A rant about economist pundits, and other things, but mostly economist pundits

Read the room.

  
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Over the years, readers, I have had numerous occasions to be irritated with economists, particularly economists acting as political pundits. I thought today I would explain why.

There are those in climate circles who lay most of the blame for the failure of climate action to date at the feet of economists. I’m not one of those people. I just lay … some of the blame at their feet. The fact is, rapidly transforming the entire industrial base of every country on earth was always going to be difficult — lots of extremely powerful interests stand to lose a great deal of money and power — and was probably going to go slowly no matter what economists did.

Nonetheless, I think there’s a good argument to be made that, when it comes to the interface of economics and politics, climate economics and climate economists have blown it pretty comprehensively — and have not necessarily learned all the lessons they should have learned.

I’ll start by recounting a notable episode and then contemplate two sorts of lessons that might be learned from it, one of which seems like it’s sinking in and and one of which … less so.

The case of carbon pricing

This is a familiar story, so I’ll keep it short.

The theoretical benefits of carbon pricing, as explored ad nauseam by economics over the last several decades, are well-understood. If you have all the stocks and flows of an economy in a giant spreadsheet, and you tweak the “price of carbon” variable, changes cascade throughout the spreadsheet. Every column in which carbon plays a part (which is almost every part of the US economy) adjusts.

Modern neoliberal economics tends to seek the optimally efficient policy, and on that score — maximum results from minimum intervention in the economy — a price on carbon is the winner. It’s one variable you can adjust to optimize your whole spreadsheet.

These arguments on behalf of carbon pricing are, I hasten to emphasize, valid. In a spreadsheet economy, turning the carbon-price knob is the most efficient way to reduce carbon emissions.

But the economy isn’t a spreadsheet and carbon pricing isn’t just another knob on some policy console.

Carbon pricing faces political-economy problems that are, at this point, almost as well-understood (at least by those who have been paying attention) as its theoretical merits. In fact, the closer a carbon price gets to the economist’s ideal — pegged to the social cost of carbon, equal across sectors, covering the whole economy — the more political-economy problems it faces. Its efficiency varies in inverse proportion to its feasibility.

The more sectors are roped in under the carbon price, the more simultaneous enemies the policy makes. Different industries have different levels of power and influence and need to be compensated in different ways for their political acquiescence, but a carbon price applies to all industries equally, so it can not compensate any of them in particular. Thus, it has no friends (except economists).

Carbon pricing policies can be and have been tweaked to overcome these difficulties, but with every tweak, optimal efficiency recedes in the rearview mirror. For one thing, pretty much every extant carbon price is the world is too low, well beneath the social cost of carbon. In the real world, other sector-specific industrial policies that are more politically manageable, like feed-in tariffs and renewable energy standards, have prevented far more emissions.

Anyway, I won’t rehearse all these arguments again. If you want to read up, start with this piece I did for Vox, this piece from Jesse Jenkins, or this three-part interview I did with David Victor and Danny Cullenward, who wrote a whole book on the subject.

For years, economists acted like serious grappling with political-economy constraints was beneath them, and they bullied big environmental groups into becoming economist wannabes, preaching their “market-friendly” gospel. The entire decade of the 2000s was spent preparing for a national climate-pricing push in 2008 that ended up producing precisely nothing.

It wasn’t until 2020 that another shot came around at the federal level — thankfully, Dems aren’t repeating their mistake (at least that mistake).

The capture of the climate policy debate by carbon-price-obsessed economists in the late 20th century helped send national and international climate policy down a multi-decade cul-de-sac in which very little was accomplished and much precious time was wasted.

So what can be learned from that experience? I think there are two broad lessons, the first about the substance of climate economics and the second about the political behavior of economists.

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Conventional economics has mostly gotten climate change wrong

Part of what prompted me to write this post in the first place is this piece by economist Daron Acemoglu about the failures of economics on climate change and some longstanding assumptions that need to be updated. It’s a smart, approachable distillation of some critiques that will be familiar to policy nerds:

  • Economists have dramatically underestimated the cost of climate damages.

  • They have treated technology as an exogenous variable, something external that just happens, applied to models at a set rate; models with “endogenous and directed technological change,” which reflects our ability to shape and focus technology development through policy, reveal that much more dramatic emission cuts are affordable.

  • They have used “discount rates” familiar in short-term market contexts to calculate the value of inter-generational goods.

  • They have failed to account properly for risk and uncertainty, especially for “long-tail risks,” i.e., low-probability but disastrous outcomes.

  • They have assessed the costs and benefits of wholesale sociotechnical transformation using utility functions designed to model changes at the margins of existing systems.

  • They have obsessed over optimally efficient policy in a way that ignores other values and trade-offs.

(See Noah Smith and Tom Brookes and Gernot Wagner for other recent fulsome critiques of climate economics.)

All these mistakes point in the same basic direction: economists have dramatically underestimated the scale and speed of action needed to address climate change.

It’s worth pointing out that, ahem, Not All Economists. There are critiques of climate economics along these same lines that go back decades, from within basic confines of the mainstream — and other critiques from ecological economists and feminist economists and development economists and so on and so forth.

Economics is not a monolith. It’s not all or even necessarily most economists that have made these mistakes and arguably the rising vanguard of the profession is busy correcting them.

