Why do economists think they understand climate models?
January 31, 2014 7 Comments
David Friedman responded to Greg Mankiw on a carbon tax:
You are evaluating proposals for government policy on the basis of what they could do if optimally implemented not on what one can expect them to do given the incentives of the people making the decisions—what used to be referred to as the philosopher king model of government. [...] The question is not whether an optimal carbon tax designed and enforced by wise and benevolent economists would produce net benefits—very likely it would. It’s whether passing a carbon tax designed and implemented as we can best expect it to be would produce net benefits.
It is an important broader point Friedman makes about this ‘philosopher-king model of government’, and I am clearly more on Friedman’s side of this debate than on Mankiw’s. But the reality is that they are both wrong.
It is not ‘very likely’ that an optimally-implemented ‘carbon’ [sic] tax would produce net benefits, unless the sign of the externality produced from ‘carbon’ [sic] is known (or very likely) to be negative.
DEAR ECONOMISTS: You do not know the sign of the externality produced from ‘carbon’ [sic]. That is not among your areas of expertise. Please stop acting as if it is. Thanks.
What a fair-minded economist could say is something like:
If it is true that, as we are told by a different scientific field whose validity we have NO capacity or ability to evaluate, ‘carbon’ [sic] produces a negative externality, then an optimally-implemented carbon tax would produce net benefits. If not, then not.
Economists should highlight when their pronouncements rely crucially on results handed to them from external sources whose validity they are not qualified to evaluate. You know, like any other scientific field would.
UPDATE: My thanks to Friedman who kindly & patiently explains in comments that when he says ‘optimal carbon tax’ he means a carbon tax calibrated to the externality whatever, and whatever sign, it is (under the assumption that it could be known). So I’ve mischaracterized his position above and I was wrong to do so. He is also right to point out that while economics doesn’t play a role in predicting the climate, it of course plays a role in calculating the costs-given-climate under whatever climate scenario. Of course, I never meant to imply otherwise, this was just bad communication on my part.