Economics Needs a Climate Revolution
With its fixation on equilibrium thinking and an exclusive focus on market factors that can be precisely measured, the neoclassical orthodoxy in economics is fundamentally unequipped to deal with today's biggest problems. Change within the discipline is underway, but it cannot come fast enough.
BRUSSELS/NEW YORK – Nowhere are the limitations of neoclassical economic thinking – the DNA of economics as it is currently taught and practiced – more apparent than in the face of the climate crisis. While there are fresh ideas and models emerging, the old orthodoxy remains deeply entrenched. Change cannot come fast enough.
The economics discipline has failed to understand the climate crisis – let alone provide effective policy solutions for it – because most economists tend to divide problems into small, manageable pieces. Rational people, they are wont to say, think at the margin. What matters is not the average or totality of one’s actions but rather the very next step, weighed against the immediate alternatives.
Such thinking is indeed rational for small discrete problems. Compartmentalization is necessary for managing competing demands on one’s time and attention. But marginal thinking is inadequate for an all-consuming problem touching every aspect of society.