If you don't like this one why not create your own? By Photograph: JonathunderMedal: Erik Lindberg (1873-1966) - Derivative of File:NobelPrize.JPG, https://en.wikipedia.org/w/index.php?curid=58432969

William Nordhaus has finally got his Nobel which is good. What is also excellent about this is that we’ve now this official recognition of how to do climate change economics right. This is something that all economists know, of course, but something that near no one else – especially the policy makers – does.

Stick on a carbon tax at the social cost of carbon and we’re done.

Don’t try to plan or strategise through things, don’t insist that the money must be used to fight climate change nor compensate for it. Just crowbar the costs into market prices with a Pigou Tax and leave well alone. The right answer will be the one that those markets come up with now that we’ve adjusted prices appropriately.

Nordhaus was before Stern of course, and he was also one layer of subtlety higher – not difficult. For he pointed out that we should work with the capital cycle, take account of elasticity, consider the normal depreciation and replacement cycle. A low carbon tax now credibly rising higher into the future. This way we get our desire – fewer emissions – but we also get to sweat those assets which have already been built. The influence of our prices isn’t going to be upon sunk costs, but upon future decisions over what to invest in and build. Exactly what we want to be doing anyway.

So, excellent stuff. And that best part is we can now point to his work and say, look, guys, this is the state of the knowledge, this is how we should be doing it. What, you got a Nobel in economics to say you know better then?

American economists William Nordhaus and Paul Romer have been awarded the Nobel Prize for their work on understanding how economies can grow sustainably.

Nordhaus, a professor at Yale University, is best known for his work on climate economics. Romer, of NYU’s Stern School of Business, is a proponent of a theory that examines how the world can achieve sustainable growth.
“This year’s Laureates have designed methods for addressing some of our time’s most basic and pressing questions about how we create long-term sustained and sustainable economic growth,” the Royal Swedish Academy of Sciences said in a statement.

Yep, stick on a carbon tax and we’re done. The right answer is emergent from a properly priced market.

Commenting on the prize, Prof Romer told reporters: “I think… many people think that protecting he environment will be so costly and so hard that they just want to ignore [this].

“[But] we can absolutely make substantial progress protecting the environment and do it without giving up the chance to sustain growth.”

Yep, stick on a carbon tax and we’re done.

Mr. Nordhaus, a professor of economics at Yale University, pioneered the economic analysis of climate change. He is also a leading proponent of the use of carbon taxation to reduce emissions, a policy approach preferred by many economists.

Yep, stick on a carbon tax and we’re done. Unlike what people actually suggest we do about climate change.

Two other fun findings from Nordhaus. One is the foundational reason why this free market capitalism stuff works. Entrepreneurs only end up with about 3% of the value they create. Near all of the rest of it ends up with us punters as the consumer surplus. An empirical reading of that result, sure the Waltons have $150 billion or so as a capital asset. US consumers alone gain some $260 billion a year from the existence of Walmart. That existence creating the competition which means everyone else must get cheaper, more efficient, to compete. Capitalise that over 20 years, as with the stock value, and we get $5 trillion, they get $150 billion. Bargain of the century, isn’t it.

He also dashed off a little paper about automation, AI and so on. Assume that the worrywarts are right. This means that the capitalists will get everything. Those who own the robots will end up gaining more, and more, and more, of the economy. So, what happens to the rest of us?

Well, the capital share of the economy asymptotically approaches 100%. The labour share asymptotically 0%. For that to happen the growth in the economy must be so high that real wages (real, after inflation) rise by 200% a year. We all become three times better off a year as the capitalists become that plutocracy. It’s not a great problem, is it?

Finally, one fun thought. Krugman was a student aide or the like to Nordhaus. Job as a graduate student working for the professor, that sort of thing. So, is this the first time the student has been honoured before the master?

Subscribe to The CT Mailer!

10
Leave a Reply

Please Login to comment
4 Comment threads
6 Thread replies
0 Followers
 
Most reacted comment
Hottest comment thread
4 Comment authors
SpikeRhoda Klappjghisp001 Recent comment authors

This site uses Akismet to reduce spam. Learn how your comment data is processed.

  Subscribe  
newest oldest most voted
Notify of
isp001
Member
isp001

Funny how the news is plastered with coverage of the IPCC report distracting from reporting of the content of this nobel – the IPCC being somewhat inconsistent with his work.

Spike
Member

And polls say American voters are disgusted with the Republican Congress for (1) not producing 1,000,000 requested documents and (2) not continuing to dither and hand-wring until they lose next month’s election fair and square and (3) confirming the new judge, which proves no one cares about rape survivors. Now, tell me again why we believe the news?

Rhoda Klapp
Member
Rhoda Klapp

You don’t know the social cost of carbon. More than likely it’s a benefit, or at least NOT burning carbon is a cost beyond bearing. You have to accept the alarmists’ lies to even begin this calculation, and you are far too willing to do so in order to play economist games with the numbers. It’s all bollocks. It’s a scam. It’s a ploy to introduce social and political policies which would be otherwise unacceptable to ‘tackle’ an imaginary problem. Don’t give it credence, don’t give it airtime.

Rhoda Klapp
Member
Rhoda Klapp

Oh, I failed to mention you can stick your pigou taxes where the sun does not shine.

jgh
Member
jgh

Tim isn’t arguing for Pigou taxes. He’s arguing that if this is the problem, then Pigou taxes are how you fix it.

It’s like where people say: argh! there’s an affordable housing shortage!
Ok, don’t know, but assume that’s correct, how do you fix it? You… Beuler? Allow more housing provision. What do you not do? What everybody is advocating: restricting more housing provision by making it impossible for providers to make any money from it.

Spike
Member

I claim black people have too much power in America, and propose to ship them all to Africa. Tim will say that a gentler “solution” is just to tax people who sell to them. Then each black person can decide whether it is in his interest to move to Africa.

Surrender to a fallacy does not mean it was your fallacy. But you do own it.

Spike
Member

Having the government make prices wrong, in order to induce behavior changes that would not happen with correct pricing, using a tax that may automatically rise in the future without democratic feedback, is not “leaving well enough alone.” Especially when the only alleged problem is that observed reality does not track computer models devised by people out to show the existence of the problem. “Stick on a carbon tax and we’re done.” Compare, “Give the gays Civil Unions and we’re done.” Nope; they have DEFEATED you (and you feel good about it!) and they will come back for more.

Rhoda Klapp
Member
Rhoda Klapp

Progressives are NEVER done. Can’t be, by definition.

Spike
Member

Wouldn’t be Progressive, would it? And they will not say, “Tim gave us an Arguyendo” but “Tim conceded the existence of the problem” in proposing a response. And now that we have our Pigou tax and the IPCC has a NEW study where computer models show a continuing risk of cataclysm, we now need full expropriation.

Spike
Member

PS — Reformers tend to assume that their reform will be the last word, ever; especially the move to replace American envy-based taxation with a National Sales Tax or VAT — as though that sensible reform would end the existence of envy, as opposed to eventually saddling us with both taxes.