Nick Stern and the poverty of economics (for wealth of some economists)

Economists who have no sense of engineering and systems are pitiable. They end up doing econometrics, which I think is the first refuge of intellectual scoundrels.

Today I found a delightful review piece by Nick Stern in JEL September 2013 issue.

His abstract says, "A new generation of models is needed in all three of climate science, impact and economics with a still stronger focus on lives and livelihoods, including the risks of large-scale migration and conflicts."

Yes, but the uncertainty about the quality of models and the risk of getting wrong policy prescriptions are high. :-)

In the Introduction to his book "The Global Deal", he goes on to admit that he uses "risk" and "uncertainty" interchangeably, which to me is an unpardonable confusion. 

Anyway, here he says, 

"Where do we go from here? Essentially we need a new generation of models in all three of climate science, impact and economics.  I think the scientists are moving purposefully in that direction and that some of this will be reflected in the forthcoming IPCC Fifth Assessment Report. I am less convinced that one sees this within economics. We have to embrace many models, each with its own insights. They should be capable of speaking greater judgment in using the models. As the late Frank Hahn used to say, “a model is just a sentence in an argument.” We need more and better sentences that embody more of the risks that are at the heart of the problem. And, in exercising the judgment necessary in putting the sentences together, one should remember Amartya Sen’s remark, “it is better to be roughly right than precisely wrong.” In particular, it is time for our profession to think much more carefully about processes of damage and destruction. We have considered theories of growth and have produced valuable insights. We should combine these insights with an examination and modeling of ways in which disruption and decline can occur."

I agree completely. I also remember Bob Solow's caution: "We economists are quite good at finding juicy plums in the puddings we have baked, especially the plums we have put in ourselves." (I remember this from a Finance and Development issue some 15 years ago, but couldn't find it online. I did find this, though: "The idea of endogenous growth so captures the imagination that growth theorists often just insert favorable assumptions in an unearned way; and then when they put in their thumb and pull out the very plum they have inserted, there is a tendency to think that something has been proved." (A JEP 1994 article "Perspectives on growth theory" available at http://teaching.fec.anu.edu.au/ECON2102/2007/REFERENCES/SolowJEP94.pdf) 

Stern is a master chef of baking plum puddings with most surprises. 

Stern concludes: 

"We know that models leave out much that is important—that is what makes them models. But we must also assess how they may mislead. Many scientists are telling us that our models are, grossly, underestimating the risks. In these circumstances, it is irresponsible to act as if the economic models currently dominating policy analysis represent a sensible central case. Put simply, the “consensus” of the IAMs is in the wrong place, from the point of view of the science, the economics, and the ethics.

Presenting the problem as risk-management is likely to point strongly towards a policy for a rapid transition to a low-carbon economy. As in past waves of technical change this could involve a few decades of discovery, innovation, investment, and growth. Further, we shall probably find, if we manage the transition well, that such growth can be cleaner, quieter, safer, more energy-secure and more bio-diverse. But that is another story."

Or another dream. Depends on who pays the production costs of the fantasy. 

He says now, 

"Economic modelers should abandon the assumption of damages being focused on current output and should incorporate lasting damage in the models. They should embrace a real possibility of creating an environment so hostile that physical, social, and organizational capital are destroyed, production processes are radically disrupted, future generations will be much poorer and hundreds of millions will have to move."

Please, sir, have you no humility? Do you not realize that all economic forecasts marketed around have some basic assumptions about population (no mass migration), radical disruption of production and transport, destruction of social and organizational capital (including, say, loss of computers and inability to organize conferences and publish nonsense)?

But I suppose Stern is a good marketer. This is just advance marketing for his next book. And for new economic models that people who know will dismiss but people who don't and can't know will lap up with the thirst of a rabid dog? (I know the contradiction, but with Stern, why bother?)

I remember Solow again - his 1974 (AEA Presidential lecture, I think) piece - "The economics of resources, and the resources of economics." He or Apurva Sanghi should now do a paper: "The economics of poverty, and the poverty of economics."