William Nordhaus
William Dawbney Nordhaus is an American economist and Sterling Professor of Economics at Yale University, best known for his work in economic modeling and climate change. Together with Paul Romer he won the laureates of the 2018 Nobel Memorial Prize in Economic Sciences. Nordhaus received the prize "for integrating climate change into long-run macroeconomic analysis".
Education and career
Nordhaus was born in Albuquerque, New Mexico, the son of Virginia and Robert J. Nordhaus, who co-founded the Sandia Peak Tramway. Robert J. Nordhaus was from a German Jewish family — his father Max Nordhaus immigrated from Paderborn in 1883 and was a manager of The Charles Ilfeld Company branch in Albuquerque.Nordhaus graduated from Phillips Academy in Andover and subsequently received his BA and MA from Yale in 1963 and 1973, respectively, where he was a member of Skull and Bones. He also holds a Certificate from the Institut d'Etudes Politiques and a PhD from MIT. He was a Visiting Fellow of Clare Hall, Cambridge in 1970-1971. He has been a member of the faculty at Yale since 1967, in both the Economics department and the School of Forestry and Environmental Studies, and has also served as its Provost from 1986–1988 and its Vice President for Finance and Administration from 1992–1993. His tenure as provost was among the shortest in the university's history. He has been on the Brookings Panel on Economic Activity since 1972. During the Carter administration, from 1977–1979, Nordhaus was a member of the Council of Economic Advisers. Nordhaus served as the chairman of the Board of Directors of the Boston Federal Reserve Bank between 2014 and 2015.
Nordhaus lives in New Haven, Connecticut, with his wife, Barbara, a social worker in the Yale Child Study Center.
Contributions to economics and the study of climate change
Nordhaus is the author or editor of over 20 books. One of his early works, he partnered with Paul Samuelson as a co-author for an introductory textbook entitled Economics. Nordhaus worked alongside Samuelson from the 12th edition until the 19th, starting in 1985. It was first published in 1948 and has appeared in nineteen different editions and seventeen different languages. It was known as a best-selling economics textbook for decades and is still extremely popular today. Economics was called a “canonical textbook”, and the development of mainstream economic thought has been traced by comparing the fourteen editions under Samuelson’s editing.He has also written several books on global warming and climate change, one of his primary areas of research. Those books include Managing the Global Commons: The Economics of Climate Change, which won the 2006 Award for "Publication of Enduring Quality" from the Association of Environmental and Resource Economics. Another book, with Joseph Boyer, is Warming the World: Economic Models of Global Warming. His most recent book is The Climate Casino: Risk, Uncertainty, and Economics for a Warming World.
In 1972 Nordhaus, along with fellow Yale economics professor James Tobin, published Is Growth Obsolete?, an article that introduced the Measure of Economic Welfare as the first model for economic sustainability assessment.
Nordhaus is also known for his critique of current measures of national income. He wrote, "If we are to obtain accurate estimates of the growth of real incomes over the last century, we must somehow construct price indexes that account for the vast changes in the quality and range of goods and services that we consume, that somehow compare the services of horse with automobile, of Pony Express with facsimile machine, of carbon paper with photocopier, of dark and lonely nights with nights spent watching television, and of brain surgery with magnetic resonance imaging".
Palda summarizes the importance of Nordhaus's insight as follows: "The practical lesson to be drawn from this fascinating study of lighting is that the way we measure the consumer price index is severely flawed. Instead of putting goods and their prices directly into the index we should reduce all goods to their constituent characteristics. Then we should evaluate how these goods can best be combined to minimize the cost of consuming these characteristics. Such an approach would allow us to include new goods in the consumer price index without worrying about whether the index of today is comparable to that of ten years ago when the good did not exist. Such an approach would also allow governments to more precisely calculate the rate at which welfare and other forms of aid should be increased. At present, such calculations tend to overestimate the cost of living because they do not take into account the manner in which increases in quality reduce the monetary cost of maintaining a certain standard of living."
Contributions on economics of climate change
Nordhaus has written on the economics of climate change. He is the developer of the DICE and RICE models, integrated assessment models of the interplay between economics, energy use, and climate change.A Question of Balance: Weighing the Options on Global Warming Policies was published by Yale University Press on June 24, 2008.
In Reflections on the Economics of Climate Change, he states: "Mankind is playing dice with the natural environment through a multitude of interventions – injecting into the atmosphere trace gases like the greenhouse gases or ozone-depleting chemicals, engineering massive land-use changes such as deforestation, depleting multitudes of species in their natural habitats even while creating transgenic ones in the laboratory, and accumulating sufficient nuclear weapons to destroy human civilizations." Under the climate change models he has developed, in general those sectors of the economy that depend heavily on unmanaged ecosystems – that is, are heavily dependent upon naturally occurring rainfall, runoff, or temperatures – will be most sensitive to climate change. Agriculture, forestry, outdoor recreation, and coastal activities fall in this category." Nordhaus takes seriously the potentially catastrophic impacts of climate change.
