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Math am hard and so are economics

01 Jul 2020 | OP ED Watch

A few years ago august persons warned us of the catastrophic impact of climate change on prosperity. Or tried to. But those involved, namely the World Economic Forum, evidently flubbed the compound interest part of high school math, because they thundered about “a new report from researchers at the University of Cambridge, which estimates 7% of global GDP is likely to be wiped out by the end of the century unless action is taken to stop our planet overheating.” It duly failed to alarm since as we noted at the time, the report really said by 2100 the world might be 7% poorer than it would otherwise have been due to warming, and since 3% annual growth would have compounded to 1000% by 2100, a ten-fold increase, we were being asked to trash our energy sector and ruin our economies to fend off a reduction to just 993%, basically the same 10-fold increase. Now someone did the math again to make it ultra-scary; the Guardian tells us “More than 60 central banks, including the Reserve Bank of Australia and the Bank of England, have warned that global GDP could fall by 25% by 2100 if the world does not act to reduce global greenhouse gas emissions.” In doing so that venerable paper fails math and economics simultaneously because it’s still secretly just a possible reduction in the rate of growth.

To their credit, the green-haired bankers involved, the “Network for Greening the Financial System”, is putting this prediction where we can test it. They show 5% net negative world GDP growth by 2030 if we do nothing, reaching 10% by 2040. Some of us may be around to check that one, though we can’t know what world GDP would have been in 2040 without warming. But it’s all a bunch of sound and fury signifying nothing.

For one thing, normally these sorts of upping-the-ante stories say the situation is worse than the infallible models predicted last time. This one says it’s worse than they’re predicting now: “In the Hot house world scenario impacts from physical risk result in up to a 25% GDP loss by 2100. However, these estimates are also subject to a number of limitations. They typically do not adequately account for all sources of risk, including low probability high impact events, sea-level rise, extreme events and societal changes like migration and conflict. As a result, damages in this scenario will be larger than models suggest, particularly in regions with lower resilience and capacity for adaptation.”

Oh for crying out loud. If you know damages will be larger than the scenario insists, you know how to tweak the scenario so it’s not wrong. Why not do so? But never mind.

Never mind also that when “66 central banks and supervisors and 13 observers committed to sharing best practices” including from Bloomberg Philanthropies and ETHzürich are pooling resources to produce this kind of alarmism, it’s fatuous to suggest that climate deniers have all the money. But it seems we might have wound up with all the good textbooks.

You see, the punchline to this whole hair-on-fire document is Slide 13, which reveals that the 25% decrease is from the baseline growth scenario where world GDP increases 10-fold by 2100. So they’re threatening us that unless we take measures liable to stop growth entirely, our descendants will only be nine hundred and seventy five percent richer than we are. What they will do with all those smartphones, cars and food we can’t begin to imagine. But maybe they’ll use their leisure time to study math and economics and finally get a grip on the key concepts of compound interest and trade-offs. Provided our own struggles with those concepts don’t deflect the world instead onto an energy-poor, low-growth stumble into real problems.

3 comments on “Math am hard and so are economics”

  1. Thanks for this critique of the slide presentation "NGFS Climate Scenarios for central banks and supervisors" and pointing out that the authors need to study math and economics. The presentation looked way too glossy and boring for me to read.

  2. This is always the problem isn't it? People quote figures with no reference level mentioned which makes them meaningless. Saying that GDP will fall by 5% by 2030 begs the question 'with reference to what?' i.e. 'what is your starting level?' If your reference level is current GDP & it's going to fall by 5% by 2030, that's bad, but if your reference level is what the GDP would be expected to have grown by in 2030, then growth would only be 5% less than the expected growth by 2030, & this is not worth worrying about. Many authors of articles fall into this trap & the figures they quote are useless for use in debate. I also wonder how on earth they work it out anyway. I should well imagine that it's a lot of guess work with many things, especially the beneficial ones, overlooked or omitted.

  3. Math clearly "am hard". Yours is wrong. 993% is not 7% less than the 1000% of current GDP that we would supposedly otherwise have in 2100. That would be 930% of current GDP. Likewise a 25% decrease compared to what we would otherwise have had would be 750%, not 975%. I agree the balance sheet is still in favour of not wrecking the economy now to stave off a much more minor threat to prosperity, but let's get the sums right.

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