A 2020 report from the US Commission on Commodity Futures Trading found: “A sudden revision of market perceptions about climate risk could lead to a disorderly repricing of assets, which could in turn have cascading effects on portfolios and balance sheets and therefore systemic implications for financial stability.” In short, economic shocks will be an early impact of climate change and will start as people begin to grasp the reality of climate change and the bleak view of the future.
Consider the effect of sea level rise on world property markets. A lot of coastal settlements will flood with rising sea levels, including major cities. South Florida for instance is built on an especially porous form of limestone (revealingly the fossilised remains of sea creatures) and cannot be protected by a sea wall. Large areas of Miami and much of South Florida will almost certainly disappear beneath the waves within this century.
The USA already has a state backed property insurance system because the scale of flooding already means there is no profit to be made from insuring flood-prone buildings. The National Flood Insurance Program is completely inadequate. It is $20 billion in debt and covers only 18% of flood-prone homes (Sea Level Rise, Pilkey and Pilkey 2019). Miami’s property market alone is worth over $800 billion and is currently booming.
But how long before the brute facts of climate change dawn on the property owning classes? This change of perception will likely occur before and in anticipation of any significant coastal inundation and will not just affect Miami but the coastal property markets the world over. Moreover, sea level rise is just one way in which global heating could result in a “disorderly repricing of assets”.
These property markets are entangled with the world financial system. Mortgages, consumer debt and debts on productive capital are repackaged and traded as various bits of financial paper that are bought and sold on financial markets across the world. These financial bits of paper are treated as forms of money. Panic in the coastal property market will send shock waves through the world economy.
These convulsions in the world economy will take place in a context where the material impacts of climate change are escalating. It seems vanishingly unlikely the capitalist mode of production is going to smoothly withstand the escalating material devastation to workplaces, infrastructure and people that will accompany a warming world. It seems more likely that the world economy will begin to convulse soon in anticipation of climate change and that these convulsions will take place at the same time that there is an undeniable escalation in the scale and frequency of humanitarian crises.
Capitalist economies lurch into crises quite easily purely on their own impulse and a seemingly intractable economic crisis appears likely in the near future. In this context, we can expect people will gaze into the future and lose faith in capitalism’s promise of progress and with good reason.
The capitalist class and their scientific advisers are already suggesting that the future of capitalist growth does not look good. Although little was made of it at the time, in 2018 the International Panel on Climate Change revised its assessment of the economic risks posed by climate change stating there will be high risk to global economic growth between 1.5 and 2.5 degrees of warming. This high risk scenario may happen very soon. The World Meteorological Society has found that there is a 20% chance we could reach 1.5 degrees of warming within the next five years.
Scrambling for solutions
Economists have spilt a great deal of ink in recent years trying to predict the cost of climate damage in order to find the “optimal” price for a carbon tax that, they believe, will correct this civilisation destroying “market failure”. There are a large number of Integrated Assessment Models (IAMs) that price the economic costs for different levels of warming. It is important not to take these models too seriously. The take-home message of a two hundred page book by economic professors Gernot Wagner and Martin Weitzman is that it is impossible to calculate the cost of climate change (Climate Shock, 2015). Economists search for the holy grail of a perfect IAM in the naive and self-important belief that the failure of the capitalist class to introduce a carbon tax is due to the inadequacies of their current models.
There is a tendency for the models to grossly under-estimate costs, neglect the compounding impacts of climate change and to ignore large scale events like sea level rise. Nevertheless all studies agree that global heating will make it increasingly more difficult to produce wealth and for the wealth that has been produced to hold its value. There will be an increasing destabilisation of the human and environmental conditions that make wealth production possible including our ability to train up future generations in the skills and knowledge needed to innovate.
Extreme weather is already causing a great deal of destruction and has been for some time. In 2020 ten extreme weather events caused a record breaking $150 billion of damages. The previous record was set in 2019. Bangladesh experienced the worst flood in its history with over a quarter of the country under water. Australia was on fire. The USA alone experienced 22 “billion-dollar disasters” including seven tropical cyclones. Recovery from these disasters takes place in a context where further catastrophic weather is inevitable. In 2017 Hurricane Maria caused Puerto Rico around $90 billion damages, equivalent to 90% of GDP. Incomes have fallen 21% and it is expected that it will take 26 years for the island’s economy to recover.
