What long-term impact is global climate change likely to have on the economy? To answer this question (and a slew of others), I polled Ph.D. economists, randomly selected from the ranks of the American Economic Association.
Like almost everyone else, economists must, essentially, take on faith predictions and calculations by scientists about the impact of greenhouse gases on the environment. They realize such predictions are based on complicated models and tentative scenarios, informed by self-interest.
But they have been trained to understand what makes the economy hum and to think through how people will respond to changing conditions of all kinds.
Variety of Choices
Specifically, I asked this challenging question:
“In comparison to a world in which greenhouse gas (GHG) levels were stable, rising levels of greenhouse gases by the end of the twenty-first century will cause GDP per capita in the U.S. to be (a) more than 10 percent lower, (b) about 5 to 10 percent lower, (c) about 1 to 5 percent lower, (d) less than 1 percent lower or higher, (e) about 1 to 5 percent higher, or (f) more than 5 percent higher.” (Remember that GDP–gross domestic product–equals the value of all final goods and services produced in the economy or equivalently the level of aggregate income.)
A couple of these choices may seem odd to the lay person, since few media accounts hold out the prospect that any global warming and other climate changes could be beneficial to our standard of living.
However, some economists credit this possibility–pointing to the fertilization effect of higher carbon dioxide levels on plant growth and the amenity value of warmer weather, for example.
Definite Lack of Alarm
The results show most economists are not alarmed by the likelihood of continued carbon dioxide emissions.
The Great Depression of 1929 to 1933 caused inflation-adjusted GDP to fall a numbing 27 percent. Few economists think rising GHGs will have anywhere near this impact–only one in eight predict GDP will fall by more than 10 percent.
Almost twice as many believe rising greenhouse gas levels will cause the economy to grow.
The most popular response is that rising greenhouse gas levels will have virtually no impact on income per person (less than 1 percent lower or higher). The vast majority (73.2 percent) predict the impact will be less than 5 percent one way or the other.
Minimal Expected Effect
Here are the complete responses:
(a) more than 10 percent lower = 12.5%;
(b) about 5 to 10 percent lower = 7.1%;
(c) about 1 to 5 percent lower = 21.4%;
(d) less than 1 percent lower or higher = 35.7%;
(e) about 1 to 5 percent higher = 16.1%;
(f) more than 5 percent higher = 7.1%.
Assuming that “more than 10” = 15, “more than 5″= 10, and taking the midpoint of the other intervals, this averages to -1.86 percent. Since the end of World War II, inflation-adjusted GDP has risen by about 2 percent per year on average.
Thus, the collective wisdom of these economists is that greenhouse gas emissions will shave about one year of economic growth off the economy over the next century.
Why do economists generally conclude the economic impact of climate change is likely to be small, not large? The growing literature on this topic suggests most parts of the economy are not very vulnerable to climate change. Just as importantly, parts of the economy that might be negatively impacted are pretty flexible and adaptable to change.
If climate does change, crops can be modified, different crops can be planted, and crops can be planted in different places, for example. If sea levels rise, we have the ability and resources to build protective structures or, in a worst-case scenario, simply move to higher ground.
Thus, while potential climate changes might be devastating to parts of the environment, most economists don’t think it will affect our economic standard of living much, one way or the other.
Recent history has shown economists that the primary cause of economic growth is technological improvement. Climate change cannot stanch the global torrent of new discoveries, processes, and products.
Human ingenuity is the ultimate resource … and as far as most economists are concerned, rising greenhouse gas levels cannot imperil this.
Robert Whaples ([email protected]) is chair of the Department of Economics at Wake Forest University. This article was first published on the Tech Central Station Web site (http://www.techcentralstation.com) and draws on his article, “Do Economists Agree on Anything? Yes,” in The Economists’ Voice 3 (9), November 2006. Reprinted with permission.