Climate change is arguably the biggest challenge that humanity is facing. Most people agree that this is happening, that it is happening mainly as a result of human activities, and that we need to be doing something about it. Many wonder whether we need to change the economic system in order to address this issue. The response from the economics profession, dominated by neoclassical economists, is that the solution to the climate crisis is more markets, not less markets. These economists have urged us to use markets more widely in terms of both setting the goals of environmental policy, and creating the means of managing the environment. Does the profession have the tools to measure, in monetary terms, the costs and benefits of climate change? Do climate economy models help us identify the economically optimal level of GHG emissions? Are market-based mechanisms better at achieving climate goals than laws and regulations? What steps should the profession take in order to help spur climate action, globally, nationally, and locally?
You can guess my short answer to the first 3 questions. It’s the reason for the fourth question. Here I’m sharing a few thoughts I’ve been developing, but before I lay them out, I want to start by saying that “changing your mind is a good way of finding out whether you still have one.” Somebody else came up with that. For those of us afraid of commitment, I’d broaden that up and say opening your mind is a good way of figuring out whether you still have one.
I say this because it’s pretty clear that we need an economic transformation. What kind of transformation do we need? That’s a tough discussion. But we need a shift from current way of doing business, and that’s going to need a transformation in economic goals, in social goals, and perhaps a deep deep reflection on our values systems.
It’s difficult to open up your mind and maybe change it—especially when your paycheck depends on it. And that’s probably why we see these discussions being led by students and not so much professionals (and definitely not professors!). In the spirit of the original approach to wisdom, we need to keep asking questions and challenging the status quo (the Socratic method was basically that, wasn’t it?). We don’t learn otherwise.
Now, three points that are related to the questions: can economics help save the planet; and here, I am going to assume that when saying “can economics help”, it’s also meant “can the economy help”.
I think this is the right way of asking the question and the answer lies within the question itself. We live in a world organized around the interest of the economy, not of the people. So, if we are able to flip that priority around, and say we need the economy to help the people and the environment rather than plan a way for the people and the environment to serve the economy, that’s a pretty good start already. So, I think yes, recognizing that we have the wrong starting values is the first step for those envisioning economic policy to start helping save the planet.
Second, and to add on. I believe the economy/economics can help and actually should help save the planet. The economy encompasses very important sectors of society that are directly responsible for the climate ecology crisis: production, consumption, and distribution. That last one is an important one from the resilience and justice angle, without which, I believe we are left with an immoral—rather than amoral—way of doing economics. My second point actually is that although economics prides itself on being neutral and objective and apolitical, it’s not amoral. If you study the assumptions that truly lay out the foundation of neoclassical economics, they do have some strong moral implications (anyone said pareto efficiency?). We need to practice moral economics. I believe in ecological economics because it first sets social and environmental goals that speak to a certain set of ethical values: equity, sustainability, and well-being, and then it goes about asking how we envision an economic system that is consistent with and serving of a society that’s ruled by those values.
I really want to emphasize the point of morality. Climate action is a moral issue, it involves moral considerations beyond GDP. Most people are not doing cost-benefit analysis when they decide what to do about climate change. People are worried about their grandchildren, their own children, about being stewards of nature, about climate justice and the unequal effect of climate change. Economists need to start considering value systems not just prices.
And then my third point. To a hammer, everything looks like a nail. We have some tools that are not suited for something like an EXITENTIAL CRISIS. They rely on strict assumption. We need to address that. And model reality. The problem with the tools we have and the mechanisms we propose to address the climate crisis (mainly carbon markets and carbon taxes) is that they are NOT STRONG ENOUGH. Green New Dealers in the US have made this interesting point: trying to fight climate change with things like taxes and permits is akin to trying to defeat Hitler with a fascism tax. The challenge of climate change is that it is literally an existential threat. It’s not a normal problem. We need something stronger than these market solutions that try to address externalities by getting prices right. These tools totally miss the enormity and urgency of the irreversibility of climate change.
So, short answer to can it help? It has to. But it will require transformation, within the discipline and within the global economic order. For both things you need people that are willing to change their minds. What would it take you to change your mind?
laura villegas ortiz 