Two opposing extreme viewpoints emerge when it comes to discourses on climate change and technology. Some people blame economic development and technology for the ongoing environmental degradation. The others state climate change as a ‘myth’ and ignore careful utilisation of the resources available on the planet. The contributions of two American economists William Nordhaus and Paul Romer, who were jointly awarded this year’s Sveriges Riskbank Nobel Prize in Economic Sciences, are focused on reconciling the extreme viewpoints with scientific ways and rationale thinking to achieve a sustainable future for mankind.
Nordhaus, a Sterling Professor of Economics at Yale University, is regarded for his economic modeling of climate change. His computer-based integrated assessment models of Dynamic Integrated Climate-Economy (DICE) and Regional Integrated Climate-Economy (RICE) have laid the foundation of macroeconomic analysis of climate change. The models that integrate empirical results obtained from economics, physics and chemistry, are being extensively used by government agencies of several nations and researchers to evaluate the co-relation between climate change and the global economy. The applications of the works of Nordhaus cover a number of environment-related areas including risk mitigation, climate change resilience and removing interrelated constraints between nature and economy to harness a sustainable economic growth. The theories and applications developed by Nordhaus were a subject to criticism as ‘limiter of economic growth’, for much of the 1980s and 1990s. Now, not only the policymakers and governments, but also businesses across the world have been increasingly using his analysis models.
Published in 2013, his book The Climate Casino explains the ‘energy-cost myopia’ citing it as the main reason as to why the governments need to regulate the electronic appliances market. It is one of the important works in behavioural economics which sheds light on the factors affecting the choices of general consumers in buying energy efficient products.
Paul Romer, a New York University economist and former chief economist of the World Bank, is best known as a proponent of the Endogenous Growth Theory. His works have demonstrated how technological innovations can function as a driver of long-term economic growth and how external factors such as human capital affect the growth output. It is not that previous macroeconomic researches haven’t emphasised technological innovations as the main driver of economic growth. What the theories of other economists missed was the modeling of economic decisions and market conditions as a determinant to the creation of new technologies.
His contribution has been to incorporate the human capital into the economic growth accounting process. Earlier, humans were accounted as manual labourers in economic growth calculations and projections. Romer stressed investing in education and giving special focus on indigenous technology, knowledge and skills that would spur innovation. This would make an upward shift in the production capacity leading to long-term sustainable economic growth and development. Researches conducted by global institutions like the World Bank, Asian Development Bank and governments have proved Romer’s conceptualisation about the role of human capital in attaining higher economic growth.
The economic models developed by Nordhaus and Romer can be even more relevant to countries like Nepal which need to develop large infrastructures fast by minimizing the risks of environmental degradation and optimally utilising technological innovations to achieve higher economic growth. Let’s hope policymakers will pay attention to the learnings shared by the two American scholars.