How captured economics stole our climate — and what we can do about it (Part 2/4)
PART 2: My ah-ha model
“Remember, always, that everything you know, and everything everyone knows, is only a model. Get your model out there where it can be shot at. Invite others to challenge your assumptions and add their own. Instead of becoming a champion for one possible explanation or hypothesis or model, collect as many as possible. Consider all of them plausible until you find some evidence that causes you to rule one out. That way you will be emotionally able to see the evidence that rules out an assumption with which you might have confused your own identity.”
Donella Meadows († 1941–2001), Dancing with Systems
Note: This is the second in a t̶h̶r̶e̶e̶four-part essay series that explores the discipline of economics’ role in our failure to halt global warming, drawing on my personal experience studying and working as an economist over the last 25 years or so. In Part 1 I reflected on what (almost) failing to become an economist taught me about economics. In this second essay I delve into the model that helped me understand where economics went gone wrong — most devastatingly in its approach to calculating the economic costs of climate change — and what it taught me about problems both in economic theories and the culture of the economics discipline. I̶n̶ ̶t̶h̶e̶ ̶f̶i̶n̶a̶l̶ ̶e̶s̶s̶a̶y̶ ̶(̶c̶o̶m̶i̶n̶g̶ ̶s̶o̶o̶n̶)̶ . In Part 3 (linked below) I discuss the what is keeping us stuck, and what alternatives exist, and in Part 4 I offer some ideas of how we can reclaim economics for the common good.
But first, a story.
Imagine you have a friend who is a severe work-aholic. Over their lifetime they earned a lot and accumulated significant wealth. But they also stored up a host of stress-related problems: anxiety, heart disease; drug, alcohol and gambling addictions.
Mentally and physically, their work-hard, play-hard lifestyle is taking its toll. But, unable to slow down, they keep going, medicating their way through every ailment with the latest miracle drug.
The problem has got so bad you fear for your friend’s life. You convince them to seek professional help. You reason that if they could get a diagnosis for their addictions, they could receive the treatment they need. Over time, they might be able to find a better work-life balance that would enable them to meet their material needs without damaging their health.
You accompany your friend to see a doctor. The doctor examines them and agrees they are sick. However, they say there is no evidence that an addiction to work is the cause. Indeed, the doctor tells you work is exactly what has enabled your friend to afford the expensive drugs that keep them working! Instead of easing off, your friend should work even more so they can afford some experimental new medicines which will make them even more productive and thus, even richer and able to afford more drugs.
Instinctively, you know this does not sound right. There is no guaruntee the new medicines will work; there may be serious side-effects. Further, your friend is an addict. If they continue working they could develop ailments which cannot be so easily treated, pushing their body beyond its ability to recover. Their sickness needs to be addressed at its root cause: by helping them off their addiction work.
So you seek a second opinion, and then a third. But all the doctors give you the same answer: your sick friend ought to keep working to afford better drugs.
Perplexed, you search through medical journals. But there is little reference to workaholism. Where it does appear, the conclusion is always the same — slowing down will only make things worse, the patient ought instead to medicate themselves better. Despite the potential for side-effects, despite the possibility that their problems may become so great that no medicine will be able to treat them. Even though you and everyone around your friend can see they are sick, the medical profession just refuses to acknowledge that the solution to overwork might be less work.
Then you discover a small group of doctors — let’s call them heterodox doctors — who have been calling out the problem of workaholism for decades, and proposing a range of treatments to counter it. However, the leading medical journals, which are edited by mainstream doctors, refuse to publish their papers or help fund their research.
It is as if, to the mainstream healthcare profession — workaholism simply doesn’t exist*. As such, your friend cannot get treatment, the insurance companies won’t reimburse them and so they have to keep going, hoping that — unlike in that famous Verve song — the drugs will always work.
*(just to be clear, the medicial profession does recognise workaholism).
At first, I couldn’t tell what I was looking at.
I shared it with my husband. He was equally confused.
We’d both studied economics, and he also had an advanced degree in maths. But neither of us had ever seen a chart like this:
This is an output of the The Standard Run, generated by World3, a systems dynamics model created by the MIT scientists who wrote The Limits to Growth (1972).
It was September 2017 and I had just returned from a week in Florence where I had taken part in a summer school organised by the Club of Rome, the think tank which had sponsored the MIT study.
