Will Climate Change Destroy The Global Economy?

Climate change is on course to do a lot of harm to our planet. That is why concerned economists like myself advocate measures that would at least slow the pace of damage and give us more time to adapt. Paradoxically, though, economists rarely discuss what global warming is likely to do to the economy itself. Will climate change destroy the global economy as it raises sea levels, intensifies extreme weather, and kills our crops? The answer turns out to be more complex than you might think.

It is certainly not as simple as David Wallace-Wells endeavors to make it in his widely read New York Magazine article. In it, Wells describes an uninhabitable earth and a devastated global economy by the end of the century. Here is how he explains the economic consequences of climate change:

The most exciting research on the economics of warming has also come from [Solomon] Hsiang and his colleagues, who are not historians of fossil capitalism but who offer some very bleak analysis of their own: Every degree Celsius of warming costs, on average, 1.2 percent of GDP (an enormous number, considering we count growth in the low single digits as “strong”). This is the sterling work in the field, and their median projection is for a 23 percent loss in per capita earning globally by the end of this century (resulting from changes in agriculture, crime, storms, energy, mortality, and labor.)

Tracing the shape of the probability curve is even scarier: There is a 12 percent chance that climate change will reduce global output by more than 50 percent by 2100, they say, and a 51 percent chance that it lowers per capita GDP by 20 percent or more by then, unless emissions decline. By comparison, the Great Recession lowered global GDP by about 6 percent, in a one-time shock; Hsiang and his colleagues estimate a one-in-eight chance of an ongoing and irreversible effect by the end of the century that is eight times worse.

The scale of that economic devastation is hard to comprehend, but you can start by imagining what the world would look like today with an economy half as big, which would produce only half as much value, generating only half as much to offer the workers of the world.

The problem, however, is that the paper to which Wallace-Wells refers says nothing of the sort. The paper was written by Marshall Burke, Solomon Hsiang, and Edward Miguel, and published in Nature in 2015. The authors do not say that climate change will make the world economy of the future smaller than it is now, but rather, smaller than it would be without climate change. Here is a quote:

[U]nmitigated warming is expected to reshape the global economy by reducing average global incomes roughly 23% by 2100 and widening global income inequality, relative to scenarios without climate change. [Emphasis added.]

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