FOREVER GUESSING: A LETTER TO THE ECONOMIST (February 26, 2007)
“Can biofuels save Europe, or the planet?” (“Burned by the Sun,” February 24, 2007). As witnessed by the many policy bungles you report concerning the economics behind this question, it is an excellent one. Too many economic studies consider only direct environmental effects of different industrial or trade policies, or only a few indirect effects thrown into the bargain. But you say nothing about the way to deal with all such questions, which must consider total effects by both industry and trading partner across the globe. To wit, we need a world model featuring sufficiently disaggregated economies of all countries on the planet. Wassily Leontief has shown the way by providing us with the input-output model, which has subsequently been usefully extended by many other economists, including those concerned with the environment. In his Nobel paper, he offered an environmental input-output model. Also, he has pioneered the first input-output world model. But, to my knowledge, there has been no attempt by the United Nations, the European Union, or anyone else to put together an institution capable of building and maintaining such a model, as well as feeding it with data. An institution of this ilk would need to be very well endowed, too. Without it, however, we will be forever guessing. And worse.