In part, the slow recovery is a result of the disaster-capitalist response to the hurricane in the form of Puertopia: a cryptocurrency billionaire-led project to transform Puerto Rico into a debt-starved tax haven (see Naomi Klein, The Battle for Paradise, 2018). But regardless of the politics, it is wild optimism to believe that Puerto Rico will remain hurricane-free and enjoy a smooth recovery until 2043. The next record breaking storm could come any year. Large areas of the planet may soon go the way of Puerto Rico. We are experiencing just one degree of global heating and there are parts of the world already struggling to recover from the assaults of the warming climate. It is possible that the plight of Puerto Rico might become the norm in parts of the tropics.
Alongside the destruction caused by extreme weather, there are climate related trends that affect productivity. An IPCC report predicts a billion people worldwide are living in areas that will turn to desert with just 1.5 degrees of warming. Aside from the human costs, this is also the destruction of a billion people’s livelihoods. Four crops make up two thirds of the world’s calorie intake. A study found that with each degree of warming would, on average, reduce global yields of wheat by 6.0%, rice by 3.2%, maize by 7.4%, and soybean by 3.1%. Studies have shown that humans are also less productive at higher temperatures. One study suggests for every degree Celsius above 15 degrees C productivity drops by 1.7%.
Added to these pressures we also expect a proliferation of pathogens. Although not directly linked to global heating, human destruction of tropical rainforest is driving pathogens out of the wilds, leading to ever more frequent pandemics. Mosquitoes and other disease-transmitting creatures will expand their range as global temperatures rise bringing tropical diseases like malaria and dengue fever to the global North. For many parts of the world heat stress will limit our capacity for work. Both our physical bodies and the soil will increasingly lose vitality. This loss of productivity will be like grist in the wheels of the economy and will happen simultaneously alongside the general mayhem caused by natural disasters.
There is a clear trend towards a future that is increasingly hostile to capitalist growth. The economic shocks from a warming world will accumulate, piling one on top of another, stalling and halting any fragile recoveries. These shocks will start in anticipation of climate change. Trying to survive in a warming world and trying to stop the world from warming will increasingly dominate human existence. We are currently living through a time of soft climate change denial, sleep-walking towards disaster, but this cannot last. As the planet warms, the understanding of lay people will catch up with the science. This greater understanding will be reflected in collapsing property markets, creating economic convulsions that increase and exacerbate the sense of crisis.
The capitalist class will not be immune from the general loss of confidence in their system which will be widely perceived as causing the crisis and a block on effective action. The economic shocks won’t stop until we can stabilise and then reverse global heating, a process that may take hundreds of years. Of course, capitalism may reconstitute itself on a new basis as it did after the Second World War, or the capitalist class may move to consolidate their rule through other means but the seemingly intractable crisis will come first.
Unending growth and the idea of progress is a central pillar of capitalist ideology. If this pillar start to crumble, if capitalism is unable to organise human activity in a way that sustains the promise of unending progress, then this will have profound political consequences. At the moment, the working-class passively gives its grudging consent to the right of capitalists to own our workplaces as their private property and run economic life for private profit. But this might appear to be a perverse attitude in a world that is falling apart, where tens of millions are being displaced, the economy is convulsing and uncanny natural disasters are creating a cascade of humanitarian crises. Why persist with a way of organising human affairs that will almost certainly lead to catastrophe?
It seems likely that faith in capitalist progress will crumble at the same time that it becomes increasingly obvious that there is an urgent need for unprecedented feats of human labour. The crisis will demand that we develop climate resilient infrastructure, a zero carbon energy supply, solutions to the food and freshwater crises, the capacity for mass resettlement of displaced people, and draw-down and storage of atmospheric carbon.
These are colossal tasks involving the full mobilisation of our organisational and productive capacities. Market forces and privately owned businesses will not organise this work. But the obvious solution, democratic economic planning and collective ownership of the means of production, will only emerge if there is a force prepared well in advance, that has studied and anticipated the crisis and is able exploit the political opportunities that the crisis presents.