than policies and social structures, as if there were no alternative to the kind of Wall Street rapacity and dishonesty that caused the 2008 market crash. This sort of social ignorance is not only philosophically naive but reflects the intellectual imperialism of mainstream economics; it just happens to provide a trenchant defence of the status quo, even though that status quo has created the climate crisis we now confront.

Arguing that we may have social preferences that stand above our market behaviour is described as 'paternalism' by freemarket economists, when in truth it is the democratic process at work. Right-wing economists like Richard Tol—who said that if a student had handed in the Stern report he would probably have given it an 'f' for fail, depending on his mood56—believe that it is not up to 'philosophers' like Stern to speculate on the appropriate discount rate because the preferences of the people are expressed in the marketplace every day. The only preferences that Tol regards as legitimate are those expressed by consumers in the supermarket and never those expressed by citizens at the ballot box. This is perhaps the ultimate conceit of mainstream economics, the equation of market behaviour with democracy itself.

Nordhaus has his own economic model (called DICE) designed to provide an answer to the question of how much we should aim to reduce global greenhouse gas emissions.57 It claims to incorporate the effects of climate change on various market activities, like changes in crop yields, and some 'non-market effects', such as species extinction, and converts them into a stream of dollar values which can then be compared with the costs of limiting emissions. The Earth's climate system is treated as a type of capital, like office buildings or industrial machinery, the stock of which contributes more or less to aggregate human welfare. Like all forms of capital we must decide to invest in improving it or allow it to deteriorate, which means deciding how much greenhouse gas to allow into the atmosphere to optimise its value. Comparing the costs and benefits of emission reductions over time—where the benefits are some of the avoided costs of climate change—allows Nordhaus to describe an 'optimal' path for dealing with global warming.

As this suggests, for him the warming of the globe due to the enhanced greenhouse effect is a technical problem requiring a carefully calibrated response. The more we reduce emissions the lower will be the damage due to climate change but the higher will be the cost of abatement, so there is a trade-off. Nordhaus uses his model to find the magic number.

If we do nothing, he shows, global temperatures will rise to 3.1°C by the end of the century (and 5.3°C by the end of the next), and the cost of damage will amount to $23 trillion in lost consumption.58 We can reduce those damages by reducing green house gas emissions, but only if we pay the cost of abatement policies. The task is to find the optimal outcome, the one that minimises the sum of the costs of climate damage and the cost of reducing emissions. The model spits out the answer, the 'optimal policy': it is the policy that moderates greenhouse gas emissions so that by 2100 the global temperature reaches only 2.6°C above pre-industrial levels, instead of 3.1°C. Climate damages are reduced from $23 trillion59 to $18 trillion but we must add to that the costs of abatement, which amount to $2 trillion, so that the net cost is $20 trillion, thereby saving the world $3 trillion compared to doing nothing about warming.

So Nordhaus says the best course for the world is to set the global thermostat at 2.6°C for the end of this century, rising to 3.5°C by 2200 despite universal agreement among scientists that this would bring catastrophe beyond measure. In other words we should let atmospheric concentrations rise to 600 or 700 ppm of CO2, at which point we stabilise and get used to a hotter world.60

Any attempt to keep the global temperature below the optimal level of 2.6°C would be a bad mistake, insists Nordhaus. If the world were foolish enough to listen to Nicholas Stern the economic losses would be huge—$37 trillion.61 Stern may have his heart in the right place but Professor Nordhaus's DICE model has proven that adopting his proposals would be worse than doing nothing about global warming.62 If the world would be unwise to listen to Stern it would be downright crazy to listen to Al Gore, because his proposals would have a net cost of $44 trillion. We would be better off, Nordhaus concludes, to just put up with a hotter world; the extra income will more than compensate, even if it means it's eventually 5.3°C hotter.

By any reasonable criterion Nordhaus's analysis is mad. He behaves like the ultimate economic technocrat with his hand on the global thermostat, checking his modelling results and fiddling with the knob, checking again and adjusting further, all so that the planet's atmospheric layer may be tuned optimally to suit the majority of human inhabitants. Apart from the supreme arrogance of the idea that humans should assume the role of planetary regulator, the DICE model is based on a profoundly flawed understanding of climate science. The Earth's climate system is not like a central heating system that can be smoothly adjusted to a desired temperature.63 It is, in the words of eminent geoscientist Wallace Broecker, more like an angry beast. 'If you're living with an angry beast, you shouldn't poke it with a sharp stick,' he has said.64 Nordhaus believes humans have tamed it, but Broecker warns: 65

The inhabitants of Earth are quietly conducting a gigantic experiment. So vast and sweeping will be the consequences that were it brought before any responsible council for approval, it would be firmly rejected.

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