The Stern Review
The Most Expensive Argument in Economics: What Is Tomorrow Worth?
In 2006, a single number buried in a government report quietly became the most contested figure in the history of economics.
The Idea
At the heart of climate economics lies a deceptively simple question: how much should we sacrifice today to prevent suffering in the future? The answer depends almost entirely on something called the discount rate — the rate at which we mathematically shrink the value of future costs and benefits when comparing them to present ones. It sounds technical, but it is actually a moral choice disguised as arithmetic. When Nicholas Stern, former chief economist at the World Bank, published his landmark 2006 review on the economics of climate change for the UK government, he used a near-zero discount rate of around 1.4%. His reasoning: future people matter as much as present people, so their suffering should not be heavily discounted just because it happens later. The logical conclusion was dramatic — the present value of climate damage was enormous, and aggressive, immediate action was clearly worth the cost. Stern estimated that inaction could cost the equivalent of losing 5–20% of global economic output, permanently, every year. His critics, including economists William Nordhaus and Martin Weitzman, argued that using such a low discount rate was itself a kind of ethical sleight of hand — that markets and human behaviour reveal a much higher preference for the present, and that policy should reflect actual human preferences rather than philosophical ideals. Use a discount rate of 5% instead of 1.4%, and the same climate data produces a far more modest case for urgent action. The fight over this number is not just academic. It determines whether climate change looks like an emergency or a manageable long-run problem.
In the World
When Stern submitted his 700-page review to the UK Treasury in October 2006, Gordon Brown called it 'the most important report on the future of the world economy ever written.' Within weeks, economists were sharpening their knives. Nordhaus, who would go on to win the Nobel Prize in Economics in 2018 partly for his climate work, published a point-by-point rebuttal. His own model, DICE, used a discount rate closer to 5.5% — more in line with observed market returns. The result was a totally different policy prescription: yes, act on climate, but gradually, with a modest carbon price rising slowly over decades. Nordhaus calculated that Stern's near-zero discount rate essentially assumed future generations would be no richer than today's, which defied historical growth trends, and that it imposed extraordinary costs on present generations who were, paradoxically, poorer than their descendants were likely to be. Stern fired back, arguing that Nordhaus's framework treated an existential civilisational risk like a standard investment portfolio optimisation problem — a category error of staggering proportions. What makes this dispute fascinating is that both men were using the same data, the same basic tools of welfare economics, and arriving at conclusions that implied policies worth trillions in difference. The Stern-Nordhaus debate became a masterclass in how the assumptions baked into economic models — assumptions that seem purely technical — are in fact laden with choices about whose welfare counts and how far into the future our moral obligations extend.
Why It Matters
Most of us never think about discount rates, but we implicitly use them constantly. Every time you decide whether to invest in something that will pay off in ten years or spend the money now, you are running a personal version of the Stern-Nordhaus calculation. What the Stern Review teaches is that the numbers we use to make collective decisions about the future are not neutral. They embed values — about intergenerational fairness, about how much uncertainty should make us cautious, about whether markets are adequate proxies for what humans actually care about. This matters well beyond climate. Pension systems, infrastructure spending, public health investments, and even education policy all rest on implicit discount rates. A government that heavily discounts the future will underinvest in almost everything that takes decades to pay off. A society that takes the long view will make different trade-offs entirely. Knowing this sharpens your ability to interrogate any economic argument that involves time. When someone says a policy 'isn't worth it,' ask what discount rate they are using — and whether you agree with the values it smuggles in.
A Question to Ponder
If you had to choose a number — a percentage — that represents how much less you think a person's suffering matters simply because it will happen thirty years from now rather than today, what would it be, and why?
Get a new one of these every morning.
Start learning with Thinkable