Nobel in economics given for work on climate change and tech

Nobel in economics given for work on climate change and tech

Photo: EPA Prof. William D. Nordhaus who has been awarded the Nobel Prize in Economic Sciences `for integrating climate change into long-run macroeconomic analysis`

Just a day after a IPCC called for urgent action on climate change, the Nobel Prize in economics was awarded to one American researcher for his work on the economics of a warming planet and to another whose study of innovation raises hopes that people can do something about it.

In awarding this year's $1m economics prize, the Swedish Royal Academy of Sciences cited William Nordhaus for showing that "the most efficient remedy for problems caused by greenhouse gases is a global scheme of universally imposed carbon taxes."

A faculty member at Yale University since 1967, Prof. Nordhaus' won recognition for his work of "integrating climate change into long-run macroeconomic analysis". He was the first person to create a quantitative model describing the interplay between the economy and climate – which is now used to examine the consequences of policy interventions such as carbon taxes. He was also the first to suggest that warming should be limited to no more than 2°C higher than the world’s pre-industrial temperatures. His current work on what he calls his "G-Econ project" promises to provide the first comprehensive measures of economic activity at a geophysical scale.

On the other hand 63- year-old Paul Romer, a former chief economist at the World Bank and an economist at Yale University, has been recognised  for "integrating technological innovations into long-run macroeconomic analysis” as he has laid the foundations of what is now called endogenous growth theory. Romer helped define the crucial role innovation plays in long-term economic growth, and pointed out a problem: Left to their own devices, people and companies won’t produce enough new ideas, because they don’t get paid for all the society-wide benefits they generate. That’s why governments should encourage their creation and dissemination — with policies ranging from public investment in fundamental research to anti-trust enforcement designed to reduce barriers to economic change.

The commitment of both economists to evidence and application is all too uncommon. Many academics have focused in recent years on building mathematically elegant, internally consistent models that bear little or no relation to what happens in the real world — a tendency that Romer has forthrightly attacked. So in recognizing Nordhaus and Romer, the Nobel committee has rewarded economics as it should be done. Study the evidence, employ it to build testable theories of how the world works, then use them to inform actual policy — and always be ready to change theories that don’t match the facts. It’s an approach that the profession as a whole would do well to emulate.

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