A little while ago the Stern Report on the Economics of Climate Change (link courtesy of Debunkers) was released. The bottomline of the report was that the negative consequences of global warming can be averted by giving up about 1% global GDP growth for each and every year for the next 100 years. At first glance that doesn’t sound so bad. But as Ronald Bailey notes, when we are talking about long time spans and growth rates we are in reality talking about gigantic numbers. Bailey uses the case of Bangladesh to illustrate his point. I’m not thrilled with Bailey’s example in that he assumes economic growth rates for places like Bangladesh will hold for the next 100 years. So I’ve taken his example and lowered the growth rates a bit, but this doesn’t change the qualitative nature of the results.
- Assume the “Do Nothing Growth Rate” for Bangladesh is 4.5% per year on average for the next 100 years.
- Assume the growth rate under the recomendations of the Stern Report is 3.5% on average for the next 100 years.
What are the implications in terms of GDP for Bangladesh (using Bangladesh’s current GDP of $55 billion).
- GDP is $4.9 trillion after 100 years.
- GDP is $1.8 trillion after 100 years.
In other words, the Stern Report would chop of 2/3rds of what Bangladesh’s GDP if nothing is done.
Of course, one could argue that the Stern Report also predicts the following losses due to global Warming is nothing is done,
Using the results from formal economic models, the Review estimates that if we don’t act, the overall costs and risks of climate change will be equivalent to losing at least 5% of global GDP each year, now and forever. If a wider range of risks and impacts is taken into account, the estimates of damage could rise to 20% of GDP or more.
Frankly I find this kind of prediction to be rank scare mongering. If global GDP growth is anything less than 5%, on average, for the next 100 years, and nothing is done then we are on a growth path were global GDP will be only 61% of what it is today. If we use the higher bound there will be no global GDP. In other words, if the Stern Reports worst case scenario is correct then everything in the world is wiped out. Every house, ever car, every road, every brick, every fork. All gone. Not one single thing in our current global economy will be left. To put it simply, I think there is a problem with your “standard” economic models.
