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June 11, 2018

Oren Cass’s Testimony on Climate Change Damage, Part 3 of 3

June 11, 2018
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In my last two posts (here and here), I discussed some of the most powerful arguments in the Manhattan Institute’s Oren Cass’s May 16 testimony before the House Committee on Science, Space, and Technology for a hearing on climate change. Cass’s overall thesis is that many “official” estimates of potential climate change damages do not adequately incorporate human adaptability, and so they grossly exaggerate the likely harms.

What Cass shows is that many of the “official” estimates of the damages from unchecked climate change rely on absurd limitations on human adaptability. I realize that most citizens may adopt a stance of humility, and think that they surely aren’t qualified to question the projections made by the experts.

Yet as Cass’s recent testimony shows—and as I spent the last two posts explaining—there are certain areas where it is obvious, even to a layperson, that the technique used to calculate damages is far too pessimistic. For example, Cass showed that one of the estimates of heat-related mortality in the year 2100 implicitly assumes that the adoption rate of air conditioning was based on historical numbers going back to 1960, rather than assuming the rates in later data such as 2004 levels. That small (and obvious) correction was enough to wipe out the statistical significance of climate change-induced heat-related deaths in 2100.

In this final post I will walk through one of the funnier examples Cass identified in these “official” simulations that are being used to guide policymakers and terrify the public. Specifically, Cass shows that the very model being cited in official circles to estimate climate change damages also yields the prediction that by the year 2100, Mongolia will have a per capita income four times as high as America’s. This absurd result should be a red flag that something is seriously wrong with the assumptions that spit out such an output.

“The Mongolian Century”

The humorous outcome—which Cass dubs “the Mongolian century”—comes from this paper: Marshall Burke, Solomon Hsiang, and Edward Miguel, “Global Non- Linear Effect of Temperature on Economic Production,” Nature 527 (Nov. 2015): pp. 235-39. For the sake of brevity Cass refers to this paper simply as “Burke.” Now I’ll quote Cass’s summary of their method, so we can understand why the Mongolians are (apparently) destined for greatness:

“Burke compares year-to-year variations in a country’s average temperature with variations in those same years in economic growth, controlling for associated changes in precipitation. It found that in countries with average temperatures below 13°C (55°F…), growth was better in warm years; countries with higher average temperatures saw better growth in cool years.

Burke theorizes that these short-term fluctuations evinced a universal effect of temperature on growth: every country would see its maximum growth (determined by non-meteorological factors) at a 13°C average temperature—a dynamic that will not change as the climate warms. To extrapolate from this relationship to a possible effect of climate change, Burke constructs a model in which every country’s baseline temperature is its average during 1980–2010 and its baseline rate of economic growth is that forecasted by the Shared Socioeconomic Pathway…The difference between the baseline temperature and temperature forecasted in some future year by a climate model provides the variation used to predict how growth in that year will vary from the SSP forecast.

Let’s say that a country’s gradual warming raises its temperature from, for example, 15°C during 1980–2010, to 19°C in 2100. The model attempts to predict the effect on economic growth of a 15°C country experiencing a sudden 19°C year. But the economic performance of other countries with a present-day 19°C average is ignored. The shift in the country’s own long-run average is ignored. (Oren Cass, bold added.)

Although we can understand why the study authors proceeded as they did, it should be clear what is wrong with their approach. They found that cities with below-average temperatures had faster economic growth when they experienced relatively warm years, and they found that cities with above-average temperatures had faster growth when they experienced relatively cool years. From this, the authors derived a universal result, that the average temperature of all of the cities was the ideal that would maximize economic growth.

Yet this clearly ignores the role of adaptation. People who live in relatively cold cities are prepared for colder weather, and so to them a “moderate year” means “one that was relatively warm.” On the other hand, people who live in relatively hot cities are prepared for scorching weather, and so to them a “moderate year” means“ one that was relatively cool.” We can hardly look at the year-to-year fluctuations in temperature and economic growth from these cities, to draw universal conclusions about absolute shifts in temperature baselines that occur over the course of a century. As Cass puts it:

Projecting each location’s response to a century-long temperature change on the basis of how locations reacted to small variations from their own averages in the past produces extremely dubious, if not preposterous, results. Burke’s model takes normal economic growth in cold or hot countries as a sign not of economic specialization to a local climate but of often stupendous underlying growth potential that the local climate suppresses. (Oren Cass, bold added.)

It is Cass’s last line in the quotation above that is critical to understanding the absurdity that the Burke model spits out. Because places like Mongolia—which is very dry and suffers from extremely cold winters, well below the ostensibly “optimal” temperature for maximum economic output—currently have any GDP at all, despite having to work against the bitter cold, then the Burke model assumes the Mongolian economy must actually be far superior to today’s economies located in more moderate climates.

For an analogy, imagine looking at in in-ground swimming pool where someone standing in the shallow end has the water come up to his belly button, while someone in the deep end has the water up to his neck. If we assumed that both people were standing with their feet planted on the bottom of the pool (rather than
treading water), we would conclude that the person in the deep end was actually 11 feet tall! It’s true that his measured height sticking out of the water was lower than the guy standing in the shallow end, but once we account for the extra depth he had to overcome, we conclude he’s much taller.

Something similar happens with Burke. It’s true that right now (as Cass explains), Mongolia’s “per-capita income of $861 made it the 118th wealthiest country in 2010.” But because Burke assumes economies aren’t very adaptive to the local climate, this result by the very-cold-winter Mongolia means it must actually be quite productive, to “stick its head” up out of the water at all. By the year 2100, with the assumed amount of global warming, the Burke model predicts that Mongolia’s per- capita income “will leap to seventh” in the world with a value of $390,000—more than four times America’s projected per-capita income of $90,000.” And furthermore Cass explains that “Iceland achieves a per-capita income of $1.5 million, more than twice that of any other country besides Finland ($860,000), with annual economic growth above 5% and accelerating.”

Cass produces the following figure to showcase the absurd predictions generated by the Burke model:

 

Projected GDP Per Capita Following Climate Change

Figure 5 (taken from Oren Cass): Projected GDP Per Capita Following Climate Change (based on projections in study by Burke et al.)

 

Now to be sure, it is possible that unchecked climate change will wreak havoc on the global economy in general and the United States in particular. But Cass’s point is that a model spitting out the above projections is doing something wrong. If the assumptions we have to make in order to get catastrophic negative impacts on the world, will at the same time show Mongolian per capita GDP exploding upward, then we can safely conclude that these assumptions are wrong.

Conclusion

In this final post of my miniseries, I have summarized Oren Cass’s devastating critique of a climate impact study by Burke et al. Because they assumed that year-to-year fluctuations in temperature and economic growth were not due to short-term adaptation, but instead reflected an absolute “ideal” temperature, they were able to conclude that global warming through 2100 would cause large damage to the world economy. Yet their method also implied that Mongolia’s prosperity would skyrocket, because it was only the bitter winters currently holding back the Mongolian economic powerhouse.

Such modeling can be adjusted to fit the historical data, but it is clearly erroneous. And that’s precisely why projections going forward will yield absurd results, such as “the Mongolian century.”

In summary, Oren Cass’s testimony to the House is a masterpiece, illustrating serious flaws in some “official” estimates of climate change damage. Policymakers and the public should take the time to read Cass’s work, and realize that the fallacies he has identified don’t take a PhD to understand. One need not be a “denier” to recognize that the case for climate alarmism rests on very dubious grounds.

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