A nobel prize boost for climate action

A nobel prize boost for climate action

The Nobel Prize for Economics has gone to two American economists, William D Nordhaus, who studies the interaction among nature, technology and the economy over time, and Paul M Romer, who endogenised technology into the growth model popularised by Robert Solow, in which technology functioned as an autonomous, external factor. Nordhaus is best known outside the arcane universe of professional economists for his work on climate change, producing computable models that permit forecasting how different kinds of growth will produce different kinds of change to the climate that will redound on the economy with differential impact. These models also permit calibration of policies to produce the desired-for effects on greenhouse gas production.

Paul Romer’s work helps produce clearheaded technology policy. Technology does away with the constraint of diminishing returns to capital and labour. While capital and labour are ‘rival goods’, in the sense that their use in the generation of value at one place precludes their use for generation of value elsewhere, while ideas are ‘non-rival goods’, the same idea can produce value at multiple locations, unless restrictions are put on their access. Production of technology cannot be left to untrammelled market forces, for that would under-supply technology. Incentives have to be provided for technology generation: grant of temporary monopoly by way of patents for technology that can be commercialised, state funding of research in universities, to produce ideas of general validity, say, the theory of relativity. The Economics Nobel trashes the simple-minded notion that the market knows best, by honouring economists who recommend state intervention to regulate positive and negative externalities. The Prize also refutes climate-change denial.