Climate change may be real. Temperatures may be rising, human activity may contribute to that rise, and environmental problems deserve serious attention. None of these propositions, however, establishes that governments possess the knowledge required to reorganize an entire economy in response to climate projections.
This matters because the political language around climate change has shifted. A risk becomes a crisis; a crisis becomes an emergency; and an emergency is then used to justify policies that would be difficult to defend in ordinary circumstances. Once a problem is framed as existential and immediate, questioning the proposed remedy can seem irresponsible. But recognizing a problem is not the same as knowing its solution.
This was one of the great insights of the Austrian School. The central economic problem is not merely that governments lack information. Relevant knowledge is dispersed among millions of individuals and constantly changing. Hayek famously emphasized that much of the knowledge necessary for economic coordination consists of local and particular knowledge—knowledge of changing circumstances that cannot be concentrated in a single mind. Mises approached the problem from another angle: without market prices for the factors of production, economic calculation cannot rationally compare alternative uses of scarce resources. Climate policy does not solve this problem; it worsens it.
A climate model can inform us about possible physical futures. But a physical projection does not tell us how millions of consumers, workers, entrepreneurs, investors, and producers will respond to changing conditions. Nor can it, by itself, tell a central authority which alternative uses of scarce resources will generate the greatest value for particular people at particular times. The distinction between scientific and economic knowledge is essential.
Suppose a government decides that emissions must be reduced by a specific date. It can set targets, measure emissions, subsidize certain technologies, and penalize others. It can regulate automobiles, buildings, agriculture, transportation, and energy production. It can even build elaborate models to estimate the economic consequences of these measures. But none of this answers the entrepreneurial question: compared with what?
Every economic decision involves alternatives. Capital invested in one technology cannot be invested in another at the same time. Land used for one purpose cannot be used for another. Energy directed toward one activity cannot be consumed by another. Workers employed in one sector cannot simultaneously produce in another.
Prices convey these competing claims. Profit and loss provide an ongoing test of whether resources have been used in ways consumers value enough to justify their costs. Economic calculation is therefore not merely a technical exercise. It is a process by which decentralized decisions are continually revised in light of changing circumstances. Climate policy can interfere with precisely this process when political objectives begin to supplant decentralized economic calculation.
Consider energy. The question is often framed as a simple choice between fossil fuels and renewable energy. Economically, however, the question is far more complex. Which sources provide reliable energy at what cost? What infrastructure is required? How much capital must be redirected? What materials are needed? What alternatives are sacrificed? How will demand change? Which technologies will become more efficient in five, ten, or twenty years? Which technologies that seem promising today will fail? No central authority can know all of this in advance.
Entrepreneurs do not know it either. That is precisely why markets matter. Entrepreneurs experiment; some succeed; others fail. Prices shift, capital moves, and consumers respond. New information emerges. Successful arrangements expand, while unsuccessful ones contract. Central planning attempts to substitute foresight for this process. But the future cannot be known in advance merely because governments have more data.
This is also why the costs of climate policy are often easier to see in aggregate than the costs of the alternatives that never materialize. A government can count wind turbines, electric vehicles, subsidies, jobs created, or tons of emissions avoided. It is much harder to identify investment opportunities forgone, businesses never created, technologies never developed, or jobs never offered because of a particular policy. The problem becomes especially serious when the destruction of existing economic activity is taken as evidence of progress.
The claim that labor and capital displaced by conventional industries will automatically find equally productive uses elsewhere warrants more scrutiny than it typically receives. Work is not merely a statistical quantity. It provides income, independence, social participation, and dignity. A policy that disrupts productive opportunities cannot be evaluated simply by counting the new positions created elsewhere.
The same applies to agriculture. Farmers operate within highly-localized systems that involve soil, weather, capital, machinery, markets, regulations, and accumulated experience. A centrally-determined reduction in livestock or changes in agricultural production may look straightforward on a spreadsheet, yet produce consequences planners did not anticipate. My earlier examination of climate alarmism drew attention to European farmers’ protests precisely because the issue was not merely about environmental regulation. It was also about livelihoods, property, and local knowledge.
This does not prove that every environmental regulation is misguided, nor does it prove that every climate projection is inaccurate. It establishes something more modest—and more important. The existence of a problem does not prove the government’s ability to solve it.
Bjørn Lomborg’s False Alarm, which I examined in my original notes, is useful here not because one must accept every argument he makes, but because it illustrates an important distinction: acknowledging climate change does not require treating it as the end of the world, nor does concern about climate change automatically justify every proposed policy response. His argument also highlights the costs of climate policies, particularly for poorer populations.
That last point deserves particular attention. Climate policies do not distribute their costs equally. A wealthy household can more easily absorb higher energy or transportation costs than a poor household. A large corporation may absorb regulatory compliance costs that would destroy a small business. A developed economy can finance an expensive transition more easily than a poor country struggling to provide reliable electricity, transportation, and food.
A policy intended to protect future generations can therefore impose immediate costs on people with the fewest resources to absorb them. This is where climate policy exposes a broader institutional problem.
When governments respond to complex problems by adding layers of regulation, targets, reporting requirements, subsidies, and administrative controls, they may create new complications that require further intervention. The attempt to control complexity produces additional complexity. The institution responds to the consequences of its previous intervention by expanding it.
That is what I have elsewhere called anti-progress: the point at which mechanisms designed to improve a system begin to undermine its capacity to adapt. Modern institutions can accumulate enormous amounts of information while losing the ability to interpret the complexity they seek to control. More data does not necessarily yield more knowledge; more regulation does not necessarily yield greater adaptability.
Climate policy is especially vulnerable to this pattern because it concerns an inherently long-term and uncertain future. The more uncertain the future, the greater the risk of treating a political forecast as a detailed plan. The alternative, however, is not to do nothing.
Markets are not passive. They are systems of continuous adaptation. Property rights, prices, entrepreneurship, competition, innovation, and profit and loss enable millions of people to respond to changing circumstances without anyone needing to predict the future. Environmental problems can be addressed through property rights, liability, technological innovation, and voluntary exchange. These approaches preserve the decentralized process by which new knowledge emerges.
The fundamental question, therefore, is not whether we should care about climate change. We should care about environmental conditions and the welfare of future generations. The question is whether concern equips political authorities with the knowledge needed to redesign the economy. It does not.
Climate models can possibly inform us about possible physical futures. By themselves, they cannot determine which allocation of scarce capital will best serve millions of individuals whose preferences, technologies, and circumstances will change over time. That is the knowledge problem.
The greater the uncertainty about the future, the greater our need for institutions capable of discovering and correcting errors, rather than for those that assume they already know the answer. We do not need to know exactly what the future climate will look like to recognize that no government can have enough information to plan the entire economy around it.
