{"id":21905,"date":"2016-10-01T17:20:15","date_gmt":"2016-10-01T22:20:15","guid":{"rendered":"http:\/\/olduvai.ca\/?p=21905"},"modified":"2016-10-01T17:20:15","modified_gmt":"2016-10-01T22:20:15","slug":"the-most-important-and-misleading-assumption-in-the-world","status":"publish","type":"post","link":"https:\/\/olduvai.ca\/?p=21905","title":{"rendered":"The most important and misleading assumption in the world"},"content":{"rendered":"

THE MOST IMPORTANT AND MISLEADING ASSUMPTION IN THE WORLD<\/a><\/h3>\n
Editor’s note:\u00a0<\/strong>This is the second of a two-part series by the author. Part one:<\/em>\u00a0“Macro and climate economics: It’s time to talk about the ‘elephant in the room’.<\/em>“<\/em><\/strong><\/a><\/div>\n

Part one of this blog post explained how macroeconomic models are flawed in a fundamental way.<\/p>\n

These models are coupled to models of the Earth\u2019s natural systems as Integrated Assessment Models (IAMs) that are used to inform climate change policy. Most IAM results presented in the Intergovernmental Panel on Climate Change (IPCC) reports show climate mitigation costs as trivial compared to gains in economic growth.<\/p>\n

The referred to \u201celephant in the room\u201d (from part one of this series) is the fact that economic growth is usually simply assumed to occur.\u00a0 No matter what the quantity or rate of investment in the energy system or the level of climate damages, the results indicate that economy will always grow. This defies intuition, and begs the question: If the costs of climate mitigation really are so small, then why is there so much disagreement over a low-carbon transition?<\/p>\n

One way to explain the problem is via a term called \u201ctotal factor productivity,\u201d or TFP. TFP is the Achilles Heel of macroeconomics, and why no one talks about the aforementioned elephant with the exposed heel in the macroeconomics classroom.<\/p>\n

Essentially economic output, or GDP, is usually modeled as being dependent upon the amount of labor in the workforce, the amount of capital (e.g., factories, machines, computers, buildings), and TFP.<\/p>\n

TFP can be understood as all of the reasons why the economy grows that are not already characterized by the quantity of labor and capital.\u00a0 In statistical terms it\u2019s called a \u201cresidual,\u201d or the amount unexplained by an assumed underlying equation of economic growth.<\/p>\n

…click on the above link to read the rest of the article…<\/p>\n","protected":false},"excerpt":{"rendered":"

THE MOST IMPORTANT AND MISLEADING ASSUMPTION IN THE WORLD Editor’s note:\u00a0This is the second of a two-part series by the author. Part one:\u00a0“Macro and climate economics: It’s time to talk about the ‘elephant in the room’.“ Part one of this blog post explained how macroeconomic models are flawed in a fundamental way. These models are […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_monsterinsights_skip_tracking":false,"_monsterinsights_sitenote_active":false,"_monsterinsights_sitenote_note":"","_monsterinsights_sitenote_category":0,"footnotes":""},"categories":[2],"tags":[113,14423,141,4517,14424,5161,440,3787],"class_list":["post-21905","post","type-post","status-publish","format-standard","hentry","category-economics","tag-carbon-emissions","tag-carey-king","tag-climate-change","tag-economic-models","tag-integrated-assessment-model","tag-intergovernmental-panel-on-climate-change","tag-ipcc","tag-macroeconomics"],"_links":{"self":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts\/21905","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=21905"}],"version-history":[{"count":1,"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts\/21905\/revisions"}],"predecessor-version":[{"id":21906,"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts\/21905\/revisions\/21906"}],"wp:attachment":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=21905"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=21905"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=21905"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}