I’d been readying myself to return to work after maternity leave. However, I knew I didn’t want to go back to being an economic consultant. By 2017 I was becoming concerned about the climate crisis and moreover, our leaders’ unwillingness to do anything about it.
Because, in my economics classes I’d been taught to believe that as incomes rise, countries tended to value environmental protection more. Yet despite having signed the Paris Agreement in 2015, with the hangover of the 2008 financial crash still lingering, rich governments like the UK seemed more intent to “get rid of the green crap” than investing in saving our future. The corporate world was little different. Whatever lip-service their Geneva headquarters were paying to climate, my clients in Eastern Europe were occupied with one goal: the search for growth.
Clearly, our economic model wasn’t working. The people in charge were driving us towards a cliff, and we had to get hold of the steering wheel. So the theme of the summer school — “Reclaim our Economy” — felt like just what was needed.
The first half of the week was a series of workshops on the health of our planet and ourselves. And our vital signs were not good.
Until Florience I had mainly viewed the climate crisis as an energy crisis. Now, for the first time I learned about concepts such ecological overshoot and the planetary boundaries framework, which showed that humanity had breached multiple pressure points related to our extractive economic system— such as around the scale of biodiversity loss, ocean pollution and deforestation.
But the seminar wasn’t all doom. We also explored how we might turn things around: about new measures of progress which could help shift policy priorities, and new economic models which offered ways to meet our needs within the means of the planet. I’ll admit, though, back then I was doubtful we’d ever build a large enough movement around them (today, at least on this point, I am more optimistic).
What stayed with me most, though, was that initial black-and-white chart. I had known little of the Club of Rome before attending. So when the presenter started talking about the history of the Club, pulling up a visual of the Standard Run, I was taken aback. The creators of this model, almost 50 years ago, had already seen a foreseen the kind of collapse we clearly now faced — and we seemed to be right on track.
Then I realised: this was an economic model. So why, as an economist, was I seeing it for the first time? And why did its conclusions run counter to pretty much everything I’d learned?
Back home, I started to read everything I could find about The Limits to Growth and the science behind it. And the more I learned, the more I started to question so many of the economic theories I’d been taught — and not just the theories, but the system that allowed their obvious flaws to persist — with devastating consequences.
But first, a bit about that model.
World3 was systems dynamics model — a form of analysis developed by MIT engineer and computer genius Jay Forrester during the 1950s and 60s.
Forrester used to say that, whether we realise it or not, we all walk around with a model of the world in our heads which we use, like a map, to navigate the world. And those maps are mostly incomplete, subject to the limits of our knowledge and the extent of our biases.
Systems dynamics was about creating a better map, about laying everything out so one can see how all the elements of the system interact with each other over time. Change one part of the system, and the other parts of the system will react. In the lingo of systems dynamics, this is known as feedback.
As one example: using a model he’d built of the city of Boston, Forrester argued against expanding highways to reduce congestion, because it would only attract more cars into the city. This is a form of positive (or reinforcing) feedback which many cities, particularly in the US, know only too well.
In 1970 the Club of Rome, a think tank founded by the Italian industrialist Aurelio Peccei, asked Forrester for help in figuring out how to solve problems with the world system — the Problématique, a “complex nest of continuous critical problems” plaguing industrial society, such as hunger, poverty, ecological degradation and pollution.
So he proposed to build such a map.
Actually, it would be his protegé, Dennis Meadows, together with his wife, Harvard biophysicist Donella Meadows (who also wrote the book), who would build the map. With the help of over a dozen scientists from across disciplines and around the world, they spent a year digging for data and engaging with experts to try to understand the dynamics of the world system.
They organised their model into five core components: nature, food, population, industrial production and pollution. To this they added a range of other variables that influence these and each other, like education, healthcare and technological innovation.
Here is the final “map” of the world system (World3):
To figure out how to solve the Problématique, the team then created a range of scenarios — assumptions about how we might organise ourselves in future. Then they set their MIT mainframe to run computations out to 2100.
All bar one simulation triggered a collapse in the population by the end of this century, either because we’d use up too many resources, or we’d create too much pollution. The scenario that avoided collapse while meeting human needs capped economic growth before we could overshoot earth’s capacity to sustain us.
