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A Secondary Take on the Paris Climate Agreement

This is an article meant for those of you who believe that climate change is a big enough problem that extreme government carbon cutbacks are required. Another article will be written for those who believe that government intervention is not needed.

In my opinion, global warming is not the largest problem that the US is facing. A problem that is more significant is the age demographic crisis that we will be facing in the next several decades. Currently, the percentage of population that is retired is about 15%. At around 2030, this percentage is going to increase to over 20% and continue rising. Here’s a graph from the US Census Bureau to help give you an idea.

Add to this the fact that, as a percentage, the growth rate of older Americans is much higher than that of the population overall:

And you have got yourself a pretty big economic problem.

Now, why is this such a problem? Well the idea of Social Security runs off the fact that young people have kids, make money, and support the elderly by paying taxes. The cycle proceeds when their kids grow up and pay for their Social Security. However, there is a problem with this system. When America has a low birthrate, like it has had for decades, the old people retire and the government finds that there simply are not enough taxpayers to pay for the elderly. This is a major problem.

What does this have to do with climate change regulation? According to some scientists, climate change has already advanced to the point that even extreme carbon cuts will not stop a lot of the bad effects. So what does one do with the fact that the climate is facing serious danger no matter the carbon cuts we perform, and the fact that the upcoming generation will simply be unable to pay for the elderly? Outgrow the problem economically.

As I said, the US percentage of retirees versus the overall population is increasing. Even with 3% annual (after inflation) growth, which is unlikely to happen, we will be in massive deficit spending by then just to meet current entitlement obligations. The only way to survive is to get through the 2045-55 decade, since that is when demographics start to flatten out, and new growth and revenue should catch up and balance the budget sheets again. However, to make it to that point, we need to prevent our debt from becoming too massive and the interest destroying us.

After that crisis though, the US economy will start to do better as new tax revenue from a bigger economy goes all into discretionary spending (all growth for the last decade has been sucked in non-discretionary spending, and that will continue for the next 35 years). So the only way to survive those crisis years is to grow, grow, grow. If we manage to get past the age demographic crisis, then we can worry about global warming.

A major carbon tax today in 2017 will drag down the economy. Cheap energy is still the lifeblood of growth. Even dropping nominal, before inflation growth from 5.2% a year to 4.7% from a carbon tax (a conservative estimate, it could have an even worse slow down effect) compounds into a ridiculously large amount of wealth by the time the IPCC predicts really bad things from climate change.

Going to 2075 for example, that’s the difference between a 108 trillion dollar US economy in 2075 (in 2017 dollars, 370 trillion in 2075 dollars), and an 86.5 trillion dollar US economy.

At current tax rates, that’s 4 trillion dollars more in tax revenue *per year*. A number so huge, I’m having difficulty believing even extremely severe climate change related problems cannot be solved with that much wealth.

The Paris agreement and an aggressive carbon tax may slow climate change, only to also slow growth to the point that the entire western world goes belly up in 2040 when we literally run out of money to write the checks we promised all our old people. Old people who cannot go back to work.

The resulting depression would be something beyond anything humanity has ever seen. Over a hundred million people in the west on bread lines when the checks stop coming and no-one on the planet to bail us out. THAT is the biggest risk we face today, far more dangerous than climate change. I know it’s a gamble, but at this point, there aren’t many options left.

Sources:
US Census Bureau, https://www.usnews.com/opinion/articles/2016-05-27/the-eroding-economy

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