Nonetheless, bad climate economics has reigned for quite a while, long enough that it has developed into a kind of folk wisdom among the US chattering classes, who are convinced that climate change is a problem, but don’t understand how vast the costs of inaction are compared to the costs of action. It will take time to root out all the lingering fallacies and myths in the body politic, and for that, economists share some blame.

These failures of economics have created a deficit of trust among climate hawks. Advocates have spent years pushing against economists in pursuit of ambitious industrial policy. That trust deficit is relevant as we contemplate how economists approach current political debates.

Policies aren’t abstractions, they are embedded in contexts

The other lesson to learn from the carbon pricing experience is that in the unending struggle among rival interests that is politics, optimal efficiency is only one of many valid considerations. One might also hope for a policy to build resiliency and redundancy into important systems, or to be politically durable, or to channel benefits to marginalized communities, or to fit well with the enforcement capabilities of existing institutions.

Most of all, in the political realm, the “best” policy is feasible, given the current array of interests — businesses, nonprofit groups, political factions, and others. There are sometimes reasons to push policies that are impossible under the current regime, if only as aspirational targets, but not at the expense of policies that are feasible, certainly not in those rare moments when policy is actually being made.

Of course, feasibility is not a binary, it’s a fuzzy judgment, a complex calculation. But for just that reason, to know what the optimum policy is for a particular polity in a particular time and place, one must understand the sociopolitical dynamics of that particular context. Policies are not free-floating conceptual structures that can be compared and ranked in the abstract; they are embedded in social, institutional, and economic relationships among actual, situated people with particular cultures, histories, and habits.

A recent paper by UCLA law professor William Boyd, published in the Columbia Journal of Environmental Law, discusses the “instrument choice debate” in Western economics and how it took shape. The paper describes a kind of technocratic turn in economics in the last quarter of the 20th century, during which economists abstracted further and further away from lived examples and histories, increasingly conceiving of policy as a choice of instruments, policy tools, which were characterized according to their abstract design and theoretical merits.

It is as though policymakers are surgeons, scrubbed into a cleanroom, choosing which sterilized tool best suits their needs. Viewing the policy space this way has “constrained our conceptions of the regulatory state and its capacity for climate action in jurisdictions around the world,” Boyd writes, and “led to a sharply diminished view of public engagement and government problem solving.”

The truth is, policies are not discrete tools in a toolbox, equally at hand. To choose a policy is not to execute an equation in a spreadsheet, it is to invoke a whole skein of institutions, habits, norms, economic interests and counter-interests, and social narratives. We are not in a cleanroom; we are in the opposite.

Doing politics, advancing the public welfare, is ultimately a utilitarian game. You are trying to maximize outcomes, to achieve the strongest and most effective policy results possible within a particular set of social and political constraints.

In that context, a policy that maximizes spreadsheet results but can not get past the constraints is not “better” than a more limited policy that can pass. The best policy is not the economically optimal policy, it’s the most effective policy that can be implemented and enforced.

No specialist expertise can substitute for wisdom

In my experience, climate policy debates frequently find people with technical expertise in a particular area — the hard sciences, say, or engineering, or most often of all, economics — confidently making policy recommendations based on their narrow expertise.

When challenged on the political economy of particular policies, they retreat to their credentials: “I’m no expert on politics, I’m just a scientist/engineer/economist.”

But here’s the thing. If you’re calculating the optimally efficient policy, you’re an economist; once you go out in public and argue, “legislators should pass this policy,” you’re no longer acting purely as an economist, you’re acting as a citizen, an advocate.

You’re no longer merely saying, “this is the optimally efficient policy on paper,” you’re saying, “this is the right policy to push, all things considered.” Economist pundits spent years conflating those two in climate policy, and they’ve inspired a lot of other people to conflate them as well.

When you enter the realm of politics and make political arguments and recommendations, you ought to be cognizant of, not merely the likely economic effects of a policy if it is passed and enforced, but the political dynamics that determine its feasibility, the likelihood that it will stay in place if passed, the state’s ability to enforce it, what social and economic interests will gain and lose from it, how equitable its distribution of costs and benefits may be, and how all of it might shape the space of political possibilities in the future.

You ought to be cognizant of and feel responsible for the political effects of your intervention — what interests and factions you are strengthening and which you are weakening, where your argument weighs in the current moment, how your words are likely to be used, and by whom.

Those are all difficult things to know! And the truth is difficult to glean from the ungainly morass of political journalism and commentary. Unlike disciplines with some academic or professional standards of rigor, political punditry and advocacy are a veritable festival of gut instincts, guesses, bad logic, bad faith, and confirmation bias. Pundits rarely offer empirical evidence; they rarely assess the accuracy of their prior predictions; they rarely change their minds.

It drives scientists, economists, and, uh, ex-philosophy students out of their heads. It is tempting to try to claim some authority, to claim that a background in economics (or some other technical field) confers the status of referee, making the final calls on the merits of various policies.

But it doesn’t. There are no real “experts” in politics, despite many claims to the contrary. The best we can hope for is to develop a few empirically informed heuristics (including those from economics), to remain open and alive to new evidence, to find trustworthy guides to the current political economy, and to strive toward, for lack of a better word, wisdom.

Technical training and specialist knowledge are valuable. Those involved in political analysis and advocacy ought to pull in more from economics, political science, sociology, and ecology, among other disciplines.

But those who have technical training should never mistake it for wisdom.