The latest AER has William Nordhaus’ Nobel Prize address from last fall, “Climate Change: The Ultimate Challenge for Economics.”
Proponents of markets point out their power to solve problems, but negative externalities are a huge elephant mucking about in the house of economics.
There are lots of ethical approaches, including non-consequentialist ones, that address negative externalities. Duty and virtue ethics are strong voices for self-control, moderation, and justice with regard to carbon emissions that may cause harm to others and the planet.
The normative approach in economics, using the concept of efficiency, is clearly violated when there are spillovers, and, to bring Coase into the conversation, when it is difficult to ascribe property rights and/or it is expensive to get information and protect property rights.
Nordhaus starts his essay thus:
“The award this year …. involves the spillovers or externalities of economic growth, focusing on the economics of technological change and the modeling of climate-change economics. These topics might at first view seem to live in separate universes. The truth is that they are manifestations of the same fundamental phenomenon, which is a global externality or global public good. Both involve science and technology, and both involve the inability of private markets to provide an efficient allocation of resources. They also draw on the fields mentioned above as integral parts of the theoretical apparatus needed to integrate economics, risk, technology, and climate change.
“The two topics not only share a common intellectual heritage, but also are both of fundamental importance. Technological change raised humans out of Stone Age living standards. Climate change threatens, in the most extreme scenarios, to return us economically whence we came. Humans clearly have succeeded in harnessing new technologies. But humans are clearly failing, so far, to address climate change.”
It is strange to be living at a time in history when things appear to be going backwards. The advances made to human cooperation after World War II – which include the world trading system, GATT, the European Union for solidarity that prevents another war on the continent, and the elevation and respect for science, and the coalition to solve climate change—all these appear to be in jeopardy.
Of course, there are good things that come when old traditions are broken up, but chaos is not pretty, and usually results in making things worse, certainly in the short run.