This piece in Scientific American magazine purports to show that neoclasscial economics is somehow incapable of providing insight into environmental policy concerns.
It does not in fact do this, largely because the author, a professor of English (!) at George Mason University, does not, like many "heterodox" critics of mainstream economics, actually understand neoclassical economics in any meaningful way. Instead, while the author focuses his attention on a misunderstanding of the invisible hand metaphor, his piece actually reflects his failure to take full account of another facet of neoclassical economic that also dates back at least to Adam Smith, namely specialization and division of labor. Nadeau is no doubt a smart man, but evidently one who suffers from a surfeit of confidence in his own ability to apply his intelligence to quickly understand, at a level deep enough to write a broad, general, historically based critique, a field that others spend decades learning.
Reading this piece it is impossible to conclude other than that Scientific American published it without sending it to a single economist to look at. It makes bizarre statements about a principal of "conservation of utility" that is supposed to guide economic models. It posits a conspiracy theory to cover up "the existence of the unscientific axiomatic assumptions" by whole cohorts of economists. How did they coordinate on this cover-up? Why did none of them reap the huge intellectual and career rewards that would have come from lifting the curtain? No explanation of this long-standing and alledgedly very successful conspiracy is offered.
The paper also includes a list of "unscientific assumptions" that supposedly underlie the neoclassical economic paradigm. This list illustrates that the author does not know the difference between an assumption, a conclusion from a particular class of models, factual statements about the empirical world, and policy conclusions from specific classes of models. Indeed, it makes it somewhat hard to believe that Scientific American had any serious scholar look at this paper prior to publication, let alone an economist. For example, one assumption in the list is that "resources of nature are largely inexhaustible", an assumption seemingly somewhat at odds with the large literature on the economics of exhaustible resources. I completely agree with the line following the list of assumptions that "[o]ne does not have to be a scientist to realize that these assumptions make no sense in scientific terms." Indeed! But that is because the person who wrote them down does not understand what an assumption is, not because the list provided has anything to do with the foundations of neoclassical economics.
Much is made in the paper about the "closed system" of general equilibrium. Of course, closing the model is more or less the point of doing general rather than partial equilibrium. Nadeau does not really get what economic models are intended to do or indeed the broader point that a model is different than a photograph in that it purposely does not include every feature of the phenomenon being modeled so as to highlight and clarify the workings of specific mechanisms. Thus, he does not understand that the "closed system" can include whatever the economist wants it to include, including, in many recent cases, climate change of various sorts.
Not all of the howlers have to do with economics. At one point, Nadeau blames the fact that most international agreements relating to environmental concerns often accomplish very little not on rather obvious fact that governments have very little incentive to do so and much incentive to advance the goals of the special interests upon whose support they rest, but instead on the pernicious effects of cost-benefit analysis (which never seems to come out in favor of the "scientifically viable" policies he favors). A bit of public choice theory, or its political science analogue of rational choice international relations theory, would go a long way at this point in the argument and, indeed, more generally throughout the paper. Nadeau has a charming childlike faith in the power of the state, guided of course by well-meaning experts like Nadeau, to work great good in the world. If the international negotiators did not value the scientific evidence, it is not because they did exactly what every model of government would predict them to do, but instead because of the pernicious influence of economists! This bizarre argument is necessary for Nadaeu to avoid the cognitive dissonance that would otherwise exist between the failure of governments to effectively deal with many modest international environmental issues up to this point and his clear view that massive government involvement is required to deal with global warming.
Another howler is that he places game theory outside of the edifice of neoclassical economics. Indeed, in a rhetorical tool common to many critics of economics, innovators within economics, in this case Robert Sugden, are selectively quoted against economics. Later he approvingly cites Nicolas Stern to the effect that global warming is not a standard problem of externalities but instead is a "global collective action problem". He neglects to inform his readers that both of these concepts, not just the first, are parts of standard neoclassical economics.
Shame on Scientific American for publishing this rubbish.
[Addendum: Nadeau also has a courtesy appointment in the Environmental Science and Policy program at GMU. ]
Hat tip: reason.com