Two US economist were jointly awarded the Nobel memorial prize for economics for addressing two of the most “basic and pressing” issues of our times. One economist demonstrated the way government investments boost economic growth and the other was recognized for his work on the relationship between the economy and climate change.
William Nordhaus and Paul Romer were recognized by the Royal Swedish Academy of Sciences which said the two had “significantly broadened the scope of economic analysis by constructing models that explain how the market economy interacts with nature and knowledge.”
Nordhaus is a Yale economist and a pioneer of environmental economics. He has been warning policy makers about climate change for almost four decades. He has repeatedly made the case that economic models do not properly account for the impact of global warming. He is an advocate of uniformly applied carbon tax as the best way to assign real costs to fossil fuel use thereby decreasing greenhouse gas emissions. His work supports car bon pricing schemes to combat climate change.
The Academy indicated that Nordhaus was the first person to design
“simple but dynamic and quantitative models of the global
economic-climate system, now called integrated assessment models
(IAMs).” His model can simulate how the “economy and climate would
co-evolve in the future under alternative assumptions about the workings
of nature and the market economy, including relevant policies.”
Romer is a New York university economists and the former chief economist at the World Bank. He is well known for his support of the endogenous growth theory. His research suggests that nations can improve economic performance by focusing on supply side measures like research and development, innovation and skills training. He argues that governments can accelerate technological change with targeted interventions including tax credits and patent regulation.
The Academy recognized both men because they had “designed methods for addressing some of our time’s most basic and pressing questions about how we create long-term sustained and sustainable economic growth…[they had] significantly broadened the scope of economic analysis by constructing models that explain how the market economy interacts with nature and knowledge”.
Romer optimistically stated that he believes it is possible to keep warming from surpassing the upper threshold limit of 1.5C above preindustrial norms. He also shed light on the psychology of climate inaction when he said the perceived expense makes people want to “ignore the problem and pretend it doesn’t exist”. He also said the alarming forecasts make people feel “apathetic and hopeless”.
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