We might sum up their findings thus: the ultimate source of all our economic wealth is nature. We are depleting it with breathtaking speed. For a while, incomes may rise. But over time, we will store up problems, like pollution, which will harm human health and our ability to grow food, eventually causing the population to collapse. To avoid this outcome, we must seek ways to meet our needs within the earth’s natural limits. The sooner we start, the easier it will be to make the transition, and the greater our chances of success.
The team would later explain they weren’t really saying anything that hadn’t been said by many of the experts they had interviewed, from the United Nations to the National Academy of Sciences. Essentially, the world was finite and we cannot keeping exploiting earth’s resources faster than the earth can regenerate without problems eventually becoming intractable.
But, as we detail in our three-part podcast series, to the team’s surprise, and anguish (given the stakes) The Limits to Growth set off a storm of controversy, ultimately leading decisionmakers to ignore its vital message. And leading the attacks were economists.
“ [The Limits to Growth] is most certainly wrong, but even in the very unlikely case the team were even remotely right, the prescription would still be wrong. The problems of levelling off growth are not for our century nor the next. And if the environment can’t take that much growth, there will be plenty of time for adjustment. The limitations imposed by the environment make themselves felt long before the ultimate limits are reached.”
- William Wallich, Yale economist and Treasury advisor, speaking to a conference of US newspaper editors in Washington in the spring of 1972.
Wallich’s disparaging take on The Limits to Growth was echoed by many other leading academic economists, government advisors and writers in influential publications such as The Economist , Newsweek and The New York Times.
What seemed to irk economists most was the MIT team’s technological pessimism. As I had learned at university, to economists, innovation (not nature) was the source of all growth, and growth — whatever its downsides — was deemed necessary for continued prosperity.
Yet as the team so often explained: they were not anti-technology. As MIT scientists, they literally were technologists. But they also recognised that, while technology had the possibility to solve certain problems, it could create others. By the time such problems become apparent, they can only be solved at great cost — if at all.
Take the Haber-Bosch process. This technique for creating nitrogen-based fertilisers powered the Green Revolution. But while it greatly increases yields, as nitrogen dissipates and accumulates in the air and in water, it causes acid rain, ocean dead zones and of course, climate change (since nitrous oxide is a powerful greenhouse gas).
The MIT team warned of these risks back in 1972 and advised we start to research organic alternatives. Today, however, our food systems are deeply dependent on these synthetic fertilisers, which help feed around half of the world’s population. Earth systems scientists agree that we must wean ourselves off them if we are to halt global warming. If we do not, these “miracle” agents, which were meant to feed the world could, ironically, end up causing global hunger.
Digging into both the science and the story behind The Limits to Growth taught me how woefully short economics had fallen in being able to grasp the systemic issues I thought I’d signed up to study as an undergrad. With their narrow focus on prices and markets and seeming blind faith in technology, they were missing the big picture of the true drivers of our economies — natural and political forces. And they were missing the long-term dynamics — the risks all that growth may be storing up for us, and nature, on which we depend.
The question that has been on my mind since is: why, half a century on, now we clearly have reached the limits to growth— are economists so unwilling to admit it? Why do they propose the medicine of more growth when surely the most effective solution is: do less?
One argument is that — while The Limits to Growth had focused on material growth, it is possible to keep growing GDP — essentially the dollar value of everything produced or sold in a year — in an increasingly dematerial way.
Aside from the fact that there are clearly limits to how far we can dematerialise (we’ll still need resources just to maintain what we have)— for all the talk of circular economies, we are still moving in the opposite direction. This is because all those efficiency gains, the recycled materials and the digital cost-savings have simply enabled us to produce more material growth. Witness how AI, a technology meant to make us more productive, is actually causing energy consumption to go up.
This phenomenon is called the rebound effect — something the authors of The Limits to Growth knew only too well, because it has been observed since the start of the industrial revolution.
Climate policy scientists understand this, too. In a recent survey of almost 800 of them, the vast majority expressed scepticism that we can grow our way out of our crises, especially in the Global North with our larger ecological footprints.
Yet, thanks in large part to economists’ decades-long refusal to acknowledge limits to growth, every single climate-economic model used by the IPCC assumes that GDP will always grow. As a result, prevailing net-zero pathways require large volumes of carbon to be captured and stored, using highly speculative and costly technologies— rather than cheaper and more reliable measures centred on sufficiency, not growth.
