The economic impact of climate change is likely to be a reduction in global gross domestic product of a few percentage points, according to mainstream economics. This implies that the impact will be trivial, a point of view backed by cost-benefit analyses showing that a 3.5°C/6.3°F rise in Earth’s temperature would be most efficient financially.
Professor William Nordhaus, the world’s most well-known climate economist and a Nobel Prize winner, concluded that aiming for 2°C or 1.5°C, as per the Paris Agreement, would be “too costly” relative to the economic damages avoided, under his assumptions.
These are the economic projections that top policy-makers in the G7 are shown by their advisors when attending international climate conferences.[1]See The Doomsday Numbers on this site.
Projections of the Physical and the Economic Impact of Climate Change Tell Different Stories
| Scenario | Nordhaus (DICE) Economic Estimate | Physical Science Projections |
|---|---|---|
| 3°C warming | ~2%–3% GDP loss | Major coral loss, fisheries loss, agricultural land loss, deadly heatwaves and rain patterns, fire hazards, ecosystem die-back |
| 4°C–5°C warming | ~6%–10% GDP loss | Severe global instability, collapse of human systems |
| Tipping point activation | Not modelled | Probable beyond 1.5–2°C; accelerates warming |
Judging by physical scientists’ assessment of the geo-physical impacts[2]This comes from climate science’s classically understated letter in the prestigious Proceedings of the National Academy of Sciences in the US, Estimates of economic and environmental damages … Continue reading, if we continue to ignore these growing challenges to the economy, the private sector will face turmoil as companies and banks struggle to cope with increasingly brutal business conditions.
As bank lending declines, private sector money creation could collapse.
This leads us onto another huge streitpunkt in economics. The supply train of German Leopard tanks in the picture provides a clue. As every good political armchair pundit knows, a government can always find money for war. But when there is no war, governments following mainstream economic theory like to balance government debt with tax revenue. Why the conundrum?
As Professor Steve Keen explains[3]Keen is a non-mainstream, post-Keynesian, post-Marxist economist: see his latest publication “The New Economics: A Manifesto” or all of his publications and courses here.:
If there is no more private money creation because we have allowed climate change free rein, then only fiat money creation will be feasible.
This is commonly dismissed disparagingly by the average lay economist across social media or down the pub as “tax and spend“, or even worse, just “spend“, and the implied result is economic ruin. Today’s governments are led by economists who believe the same thing and who can’t or won’t grasp this primary economic mechanism: money creation by a state in control of a fiat currency fuels the economy and must be managed by a range of economic indicators, rather than narrowly tied to tax revenue as if a nation were a household balancing income and spending to stay out of debt.
Understanding how government creates money will play an essential part in working out what capacity we have and how to allocate resources as the environmental services we have taken for granted on this planet begin to collapse and disappear. We will have to do this resource allocation in the same way we did during the mass mobilisations for the 20th Century world wars, when governments created the money that financed the military campaigns of both sides.
For non-academics, and of course for mainstream economists, the idea that society has built great cathedrals, fostered Mozart and Mahler, invented the internet and sent spacecraft beyond our solar system, it’s hard to grasp that we as a society in the West are not able to divine the basics of our economic systems.
Compounding their errors under the influence of an ideology that began with Thatcher and Reagan, the neoclassical economists who have dominated since the 1980s dismissed the core insights of our economic system – particularly those highlighted by the Limits to Growth research program, which they misrepresented, trivialised and rejected from the start[4]Prof Steve Keen in his book Debunking Economics highlights that this rejection contributed to the perpetuation of economic models overly focused on growth, neglecting environmental constraints. For a … Continue reading.
It’s true that mainstream economists create fearsomely mathematical models, that academic arguments over such models are not for the faint of heart, and that no-one gets very far in economics if they don’t follow the mainstream approach[5]See any of these highly relevant articles: When Idiot Savants Do Climate Economics in the Intercept, How captured economics stole our climate — and what we can do about it on Medium, or The Climate … Continue reading, but the same was true of the astronomers before Galileo who believed (and could prove to their contemporaries) that the sun rotated around the Earth.
Just as modern astronomy discarded the geocentric models of Ptolemaic astronomy, Prof Steve Keen advocates that contemporary economics should move beyond the neoclassical theories of the late 20th century[6]Keen is just one of a group of prominent economists eschewing modern mainstream economics. See also Kate Raworth, Mariana Mazzucato, Michael Hudson, Stephanie Kelton, Ha-Joon Chang and Pavlina … Continue reading.
To make this happen, and to gain a better grasp of the economic impact of climate change[7]See The New Economics: A Manifesto again, society will need to change not just the economic paradigm, but our whole cultural narrative, which is now greatly dominated by the free market capitalist, neoliberal mindset. Now at the time of writing in 2025 as neoliberalism and its narrative are fast losing credibility, we should be seeing the formation of new 21st Century crisis-oriented groundswell, but the rise of AI-driven social media platforms has opened the door to populist authoritarianism. The shock tactics of the libertarians, authoritarians and opportunists may have critically damaged the process of normal social evolution.
The context behind this article is the climate crisis and the dangers of outcomes which put our civilisation at grave risk.…
Extreme weather, floods and wildfires on top of stories about melting polar ice-sheets should trigger a sense of impending doom in…
References
| ↑1 | See The Doomsday Numbers on this site. |
|---|---|
| ↑2 | This comes from climate science’s classically understated letter in the prestigious Proceedings of the National Academy of Sciences in the US, Estimates of economic and environmental damages from tipping points cannot be reconciled with the scientific literature from Steve Keen, Tim Lenton, Tim Garrett and Matheus Grasselli |
| ↑3 | Keen is a non-mainstream, post-Keynesian, post-Marxist economist: see his latest publication “The New Economics: A Manifesto” or all of his publications and courses here. |
| ↑4 | Prof Steve Keen in his book Debunking Economics highlights that this rejection contributed to the perpetuation of economic models overly focused on growth, neglecting environmental constraints. For a detailed analysis, refer to Chapter 13 of the revised and expanded 2011 edition. If you like podcasts, then this podcast by Katy Shields will be well worth your time: https://tippingpoint-podcast.com/ |
| ↑5 | See any of these highly relevant articles: When Idiot Savants Do Climate Economics in the Intercept, How captured economics stole our climate — and what we can do about it on Medium, or The Climate Is the Economy on Slate |
| ↑6 | Keen is just one of a group of prominent economists eschewing modern mainstream economics. See also Kate Raworth, Mariana Mazzucato, Michael Hudson, Stephanie Kelton, Ha-Joon Chang and Pavlina Tcherneva |
| ↑7 | See The New Economics: A Manifesto again |