In 2007, Nordhaus, who has done several studies on the economics of global warming, criticized the Stern Review for its use of a low discount rate:
In 2013, Nordhaus chaired a committee of the National Research Council that produced a report discounting the impact of fossil fuel subsidies on greenhouse gas emissions.
However, in a December 2016 discussion paper for the Cowles Foundation, his research using the updated DICE model "...confirms past estimates of likely rapid climate change over the next century if there are not major climate-change policies. It suggests that it will be extremely difficult to achieve the 2°C target of international agreements even if ambitious policies are introduced in the near term. The required carbon price needed to achieve current targets has risen over time as policies have been delayed."
In a January 2020 interview with Neue Zürcher Zeitung, Nordhaus claimed that achieving the 2°C goal of the Paris agreement was "impossible", stating that "even if we make the fastest possible turn towards zero emissions, CO2 will continue to accumulate in the atmosphere, because we cannot simply shut down our economy". He asserted that he was not alone in making this assessment, claiming that half of the simulation arrived at the same conclusion. He also remarked that the two-degree target was set without asking about the cost of meeting it.
Honors
Scientific and engineering academies
Among many honors, he is a Member of the United States National Academy of Sciences and an Elected Fellow of the American Academy of Arts and Sciences. He has been a foreign member of the Royal Swedish Academy of Engineering Sciences since 1999.American Economic Association
In 2004, Nordhaus was designated a Distinguished Fellow of the American Economic Association, along with George P. Shultz and William A. Brock. The accompanying AEA statement referred to his "knack for asking large questions about the measurement of economic growth and well-being, and addressing them with simple but creative insights," among them, his pioneering work on the political business cycle, ways of using national income accounts data to devise economic measures reflecting better health, increases in leisure and life expectancy, and "constructing integrated economic and scientific models to determine the efficient path for coping with climate change". In 2013, Nordhaus became president-elect of the AEA, and served as the association's president between 2014 and 2015.Nobel Memorial Prize in Economics
Nordhaus was awarded the Nobel Memorial Prize in Economic Sciences in 2018. He shared the award with Paul Romer. In detailing its reasons for giving the prize to Nordhaus, the Royal Swedish Academy of Sciences specifically recognized his efforts to develop "an integrated assessment model, i.e. a quantitative model that describes the global interplay between the economy and the climate. His model integrates theories and empirical results from physics, chemistry and economics. Nordhaus' model is now widely spread and is used to simulate how the economy and the climate co-evolve."Many of the news outlets that reported on Nordhaus's prize noted that he was in the advance wave of economists who embraced a carbon tax as a preferred method of carbon pricing. Some climate scientists and commentators were disappointed with the Nobel Prize going to Nordhaus due to his embrace of substantially lower carbon taxes per ton than most scientists, along with his past history of minimal carbon taxes.
Criticisms
Economist Professor Steve Keen has severely criticized Nordhaus work and said that his claim that a 4°C increase in global temperature over pre-industrial levels is only going to reduce GDP per capita by between 2% and 4% is nonsense. Keen disagrees that Nordhaus's "Damage Function" should be a quadratic equation. To show how absurd it is he says that since his damage function is symmetrical "it predicts precisely the same level of damage to GDP from a fall of, for example, 4°C in the global average temperature, as it does for a rise of 4°C." If we try to apply the function to a period we had 20,000 years ago, during the last Ice Age, where countries like Canada, Ireland, Scotland, northern Germany, Poland, Denmark, Norway, and Sweden were under a kilometer or more of ice, the function would also estimate a reduction of GDP by 2% and 4%.Professor Steve Keen's also gave a presentation "Flawed Approaches to Environmental Challenges" at the OECD Conference "Averting Systemic Collapse" in Paris on September 18th 2019 criticizing in detail why he believes Nordhaus's work is fatally flawed. In one of his slides, he shows that 4°C of warming would mean that approximately 6.7 billion people die, which is incompatible with the idea that GDP would only be reduced by a few per cent.
Others have also pointed out that climate scientists and ecologists have a very negative opinion of Nordhaus. Dr. Jason Hickel, who researches ecological economics, writes that "Many believe that the failure of the world’s governments to pursue aggressive climate action over the past few decades is in large part due to arguments that Nordhaus has advanced." One of his criticisms is that Nordhaus uses a very high discount rate which allows him to argue that we shouldn’t reduce emissions too quickly, because the economic cost to people today will be higher than the benefit of protecting people in the future.
Most climate scientists assume non-linear impacts. This had not been properly accounted for by Nordhaus in the 1980s, when less was known about climate change: