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

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.


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.


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