Confessions of an Energy Economist: My career in energy policy revealed the power of politics.

• Author: Faruqui, Ahmad

In the July/August 2022 issue of Foreign Affairs, Harvard economist Jason Furman contributes an essay, "The Quants in the Room." The subtitle is especially provocative: "How Much Power Do Economists Really Have?"

Furman chaired the White House Council of Economic Advisers during the Obama administration, so one would think he believes that economists have considerable influence over public policy. Yet, he argues that economists don't have as much power as they think. He backs up that assertion with examples from health economics (citing Nobel laureate Kenneth Arrow) and environmental economics (the inability of economists to get legislation passed on a carbon tax).

Furman's article made me reflect on my own journey as an economist. Over the past four decades, I worked on issues involving energy. I focused on such topics as demand forecasting, demand-side management (including energy efficiency), electrification (such as electric vehicles), pricing (often called rate design), and distributed energy resources (such as solar panels and battery storage). In my experience, Furman is right: in energy, politics guides policy, not economics.

A QUANT, DISILLUSIONED

In high school, I took classes in advanced physics and chemistry. I intended to become an engineer. But while I aced the theory sections, I did poorly in the lab. I decided to get a degree in economics instead, hoping to qualify ultimately for a job in the elite civil service of my native Pakistan.

As an undergraduate student in economics at the University of Karachi in the early 1970s, I came to believe that economics is the queen of the social sciences. Within economics, the "quants" who prepared mathematical models of the economy and had minors in mathematics and statistics got the most respect. I excelled in the subject because of my background in physics and chemistry. I took minors in mathematics and statistics.

We had quantitative data at our disposal whereas the neighboring departments in political science, sociology, and psychology did not--or so I thought. We believed that students who were not admitted into the economics department ended up in those departments. We lumped them in with students in international relations, languages, and fine arts, whose departments happened to be housed next to theirs.

As a graduate student at the University of California, Davis, in the mid-1970s, these views about the supremacy of the quants were reinforced. Econometrics reigned supreme.

But this view was shattered when I finished my coursework and joined the California Energy Commission (CEC) in 1978 as a postgraduate researcher while working on my dissertation. I was in the Assessments Division of the CEC, developing logit models to forecast appliance choice, under the direction of future Nobel laureate Dan McFadden. I also worked on systems of demand models to study inter-energy substitution within California's manufacturing sector and forecast the industrial demand for energy, working under renowned University of California, Davis economist Leon Wegge.

The CEC was located at 1111 Howe Avenue in Sacramento in those days. That's where I met engineers who were developing end-use models while working closely with their counterparts at national labs at Oak Ridge and Berkeley. I also discovered the CEC's Conservation Division was developing codes and standards for appliances and buildings and something obscure called load management. There were other divisions responsible for siting...