Nordhaus reflects technology and climate change.

William Nordhaus (Nobel ’18) reflects on his career path through economics in the following book.Looking back, looking forward”(Annual Review of Resource Economics, 2024, 16: 1-20). He wrote: “I first saw light on the lush Rio Grande floodplains of Albuquerque, New Mexico, at the beginning of World War II. Outside the window was an irrigated alfalfa field. Compared to the busy childhoods of our children and grandchildren, there wasn’t much we could do other than play marbles and pick up little thorns on the side of the road so they could run barefoot. How did I come to Connecticut from the alfalfa fields of New Mexico in 1959, join the Yale faculty in 1967, and arrive in Stockholm in 2018? This essay details the history of my travels. … Looking back, my interest was almost entirely focused on public goods, especially global public goods, from technology and knowledge to climate change.”

The essay contains many surprising details, such as when Nordhaus spent his junior year at university abroad in Paris learning economics from a professor who “had not yet entered into Marxist economics, but who had been fascinated by Ricardian economics since about the 1820s.” there is. Here I will mention some points and examples that stand out.

Regarding the problem that inventors are only able to appropriate a small portion of the benefits of an innovation:

[T]A major obstacle to invention is the inability to use the profits appropriately. This means that inventors cannot exploit all the benefits from new knowledge on their own. This means that the full value of knowledge use cannot be captured. As a result of inappropriateness, private returns to innovation are typically much lower than social returns, resulting in less innovation than is optimal for society as a whole.

Some examples of inadequacy are inventors who die with little to show for their inventions. Nikola Tesla was a brilliant inventor who made many important contributions to the fields of electricity, magnetism, and wireless communications. However, he made little cash from his inventions and managed them poorly. When he died, he was broke and living alone with his pigeons in a New York hotel apartment.

The other story has a happier ending. One of the major innovations of modern times has been the effective COVID-19 vaccine. … [A] A conflicting program of government, university, and corporate scientists produced an effective vaccine in less than a year. Research by public health experts and economists shows that the benefits of having an effective vaccine a year earlier are literally worth tens of trillions of dollars. How much of this do successful vaccine developers make? If we look at one of the major players, Moderna, its market value has increased from $20 billion pre-vaccine to approximately $120 billion in 2022-2023. Imagine if all vaccine manufacturers made $300 billion. This compensation is certainly not a small amount, but represents only about 1% of the one-year social value of the vaccine (Watson et al. 2022). Despite these success stories, the gap between social and private returns is a major obstacle to effective innovation, and poor incentives appear to have delayed the development of the next generation of COVID-19 vaccines.

Regarding growth issues and growth limits:

One of the joys of academic economics is model building. I have built models for railroad revenues, the U.S. macroeconomy, the patent system, inflation, productivity, and induced technological change. Then we switched to the energy model. As mentioned above, the 1970s were the high point of modern Malthusianism, predicting recession, falling standards of living, and widespread famine. One of the books on the Last Judgment is by Jay Forrester of MIT. world dynamicsPublished in 1971 (Forrester 1971). Although he was a computer genius, I was surprised by his lack of economic analysis. I built and published a model of the Forrester model to show that the results are very sensitive to many assumptions and that one of several alternative assumptions can completely change the results (Nordhaus 1973). History has not been kind to the predictions of these studies, and Malthusian thinking has proven to be as inadequate in the late 20th century as it was in the early 19th century. However, I didn’t really like the analysis of limits to growth Literature, I took the matter seriously. Obviously, resources such as oil, gas, copper, and clean air are limited. Likewise, technological change is about finding alternative processes that replace scarce resources with surplus resources. Perhaps the best example is optical fiber (light and silicon) replacing copper wire. The trillion-dollar question is whether technology is outpacing depletion.

On progress in analyzing climate change issues:

We know so much today that it’s hard to remember how little we knew in 1970. Experts believed the Earth was cooling and that rising levels of particulates would worsen the cooling. The first study on the economics of climate change examined the effects of cooling rather than warming. The only alternative to fossil fuels was believed to be nuclear power, which many scientists doubted. All climate issues were based on modeling at the time, and only in the last 20 years has the science been validated by observation. …

Over the next 20 years, I moved from model to model like a pilgrim seeking the Holy Grail. The main goal was to correct two major deficiencies in IIASA. [International Institute for Applied Systems Analysis] Model: Develop a general equilibrium framework and develop a climate externalities module, especially monetized damage estimates. It took almost 20 years to achieve these two goals, and the DICE model (Dynamic Integrated Climate and Economy) was finally introduced. The first major study was rejected by economic journals but published in Science (Nordhaus 1992). I’ve always liked the names of DICE models. It’s easy to remember and visualize. DICE also conveys the thrill of risk and danger. It’s the Faustian deal we make on Walpurgis Night, continuing down the path of unchecked climate change, enjoying a world burning with fossil fuel passions and ignoring the devil of harm dragging us into a hellish future. It is implied. … My friend Martin Weitzman once teased that updating the DICE model would provide lifetime employment, or lifetime employment, until the climate problem is solved. That certainty proved to be an accurate prediction.