Trends in Abrupt Impacts

In the long march of human history, technology has increasingly insulated humans and economic activity from the vagaries of weather. In the preindustrial age, work and recreation were dictated by the cycles of day light, the seasons, and the agricultural growing season. This was summarized by the economic historian Fernand Braudel, who wrote, "The world (before the nineteenth century) consisted of one vast peasantry where between 80 and 95 percent of people lived from the land and nothing else. The rhythm, quality, and deficiency of harvests ordered all material life" (Braudel, 1973). Gradually, with growing linkages through national and international trade, and as agriculture's share of economic activity has decreased, the role of local weather on harvests (and of climate on the economy) has declined in significance. Many people are surprised to learn that in 1999, farming contributed only $74 billion of the $9.3 trillion (about 0.8 percent) of US gross domestic product. Furthermore, in 1999 agriculture's share of total hours worked also totaled 0.8 percent (Bureau of Economic Analysis, 2001).

Today, modern technology enables humans to live in large numbers in virtually every climate on earth. For the bulk of economic activity, variables such as wages, unionization, labor-force skills, and political factors overwhelm climatic considerations. For example, when a manufacturing firm decides between investing in Hong Kong and Moscow, climate will probably not be on the list of factors considered. Moreover, the processes of economic development and technological change tend progressively to reduce sensitivity to climate as the share of agriculture in output and employment declines and as capital-intensive space heating and cooling, enclosed shopping malls, artificial snow, and accurate weather or hurricane forecasting reduce the vulnerability of economic activity to weather. This trend is seen even in developing countries; countries classified as "low income" by the World Bank (including China and India) had 31 percent of their output coming from agriculture in 1980, while by 1998 that share had declined to 23 percent (World Bank, 2001).

Changes in the historical vulnerability of the US economy to weather can be seen by looking at variability of output in agriculture, which is the most weather-sensitive sector of the economy. The variability is measured as the deviations from trend of real gross output originating in agriculture in 1996 prices over the 1929-2000 period (Figure 5.2)1 and is caused by a wide variety of factors including weather, floods, exchange-rate changes, demand volatility, as well as bad harvests abroad. The year-to-year variability of agricultural output has risen over time along with the growth in

1Real gross product output above originating in agriculture is the value added in the agricultural sector, which equals total output less purchases (such as fuel) from other sectors. The quantities (tons of wheat or pounds of bacon) are valued using market prices in 1996.

1940 1960 1980 2000

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FIGURE 5.2 Variability of total US farm output, 1929-2000. Variability is measured as the deviation of real farm output from its quadratic trend, where output is measured in billions of dollars in 1996 prices. These data include all farm output including cereals, fruits and vegetables, and livestock. (Data from Bureau of Economic Analysis.)

the output of that sector. Surprisingly, however, the vulnerability of the overall economy to agricultural shocks has declined over the last seven decades. The overall vulnerability is here measured as the ratio of the deviation from trend of real gross output shown in Figure 5.2 divided by trend real gross domestic product (Figure 5.3). The maximum deviation due to agriculture over the entire period was -0.75 percent of total output in 1934, while the maximum deviation in the last decade was only 0.14 percent in 1992. The declining sensitivity of overall output to agricultural shocks lies primarily in the declining share of output originating in agriculture. Agricultural output was 5 percent of total gross domestic product in the early 1930s but averaged 1.2 percent of total output in the late 1990s, so weather shocks to farming have a relatively smaller overall impact today than in earlier years.

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FIGURE 5.3 Relative variability of US farm output as share of total gross domestic product, 1929-2000. Relative variability is the dollar variability shown in Figure 5.2 as a percent of trend real gross domestic product. Even though the variability in Figure 5.2 has increased over the last seven decades, its size relative to the overall economy has declined because of the declining share of agriculture in total output. (Data from Bureau of Economic Analysis.)

Another human vulnerability to climate change is impacts from severe storms. Total economic losses from hurricanes in the United States over the 1900-1995 period have increased sharply (Figure 5.4). In contrast to agriculture, when these data are normalized to account for inflation, wealth, and population (Figure 5.5), they exhibit an extremely skewed distribution but show no clear trend.2 Furthermore, data on floods show no decline in flood damage per unit wealth in the United States (Pielke and Downton, 2000) over an equivalent period.

The relationship between climate and human civilizations has long been a subject of research and speculation among historians and economists.

2A least squares estimate of normalized damages on time shows a negative coefficient with an insignificant t-statistic of 0.5.

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