At first glance, it might have seemed anticlimactic, even crushing. The two young men had arrived together at the Massachusetts Institute of Technology in 1964, one from Swarthmore College, the other from Yale University. They completed their graduate studies three years later and, as assistant professors, taught together at Yale for the next five years. Then one returned to MIT and later moved to Harvard University, while the Yalie remained in New Haven. For the next dozen years, they worked on different problems, one on resource economics, the other on economies in which profit-sharing. as opposed to wages, would be the norm; until sustainability and global warming took over for both, far-seeing hedgehog and passionate fox.
Now the hedgehog had been recognizd with a Nobel Prize that the fox had hoped to share, and the newly-announced laureate was speaking at a symposium to mark the retirement from teaching of the fox.
Don’t worry, you haven’t heard the last of Harvard’s Martin Weitzman. William Nordhaus, of Yale, shared the Nobel award this year for having framed the world’s first integrated model of the interplay among climate, growth, and technological change. But unless you believe the problem of global warming is going to go away, you are likely to meet Weitzman somewhere down the road. It just isn’t clear how or when.
At the moment, Weitzman is associated mainly with his so-called Dismal Theorem. The argument concerns “fat tailed uncertainty” or, as he describes it, the “unknown unknowns of what might go very wrong … coupled with essentially unlimited downside liability on possible planetary damages,” The structure of the reasoning was apparently well-known to high-end statisticians. Weitzman applied it first as a way to explain the so-called equity premium (why stocks earn so much more than bonds). Then, in 2009, introduced it to the global warming debate. Others have applied it since to fears about releasing genetically modified organisms.
Those unknown unknowns call for a more expensive insurance policy against their possibility than would otherwise be the case, Weitzman says, in the form of immediate countermeasures, You can hear him expound the case himself in an hour-long podcast with interviewer Russell Roberts. Better yet, read Weitzman and Gernot Wagner’s uncommonly well-written book Climate Shock: The Economic Consequences of a Hotter Planet (Princeton, 2015).
(Copy editor: This seems a bit dashed off. EP: it is, too much so. I did a much better story about Thomas Schelling twenty-five years ago [“The Phone that Didn’t Ring”]. But I worked for a daily newspaper then, and I had less faith in the prize committee.)
On the other hand, if you have reservations about the worst-case way of framing policy choices, as does Nordhaus (along with many others), Weitzman has made other distinctive contributions, four in particular, which constitute tickets in some future lottery of fame.
The first has to do with a series of conceptual papers on “green accounting,” which involve ways of incorporating depreciation of natural resources into accounts of economic growth. The second involves contributions to the debate about the choice of discounting rates and intergenerational equity. The third concerns pioneering work on the costs and benefits of maintaining species diversity (the Noah’s Ark problem, the contribution Nordhaus gauged his most profound). The fourth has to do with his analysis of the means and risks of deploying various geoengineering measures to combat rapid warming – particularly injecting particles into the upper atmosphere, volcano-style, to shade the Earth from solar rays. And of course there Prices and Quantities, from 1974, his most-cited paper, a durable contribution to comparative economics.
Global warming is a problem of staggering complexity. Economic activity caused the problem; economic analysis will be an important part of the response. If you believe the science, expect that this year’s laureates, Nordhaus and Paul Romer, of New York University, are only the first economists whose contributions will be recognized by the Swedes. Fat tails or not, time is God’s way of keeping everything from happening at once.