Delving into The Limits to Growth taught me, that just like the trade theories I absorbed during the globalisation era, the theory that economic growth can solve our ecological crises is just that — a theory.
And there is no model that better captures the theory’s flaws — and those of the discipline of economics more broadly — than that of the “father” of climate economics himself, William Nordhaus.
I first encountered Nordhaus’ work when writing my Masters thesis. I’d been hoping to acquire the tools of an environmental economist. But it left me feeling, if anything, more disillusioned about economics than before.
It was 2014 and I was returning to my studies after taking a break to start my family, not long after the UK Prime Minister’s famous pledge to purge the budget of the “green crap”.
But some of that “crap” included subsidies to insulate the UK’s housing stock, which ranked bottom in Europe in terms of energy efficiency (where it remains today).
Surely, I thought, the economic arguments of greening homes must be obvious: lower energy bills, less fuel poverty, improved health, job creation — not to mention the contributions to curbing global warming.
Keen to enhance my quantitative skills, I planned to prove this through a cost-benefit analysis — one of the key tools used by government economists, whose ranks I’d spectacularly failed to enter a decade prior.
Cost-benefit analysis aims to help decisionmakers make more informed choices about how to spend their limited budgets. On the surface, it’s beautifully simple: you calculate the expected costs of a particular policy measure over the project’s lifetime, and then you estimate the benefits — economic, as well as social. If the sum of benefits outweigh the costs, the project gets a green light.
I chose to study my city of Glasgow, a famously chilly part of Scotland with some of the draftiest homes in the country. Over three months I painstakingly gathered data about the housing stock and used bespoke software to calculate the potential energy savings from insulating roofs and facades and replacing windows and doors.
Estimating the financial costs of retrofits was easy. Some of the benefits — like jobs created — were straight-forward, too. Others were harder to prove— for example, the health benefits of warmer homes, for which I could find no evidence that met the requirements of my model.
I had also expected avoided costs of global warming to play a bigger role, but estimates of economic damages (such as by Nordhaus) suggested they wouldn’t show up until far into the future.
I was starting to view this whole bottom-up process as a moral and ethical minefield. If green jobs are a benefit, do I treat jobs lost in the North Sea oil industry as a “cost”? Was it reasonable to omit potentially large benefits, such as to health, simply because of missing data? What “price” does one attach a human life anyway? And what about other species?
In the end, I had to go with the data I had. I tallied everything up and applied the UK government’s official discount rate of 3.5% (it now allows for a lower social rate of 1.5%). The discount rate is meant to signify that the future is uncertain, so projects with quicker pay-offs will get preference.
The result: no-go.
The only way it would have met the bar would have been to lower the discount rate to zero.
That’s it. Something as seemingly benign as discounting by a few percentage points had upended my case for retrofitting Glasgow.
Of course, this was an academic project and it’s quite possible that government economists, with greater resources, may generate different results (though with such tools, it is easy to see how one could make the case to “cut the green crap”).
What alarmed me was not so much the result, but the impact of discounting, especially for projects where benefits (or avoided costs) accrue far into the future. As I show with this chart, even for a project that provides steady benefits every year, after 50 years a 1.5% rate lowers total benefits by 20%; a 3.5% rate — the standard UK government rate — slashes them by 40%.
I understand that politicians, playing to the rhythm of election cycles, look for quick wins. But should economics — a purported science — be applying the same logic? Especially to something with such lasting implications — and surely cumulating costs —if we do not act — as the climate crisis?
William Nordhaus seemed to think so.
Nordhaus produced his first climate economic model, DICE, essentially a global cost-benefit analysis, in 1990, the same year the IPCC published its first assessment report on the state of our climate.
In that report, the world’s scientific authority on climate change projected that without actions to limit emissions, we were on track for +0.3°C of warming every decade, or about +4°C by the end of this century (more recent estimates suggest even +3°C would be catastrophic).
Given the large uncertainty, but very high risks of severe impacts, the scientists concluded we ought to aim for policies that would limit warming to not more than +0.1°C per decade — or around +1°C by the end of this century. In other words, we should not exceed the upper temperature range of the Holocene, the stable and warm period coming out of the last ice age in which we developed agriculture and within which we know humans, and the species on which we depend, can survive.
