One of my favorite moments in human history was when Alan Greenspan, the legendary chairman of the Federal Reserve, had to admit in front of a congressional committee that he never really understood how the economy works (you can find the quote and the reference here). BTW, if you are under any illusion that mainstream economists learn from their mistakes, I encourage you to google the word bitcoin. Or read this article by Paul Krugman.
Another person who apparently never understood anything is William T. Nordhaus, recipient of the The Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel in 2018. The point is not that his conclusions about managing climate change were all wrong. The real outrage is that they were based on completely ridiculous assumptions, as pointed about by Professor Steve Keen in a paper appropriately titled “The appallingly bad neoclassical economics of climate change”.
Anyway, it turns out that the reason for why we almost lost the only habitable planet in the known universe is down to a most unfortunate accounting error by mainstream economists. Professor Keen recently gave a short interview with CNBC (‘War’ footing needed to correct economists’ miscalculations on climate change, says professor), which is well worth watching.
I will try to be more polite in my choice of words than professor Keen, but my conclusion is the same: Classical economic theory cannot be applied to climate change, because we are facing a situation where all societal structures could break down. If you believe that I am exaggerating, I encourage you to read “Some Questions of Moral Philosophy” by Hannah Arendt. Her starting point is a quote by Winston Churchill: “Scarcely anything, material or established, which I was brought up to believe was permanent and vital, has lasted. Everything I was sure, or was taught to be sure, was impossible, has happened.” She then points out that “We – at least the older ones among us – have witnessed the total collapse of all established moral standards in public and private life during the 1930s and 40s.” My father was already alive the last time society collapsed. There is no reason to be believe that this could not happen again. As a matter of fact, it is already happening in many parts of the world.
Only if we are prepared to accept the magnitude of the challenges facing us, will we have any chance of responding in an appropriate fashion. Basing our decisions on an already discredited theory does not seem very clever.
Furthermore, I believe that Global Climate Compensation is a realistic proposition for halting climate destruction, ensuring global stability, and alleviating poverty.