Nordhaus dangerous gamble for humanity’s future

17 Sep, 2019 at 07:33 | Posted in Economics | 2 Comments

Nordhaus’s transgressions are immense. His ‘damage function’ which he uses to estimate global warming damage is incorrect and uses data that has nothing to do with climate change. Despite this, the Intergovernmental Panel on Climate Change (IPCC) uses his model to advise governments about the economic impact of global warming.

Thermometer graphicsNordhaus and other mainstream climate economists certainly have a lot to answer for. Their thinking has seriously delayed action to avert damage done from climate change.

The central problem with Nordhaus’s model is the “damage function”, which is a mathematical fiction that has little to do the real world. Using a spurious method, he calculates that 2°C of warming will only reduce global economic output – GDP – by 0.9 percent, and 4°C would cut GDP by 3.6 percent.

These are trivial changes. If it were true, there would be little to worry about. This is the reason that Nordhaus has repeatedly argued that from the point of view of economic rationality an “optimal” path would be 3.5°C of warming above preindustrial levels.

Climate scientists, meanwhile, are truly panicked about a 2°C increase. They assert that global warming must be kept to 2°C or below, or risk tipping us into a “domino-like cascade that could take the Earth’s system to even higher temperatures”.

Nordhaus’s damage, however, function projects a smooth transition. So it is like describing a canoe trip along a river with a waterfall by saying you will descend seven metres for every kilometre paddled. That would describe the river section of the journey very well, but not the part where you plummet over the waterfall …

Nordhaus it seems has completely failed to understand climate science.  The only changes he has made to his research over the years have made it less able to handle tipping points.

Steve Keen


  1. The great obstacle to responding effectively to the challenges of climate change is not the climate science, which has grown in sophistication with impressive rapidity, but the poverty of economics.
    Economics ought to have developed a rich analysis of the Industrial Revolution(s) that would allow an understanding of the options for and consequences of reducing energy use generally as well as the phasing out specifically of fossil fuels. But neoclassical economics is ill-equipped for this task.
    In many respects the highly aggregated and abstract method epitomized by the Integrated Assessment Model approach that Nordhaus helped to pioneer and legitimize simply compounds the poverty of economic thought with obscurity and unjustified presumption. The damage function that Keen rightly complains about is just the beginning. What has he assumed about future economic growth that is not credibly conditioned on energy use or the depletion of natural resources?
    What is his conception of cost-benefit analysis in the face of strategic choice? Does cost-benefit analysis make much sense in the context of decisions about investing to reproduce the world in 50-year cycles?

  2. The problem with climate change activists is that it’s easier to live outdoors when it’s warmer, and some of us can’t stand living indoors. We want to get away from the society that you so passionately want to protect. Nature adapts. Birds have seen much warmer earth temperatures. The fossil fuels we are burning were created when the earth was much warmer and lusher. We are just getting the earth back to a happier time when dinosaurs thrived on all the abundant vegetation. If humans don’t survive, the earth will be much better off …

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