Home >Opinion >Views >Opinion | The economist who quietly worked on ways to correct the market’s flaws

The economics profession gets a lot of the blame for the increasing inequality in American society. Some of it is deserved. Yet the career of Harvard University economist Martin Weitzman, who died last week at the age of 77, demonstrates the limits of that negative portrayal.

Consider a recent op-ed article in The New York Times, in which author Binyamin Appelbaum implicates economists in many of the ills that plague the US. As he puts it, between 1969 and 2008, economists “lionized big business, defending the concentration of corporate power, even as they demonized trade unions and opposed worker protections like minimum wage laws". As a result, “growth slowed and inequality soared".

There’s truth to this story.

Although blaming them for the growth slowdown goes too far (that’s a global problem), economists such as Milton Friedman did publicly inveigh against government efforts to curb inequality.

They commonly opposed unions, and to some extent still do. And experts in the field of industrial organization acted as apologists for corporate mergers.

That said, the economics profession is huge and diverse.

Even as some economists were building a brave new world of inequality and corporate power, others were working to make it fairer, more equal and more sustainable. Weitzman was one of them.

Educated at the Massachusetts Institute of Technology under Robert Solow (an inveterate rhetorical opponent of Friedman), Weitzman investigated a dizzying array of subjects, always with extreme mathematical skill and logical rigour.

He’s probably best known for his work in environmental economics: Some believe he should have shared the 2018 Nobel Prize with William Nordhaus, who was his frequent foil in climate-related debates.

Many economists try to quantify the harm from climate change in order to determine an appropriate tax on carbon emissions. Weitzman argued that if the potential outcomes are truly disastrous, standard cost-benefit analysis doesn’t apply. If no one knows how likely a civilization-ending climate catastrophe really is, he showed, mathematical cost calculations break down.

So the most rational response is to take dramatic action, such that the worst-case scenario becomes extremely unlikely.

In other words, Weitzman’s work provides the intellectual foundation for radical solutions, such as those being proposed in various “green New Deals".

That’s not all.

Weitzman proposed changing the way the economy is measured to account for damage to the environment—what some people call Green GDP.

He also argued that planning for environmental protection requires a much longer-term view than planning for economic growth. And he explained why a cap-and-trade policy might be more effective at fighting climate change than the carbon taxes that economists commonly prefer.

In the end, climate solutions in the US will probably end up resembling Weitzman’s vision—dramatic, far-sighted, policies aimed at mandating lower emissions—than the more balanced, incremental approach favoured by economists such as Nordhaus.

Weitzman’s research extends far beyond climate change. While Friedman was extolling the virtues of the free market, Weitzman was examining the record of the Soviet Union and thinking about how top-down incentives might be improved.

And after the Federal Reserve caused multiple recessions in its efforts to fight inflation in the late 1970s and early 1980s, Weitzman postulated that there might be a better way. In a short 1986 book called The Share Economy: Conquering Stagflation, Weitzman argued that compensating workers with shares of corporate revenue would stabilize both price levels and unemployment. In a slump, falling revenue would make workers cheaper, inducing companies to hire more. If inflation took off, higher nominal wages would prompt companies to cut back. Weitzman pointed to the Japanese bonus system as an example of such a self-stabilizing mechanism. He also argued that revenue sharing would motivate companies to cater more to the needs of their workers, rather than only their customers.

So even as libertarian, pro-business economists like Friedman were capturing the ears of politicians in the 1970s and 1980s, economists like Weitzman were quietly working on ways to correct the failures of the market. Ultimately, the latter’s work laid the foundation for the economics profession’s recent shift toward a more interventionist, pro-government stance. When evaluating the influence of economists in the 20th century, it’s important to remember not just the Friedmans, but the Weitzmans as well.

Noah Smith is a Bloomberg Opinion columnist. He was an assistant professor of finance at Stony Brook University, and he blogs at Noahpinion.

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