Models -- economic and climate

Robert P. Murphy at the Mises Institute looks at models of the economy and the climate. 

In a recent post on the popular blog Marginal Revolution, a reader asked GMU professor Tyler Cowen whether his experience with economic models shed any insight on the promise or pitfalls of climate models. I think the question is brilliant, and (in my immodest opinion) far more interesting than the answer Cowen gave. In the present article I'll attempt to give the question the fuller treatment I believe it deserves.

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What Went Wrong in Economics

Professional climatologists are aware of the analogy between economic and climate models, and they (correctly) point out that the social sciences are far less susceptible to mathematical description and computer simulation than are the natural sciences. Even though there are some loose joints in climate models, they are still built up from the laws of physics. In contrast, there is nothing analogous in a macroeconomic model, especially a "hydraulic" Keynesian one from the 1950s. Even the tautologies from microeconomics — such as the fact/postulate that a consumer maximizes his utility subject to his income — weren't in the earlier macro models. To put it in other words, macroeconomists had (and continue to have) a lot more leeway or degrees of freedom when constructing their models, compared to the climatologists.

Having conceded that there is more of an "idiot check" on climate models, we should still remind ourselves of what went wrong in the economics profession. Climatologists shouldn't comfort themselves by saying, "Well gee whiz, our PhDs don't do anything that sloppy!" What happened in economics was that pioneers such as Paul Samuelson and Kenneth Arrow showed how elegant economic models could be. Sure, some of the wisdom of the old school "verbal" economists was lost in the translation, but oh, how rigorous and precise was the new approach! Although government funding certainly had something to do with the transformation, I think some Austrian economists underestimate the seductive power of formal modeling, and how a rising generation of the brightest (and mathematically adept) economists were drawn to the work of Samuelson, et al.

In essence, economists came up with their models, and their computers could draw charts with a precision of umpteen decimal places, and economists decided the precision in the calculated result must translate to accuracy in the underlying theories. He continues the discussion with climatology.

What May Have Gone Wrong in Climatology

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My current job requires me to at least familiarize myself with the typical climate scientists' case for anthropogenic (a fancy term for "manmade") global warming. The deeper I get into the literature — especially when reading their responses to skeptics — the more analogous I think the situation is to the episode in economics sketched above. Richard Lindzen, for example, thinks that the cutting-edge models do not correctly model certain processes in the atmosphere at the "micro" level. Orthodox climatologists concede the point, but then challenge Lindzen to tweak their models in order to come up with a better simulated fit with historical observations (on temperatures, rainfall, etc.). Thus far Lindzen has been unable to do this, because the fastest computers would not be able to run a simulation of the entire world, at a scale small enough to capture the effects Lindzen points to, and obey all the laws of physics.[1] What has happened (it seems to me) is that even the latest generation of climate models necessarily make some heroic simplifying assumptions, in order to render the model tractable. Lindzen isn't accusing the modelers of being lazy. Even so, he maintains that their models are still crude and give very misleading results. The connection between the work of Paul Samuelson and, say, Israel Kirzner should be obvious.