To his credit, Nordhaus was the first economist to take climate change seriously. However, Nordhaus’s model calculated that damages from climate change would outweigh the benefits from fossil fuels when warming reached +4°C. Essentially, the result of his tallying up of all the costs and benefits led him to conclude that the economically optimal rate of warming was the rate that climate scientists deemed could be catastrophic.
One reason for Nordhaus’ sanguine calculation was his high (3–5%) choice of discount rate. Later, even some of his peers would question the ethics of discounting future climate damages (though governments like the UK and US continue to do so).
However, more recent analysis by heterodox economist Steve Keen has revealed far deeper flaws in Nordhaus’ logic (For a full run-down, I highly recommend this article and 15-minute video explainer).
Among them, Nordhaus assumed global warming would impact around just 10% of the economy — the parts that takes place outdoors. As if, simply by virtue of being indoors the rest of us would be spared the impacts of floods, droughts, hurricanes, wildfires, sea level rise, harvest failures and so on.
This breathtaking omission goes back to a foundational problem with how mainstream economists treat nature. As an input — a resource — not the foundation of all life and thus, economic life.
But Keen was not the first to point this out to Nordhaus. I was to discover during my research that the authors of The Limits to Growth had communicated similar shortcomings, decades prior.
The young Nordhaus had been another Limits critic. In 1974 he published a paper accusing Jay Forrester of making Measurements Without Data. Nordhaus took issue with the systems dynamics approach of simulating the risks associated with problems rather than trying to calculate the costs in dollar values— even for damages which may only occur far into the future, but for which to prevent them, we must act today.
Forrester explained his methodology in his detailed response—where he in turn critiqued the limits of Nordhaus’ more linear, bottom-up approach — but the economics journal refused to publish it (you can read it here).
Almost two decades later, when Nordhaus published his first draft of DICE, Limits to Growth author Donella Meadows reached out to raise her concerns. In their private exchanges, contained in her archives, she pointed out a number of what she believed to be grave methodological errors, from discounting ecological damages to the lack of rebound effects to the omission of uncertain but high-risk, high-impact outcomes, writing:
“Since any one of these flaws would be enough to flunk a student in systems dynamics, I tend to be aghast that such models be made, let alone published.”
But published it was.
Not only did it pass peer review, Nordhaus’ DICE model became the blueprint for how economists would model the economic implications of climate change for decades, used, among others, by the IPCC and the EPA, even earning Nordhaus a Nobel memorial prize in 2018.
And yet, Nordhaus had committed the number one crime of systems dynamics: he hadn’t “put his model out there for all to see.” He’d failed to accommodate feedback from a range of experts— not just economists (who, in turn, seemed to prefer to shield him from any criticisms — as per the journal’s refusal to share Forrester’s response).
As such, DICE remains the most widely used climate-economic model today. This is despite Nordhaus’ still calculating a “cost-benefit optimal” far above scientific consensus (+2.6°C) — while his estimates of the economic costs of reaching +3°C of warming by 2100 are just 1.6% of GDP (for comparison, costs of the LA wildfires are estimated at $250bn, or 1% of US GDP, already in 2025!).
Clearly, there are deep methodological and structural problems with a modelling approach that leads to outcomes that are misaligned both with climate science, and with the lived reality of global warming.
Yet, thanks in part to the discipline’s silencing of critics offering potentially more appropriate methods — like systems dynamics — cost-benefit has become the standard in economics. As a result, other influential climate economists — even where they disagree with Nordhaus over issues such as the discount rate — use models with the same shortcomings.
As one example, a team of economists recently tried to account for the failings of traditional cost-benefit analysis by seeking to incorporate the feedbacks which could lead us to breach climate tipping points, putting us on a pathway to more devastating warming. One such tipping point is the collapse of the AMOC — the plot of Hollywood blockbuster The Day After Tomorrow.
The economists concluded that losing the AMOC plus seven other potentially catastrophic tipping points, which could lead us to +6°C of global warming, would cost just an additional 1.4% of GDP by 2100. In other words, the equivelant, globally, of not even two LA wildfires.
(In a Twitter comment Keen quoted in his blog, I made the point, reasonably I maintain, that if we lost the AMOC we’d have no economy).
