William Nordhaus (Nobel ’18) reflects on his pathway into and through economics in “Looking Backward, Looking Forward” (Annual Review of Resource Economics, 2024, 16: 1–20). He writes: “I first saw light in Albuquerque, New Mexico, at the dawn of World War II, in the lush Rio Grande River floodplain, with an irrigated alfalfa field outside my window. Compared to the busy early lives of my children and grandchildren, there was not much to do but play marbles and pick up little prickers from the paths so that we could run barefoot. How did I get from an alfalfa field in New Mexico to Connecticut in 1959, join the Yale faculty in 1967, and land in Stockholm in 2018? This essay recounts the history of my journey. … Looking backward, I find that my interests have focused almost entirely on public goods, particularly global public goods, from technology and knowledge to climate change …”
The essay has many wonderful bits and pieces, as when Nordhaus spent his junior year of college abroad in Paris, being taught economics by a professor who “had not yet made it to Marxian economics and was entranced with Ricardian economics from around the 1820s.” Here, I’ll just mention a few points and examples that caught my eye.
On the problem that inventors can appropriate only a small share of the benefits of their innovations:
[T]he major roadblock to invention is the inappropriability of returns. This means that inventors cannot appropriate for themselves the full gains from new knowledge—they cannot collect the full value of the use of the knowledge. As a result of inappropriability, the private returns to innovation are usually well below the social returns, and less innovation takes place than is optimal for society as a whole.
Some examples of the inappropriability are inventors who died with little to show for their inventions. Nikola Tesla was a brilliant inventor who made many important contributions to the fields of electricity, magnetism, and wireless communication. However, he got little cash from his inventions and managed it poorly. When he died, he was bankrupt and living alone with pigeons in a New York hotel apartment.Other stories have a happier ending. One of the major innovations of modern times was an effective vaccine for COVID-19. … [A] crash program by governments, universities, and corporate scientists produced an effective vaccine in less than a year. The benefits of securing an effective vaccine one year earlier are literally in the tens of trillions of dollars according to studies by public health specialists and economists. How much of this is earned by the developers of successful vaccines? If we look at one of the major firms, Moderna, its market value rose from $20 billion prevaccine to around $120 billion in 2022–2023. Say all the vaccine makers gained $300 billion. This reward is surely not a pittance, but it would be only circa 1% of the one-year social value of the vaccines (Watson et al. 2022). Notwithstanding this success story, the gap between social and private returns is a major impediment to effective innovation, and poor incentives appear to have slowed the development of later-generation COVID-19 vaccines.
On the issues of growth and limits to growth:
One of the joys of academic economics is model building. I built models of railroad profits, the US macroeconomy, the patent system, inflation, productivity, and induced technological change. I then turned to energy models. As mentioned above, the 1970s were the high-water mark of modern Malthusianism, predicting stagnation, the decline of living standards, and spreading famines. One of the doomsday books was by MIT’s Jay Forrester, called World Dynamics, published in 1971 (Forrester 1971). He was a computer genius, but I was appalled by the lack of economic analysis. I built and published (Nordhaus 1973) a model of the Forrester model to show that the results were highly sensitive to many assumptions and that any of several alternative assumptions would completely change the outcomes. History was not kind to the predictions of any of these studies, and Malthusian thinking proved as inappropriate to the late twentieth century as it had been in the early nineteenth century. However, while I didn’t much like the analyses in The Limits to Growth literature, I took the issues seriously. Clearly, there are limited resources of oil, gas, copper, and clean air. Just as clearly, technological change is finding substitute processes that replace scarce resources with superabundant resources. Perhaps the best example is fiber optics (light plus silicon) as a substitute for copper wire. The quadrillion-dollar question is whether technology will outpace depletion.
On progress made in analyzing climate change issues:
Because we know so much today, it is hard to remember how little we knew in 1970. Specialists thought the globe was cooling and that rising levels of particulates would further exacerbate cooling. The first study of the economics of climate change examined the impact of cooling, not warming. The only alternative to fossil fuels was thought to be nuclear power, which was viewed by many scientists with suspicion. All climate worries were based on modeling at that time, and only in the last two decades has the science been validated by observations. …
Over the next two decades, I moved from model to model like a pilgrim trying to find the holy grail. The main goal was to fix the two major flaws in the IIASA [International Institute for Applied Systems Analysis] model: to develop a general-equilibrium framework and to develop the modules of the climate externality, especially developing monetized damage estimates. Accomplishing these two goals took nearly two decades, and what finally emerged was the DICE model (Dynamic Integrated model of Climate and the Economy). The first major study was rejected by economic journals but accepted and published in Science (Nordhaus 1992). I have always loved the name of the DICE model. It is easy to remember and visualize. DICE also conveys a shiver of risk and danger. It alludes to the Faustian bargain that we make as we continue down the path of unchecked climate change, on the Walpurgis Night of reveling in a world enflamed by fossil-fuel passions and ignoring how the devil of damages will drag us into a hellish future. … My friend Martin Weitzman once teased me that updating the DICE model will provide lifetime employment until we solve the climate problem, which means lifetime employment. That certainty has proved an accurate forecast.
