“Unverified hypotheses about fat tail events are NOT what we KNOW. Presenting this as knowledge rather than speculation, and unduly focusing on it for policy decisions, is alarmist.” (Judith Curry, “Worst Case Scenario versus Fat Tail,” 2014)

“Carbon dioxide emissions as the environmental crisis of last resort,” reads a chapter title of Pierre Desrochers and Joanna Szurmak’s Population Bombed (2018), a primer on the failed Malthusian scares of history.

I was reminded of this when reading the latest from skeptic-turned-alarmist Jerry Taylor of the Niskanen Center, “What Changed My Mind About Climate Change?” With the competitive failure of so-called green energies—as well as the daunting economics of immediate costs versus speculative, distant benefits—Taylor rehashes what can be called the last intellectual argument for climate activism. Simply stated, this argument focuses on improbable-to-impossible worst-case market failure as justifying open-ended government activism.


A decade ago, Harvard economist Martin Weitzman challenged traditional cost/benefit analysis by appealing to an unknown, unknowable catastrophic event from the human influence on climate. The off-the-bell-curve “fat tail,” in his telling, meant that the U.S. and world economies must incur any cost, make any sacrifice, as insurance.

The “dismal theorem” argument comes from looking at the “tails” of a probability distribution, which normally—in a statistics class, for example—shrinks rapidly the further away it goes from the mean. So a fat tail means that there is (compared to a more typical analysis) more area under the curve, even as we move toward extreme outcomes.

Weitzman showed that standard technique used to quantify the risks associated with uncertain outcomes don’t work under these conditions. The caution “it’s too expensive to take aggressive measures to slow climate change” is weakened when the “expected damages” from extreme, improbable events are sufficiently high.

Back in 2009, Robert Murphy criticized Weitzman’s “black swan” by relying on Yale professor, William Nordhaus, perhaps the biggest name in climate economics, who last year won the Nobel Prize for his pioneering work in this field.

Nordhaus defended traditional cost/benefit analysis. Economists might assume a can opener, as the joke goes, but a climate economist needs to be realistic about unbounded costs to address unbounded uncertainty. Nordhaus showed that although the mathematical argument from Weitzman was correct as far as it went, it would lead to counterintuitive and uncomfortable results in other areas if we applied it consistently. There is also the opportunity cost of other types of low-probability, worst-case scenarios competing for activism outside of climate, as noted by MIT economist Robert Pindyck (and emphasized more recently by Julian Morris).

The fat-tail argument was adapted by financial guru Robert Litterman, who Jerry Taylor cites as responsible for changing his mind (with Weitzman). Litterman’s “economics of nondiversifiable risk” justifies immediate and open-ended taxation of CO2 emissions.

Taylor’s Rube

Taylor, following Litterman, likens climate policy to prudent financial management. We diversify, we hedge. We buy bonds, not only equities, and keep some cash. We seek stability, not only going for the fences.

So, in climate policy, we should account for worst-case outcomes rather than rest because the likely outcomes are palatable. Taylor concludes:

If we think about climate risks in the same fashion we think about risks in other contexts, we should most certainly hedge—and hedge aggressively—by removing fossil fuels from the economy as quickly as possible.

But this analogy fails out of the gate. Voluntary self-interested action (prudent investing) is conflated with government coercion negating self-interest. It is also (rotten) apples-to-oranges since climate is supposed to be “a non-diversifiable risk” as opposed to a “relatively tame” financial hedge. As climatologist Judith Curry explains:

Climate risk is a wicked problem – we don’t know how to bound the climate risk, and we don’t have a hedging strategy that will actually protect us from the most adverse possible outcomes. We are fooling ourselves if we think a carbon tax is up to the task of protecting us from the possibility of truly adverse climate outcomes.

Other Problems

Additional problems with the Taylor-cum-Litterman argument:

  • There is no evidence of fat tails for climate change being realistic. In fact, the science has been going the other way with extreme climate scenarios being increasingly discounted (e.g. here).
  • It does not consider the positive fat tail of anthropogenic warming negating a natural global cooling to forestall a Little Ice Age.
  • It does not account for either analytic failure or government failure (Public Choice) in the quest to address and alleged market failure.
  • Fat tails analysis is not applied to climate policy.
  • Fat tails is not separately computed for adaptive free-market economies versus helpless statist economies, the obvious implication being that climate policy should promote freer societies, not more regulated ones.


Precautionary Principle Violated

The fat tail argument can be labeled the precautionary principle on steroids. It thus fails the test posed by Jonathan Adler in his still-relevant “Greenhouse Policy Without Regrets: A Free Market Approach to the Uncertain Risks of Climate Change”:

No insurance policy is worthwhile if the cost of the premiums exceeds the protection purchased. For greenhouse insurance to be worthwhile, it must either reduce the risks of anthropogenic climate change or reduce the costs of emission reductions designed to achieve the same goal, without imposing off-setting risks, such as those which would result from policies that slow economic growth and technological advance.

“While I reject most apocalyptic scenarios as unfounded or unduly speculative,” Jonathan Adler stated in 2008, “I am convinced that the human contribution to climate change will cause or exacerbate significant problems in at least some parts of the world.” But with the dismal fat tail demoted, traditional cost/benefit analysis leaves the case for climate activism in a quandary, a subject for another day.


Modest warming from the enhanced greenhouse effect is settled science. Higher warming from positive feedback effects is unsettled science. The Hothouse Earth worst-case scenario may make headlines, but it is extremely speculative in the tradition of people-problem Malthusianism.

In fact, the outer estimate of the likely anthropogenic warming range from the Intergovernmental Panel on Climate Change (IPCC) has declined, not increased, since 1990. The 6th IPCC assessment is not expected to raise the upper end and could reduce it according to one insider.

A top-tier climatologist assessing the debate, Judith Curry, who changed her mind oppositely from Jerry Taylor, sees the top of the IPCC range as “borderline impossible” and a significantly higher forcing as “impossible.” “Unverified hypotheses about fat tail events are not what we know,” she has emphasized. “Presenting this as knowledge rather than speculation, and unduly focusing on it for policy decisions, is alarmist.”

It is Jerry Taylor, not the rest of us, who should check his premises and get realistic about the physical science of climate change, the economics of government mitigation versus market adaptation, and real-world politics.

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