Such models, with their elaborate equations and talk of confidence intervals give the impression that this is sound science — but even the authors admitted that true costs were more likely hundreds of times higher. Their aim, they claimed, was not to put a final figure on it (though they also did put a figure on it), but to create “an important foundation and tool for exploring these issues.”
If you have to admit your model in no way comes close to representing reality — perhaps its time to reconsider your model?
Maybe, The Limits to Growth was on to something, after all?
Can we expect mainstream economists to admit this? Do we need them to?
Unfortunately, right now, given their on-going influence on all areas of decisionmaking and discourse — I think we do need to engage them.
Although my recent experience suggests we have some way to go.
In 2023, the same week we published the first episode of Tipping Point, some 4,000 scientists, policymakers and activists gathered in Brussels for the Beyond Growth Conference.
The Economist magazine (whose sister company I used to work for) was one of the few known titles to write about it. But, not only did it dismiss it as a “loony left” gathering of some “minor academics” (as an attendee, I can attest this was not the case). For a newspaper that prides itself on editorial quality, I was surprised to see the author claim that The Limits to Growth “turned out to be surmountable”, even though we have overshot six planetary boundaries and are still decades away from the outcome simulated in the Standard Run, which did not foresee collapse occurring until around 2050.
Shortly before, Paul Krugman, that renowned Nobel-winning economist whose trade theories I’d inhaled as an undergrad, used his New York Times blog to reassure the world that “there is no necessary relationship between economic growth and the burden we place on our environment.”
Tim Parrique — an ecological economist who wrote his entire PhD on limits to growth — pointed out the many flaws in this argument.
Krugman did not grace him with a response.
A year later, I co-organised a conference in the Austrian parliament, bringing together leading scientists and political analysts to present the latest evidence of ecological overshoot and limits of “decoupling” — urging our leaders to find ways to organise the Austrian economy — a rich country with a large ecological footprint — beyond growth.
A week prior, Gernot Wagner — the same climate economist who attempted to model the impacts of breaching eight tipping points with a cost-benefit analysis — wrote an article in a leading Austrian newspaper confidently explaining how we cannot solve the climate crisis without growth.
I have tried to engage Wagner on several occasions, to no avail.
It feels like 1972 all over again.
To me, this is where the story of The Limits to Growth exposes the wider problem with the discipline of economics.
Many blame the shortcomings of climate economics on Nordhaus. But this is not just about one man (though it is mainly about men).
It’s about the journal editors, the textbook publishers, the academic protocols, the newsrooms, the Nobel memorial prize committees (and the fact that economists had to create their own Nobel in the first place).
Above all, it’s about the ideologies, the mindsets and the culture within economics that has led it to be uniquely averse to criticism — and uniquely aligned with preserving the status quo — even when we’re talking about the fate of our planet.
At the top I wrote a silly story about doctors who won’t recognise their patients’ dangerous addiction to work.
If a doctor had dismissed the patient, sending them back to work with productivity-enhancing drugs, and that patient then became fatally ill — you may expect that doctor to face some kind of consequences.
You would not expect them to keep offering the same advice.
In 2025, less than two years out from when we will use up the remaining climate budget for 1.5°C (for a two-thirds chance of success) from a risk management perspective alone — we ought to be considering alternatives to growth. We should have all options on the table. Not to do so would be, in my view, irresponsible.
Recently, the UN special envoy on extreme poverty concluded that our traditional approach to trying to grow our way out of problems like hunger and poverty—solve the Problématique — is not only wrong, but dangerous. In the name of GDP, he says we are “exhausting people and the planet.”
He is calling for fresh thinking. I wonder if mainstream economists — the doctors of our economy — will step up?
What I know for sure, is that heterodox economists — like Keen, Parrique and many others, including many women and non-white and Global South economists — have plenty to offer. Many such economists have been challenging economic wisdom for decades, much as the mainstream may prefer to ignore them.
As I will explore next time, their research on topics such as the role of innovation, money, nature, states and markets throw virtually every single assumption about the virtues of growth into question, while offering solutions that work for people — and the planet. And as the success of the Beyond Growth conferences show, there is growing interest in their ideas.
But first, I’ll delve into where this clubby culture comes from. Because if we want to free ourselves from the growth paradigm, we’re going to have understand the system dynamics — of mainstream economics.
Til then.
