Michael Mann has co-authored a witty letter to the Wall Street Journal. Here is a photo for you to appreciate his insights.
His letter makes an analogy between climate change and Clint Eastwood in the first Dirty Harry movie. For those of you who are too young to have watched this then watch this YouTube Video.
In this scene, the Bad Guy is uncertain about whether Clint still has a bullet in his gun. He guesses wrong and dies due to his decision.
Professor Mann is implicitly saying that we also face uncertainty in the face of climate change and we are currently taking a gamble by allowing global greenhouse gas emissions to rise. He is hinting that we will suffer the same fate as the Bad Guy in Clint's Dirty Harry movie.
Is he right?
The theme of my 2021 Yale University Press book adapting to climate change is that more and more of us know that we don't know how hard Mother Nature will punch different points in the map. This uncertainty actually creates an incentive to adapt and to learn about these risks. In my book, I argue that capitalism is now evolving and gearing up to cope with this risk. Free markets will help us to adapt to this scary risk exactly because it is so scary. Aggregate demand creates supply. We have baldness medications because there are millions of bald men willing to pay for such a cure. In a similar sense, free market price signals lead to directed search for the new problems that people need solved.
Read chapter 1 of my new book here.
PHD economists need to work on the question of how people react to ambiguous risk. When risk averse people know that they do not know what risks they face, what "real options" do they implicitly buy to protect their families so they can reoptimize in the future when they know more about the tradeoffs of living in a place such as a fire zone or flood zone? Modern climate economics today seeks to ignore the Lucas Critique because it makes the math messy but that's not a good reason to take choice under uncertainty seriously. Induced innovation will occur because of the uncertainty. This means that our adaptation menu choice set expands over time. This means that the "envelope theorem" doesn't hold. What it does mean is that the empirical climate damage function (the Key to Bill Nordhaus's Nobel Prize work) flattens over time due to adaptation efforts.