I read a lot of economics papers, but I don’t often read economics papers that make me think, “this changes everything”. But Martin Weitzman wrote one. I still remember exactly where I was when I read it. Even for a nerd like me, that’s not normal.
Professor Weitzman took his own life in late August. He was 77 and had reportedly been worried that he was losing his mental sharpness.
Weitzman’s sad death prompted me to reflect on what it was about his essay that so struck me. It was a commentary on Lord Nicholas Stern’s Review on the Economics of Climate Change. Weitzman gently pulled the Stern Review apart — “right for the wrong reasons” — and offered an alternative view of the problem.
For those of us who think climate change requires bold, urgent action, there are two awkward facts to contend with. The first is that its most worrying impacts — including floods, crop failures and diseases — are unlikely to manifest at full strength for decades or even centuries. The second is that because the world has been getting dramatically richer, future generations are likely to be much wealthier than we are.
Both these awkward facts militate against doing anything too expensive in the short term.
Here’s an analogy: imagine that I discover an incipient damp problem in my house. A surveyor tells me that if I spend £1,000 now, that will spare my great-grandchildren £5,000 of repair works in a century. At first glance it seems that I should fix the damp.
On reflection, though, spending money now would be foolish. Investing £1,000 in the stock market on their behalf would be better. At a modest 3 per cent real rate of return, it should be worth about £20,000; at 5 per cent it will be worth £130,000.
In any case, won’t my great-grandchildren be vastly richer than I am, just as I am vastly richer than my great-grandparents? Why worry? They’ll cope.
This oversimplification of the complexities of climate change gets at something important. Lord Stern’s case for action depended on arguing that our super-rich descendants living in the far future should weigh very heavily in our calculations. It is hard — not impossible, but hard — to square that with how we behave in respect to any other issue, personal or social. We simply do not set aside nine-tenths of our income to benefit future generations.
Weitzman was among several prominent economists to raise this concern. But he then asked us to contemplate the risk of runaway effects. An example: as arctic permafrost thaws, a huge volume of methane, a powerful greenhouse gas, may be released. Other economists have recognised the issue of “tail risks”, well outside the most likely scenarios. None have thought more deeply about it than Weitzman.
Central estimates can lead us astray. The most likely scenario is that climate change will cause real but manageable suffering to future generations. For example, the World Health Organization estimates that between 2030 and 2050, climate change may cause an extra 250,000 deaths a year because of threats such as malaria, heat exposure and malnutrition — a less serious problem than local and indoor air pollution, which kill 8m people a year. If we focus on the central forecast, it is local air pollution that should get most of our attention.
It is only when we ponder the tail risk that we realise how dangerous climate change might be. Local air pollution isn’t going to wipe out the human race. Climate change probably won’t, either. But it might. When we buy insurance, it isn’t because we expect the worst, but because we recognise that the worst might happen.
The truly eye-opening contribution — for me, at least — was Weitzman’s explanation that the worst-case scenarios should rightly loom large in rational calculations. If there’s a modest chance that the damp problem will give all my great-grandchildren fatal pneumonia, I shouldn’t ignore that. And my great-grandchildren wouldn’t want me to: the probably rich great-grandchildren would happily sacrifice some trivial amount of income to avoid being the possibly dead great-grandchildren. But they won’t have the choice. It’s up to me.
Weitzman was a stupendously creative man. Other celebrated contributions studied the trade-off between pollution taxes and pollution permits, the “Noah’s Ark” problem of what to focus on when preserving biodiversity, and an early argument in favour of companies sharing profits with their employees.
“If you don’t think an idea might be worthy of the Nobel Prize, you shouldn’t be working on it,” he told one colleague. Some economists would say that he reached that impossibly high standard more than once — and were surprised that he was not named as a joint Nobel Prize winner last year, when William Nordhaus was recognised for his work on climate change economics.
Nevertheless, the message of Weitzman’s recent work has influenced the policy debates on climate change: the extreme scenarios matter. What we don’t know about climate change is more important, and more dangerous, than what we do.
Written for and first published in the Financial Times on 13 Sep 2019.