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4.1. Extract from Nordhaus’s table 5: breakdown of economic activity by vulnerability to climatic change in 1991 US$ terms

Dedicated to my wife Nisa, whose Buddhist grounding in the present keeps me sane as I contemplate the future facing both humanity, and the biosphere that humanity has so severely damaged.

Even before the Covid-19 crisis began, the global economy was not in good shape, and neither was economic theory. The biggest economic crisis since the Great Depression began late in the first decade of the twenty-first century. Called the ‘Global Financial Crisis’ (GFC) in most of the world, and the ‘Great Recession’ in the United States, it saw unemployment explode from 4.6 per cent of the US workforce in early 2007 to 10 per cent in late 2009. The S&P500 stock market index, which had boomed from under 800 points in 2002 to over 1,500 in mid-2007, crashed to under 750 by early 2009. Inflation of 5.6 per cent in mid-2008 turned into deflation of 2 per cent in mid-2009.

The US economy recovered very slowly, under the influence of an unprecedented range of government interventions, from the ‘Cash for Clunkers’ scheme that encouraged consumers to dump old cars and buy new ones, to ‘Quantitative Easing’, where the Federal Reserve purchased a trillion-dollars-worth of bonds from the financial sector every year, in an attempt to stimulate the economy by making the wealthy wealthier.

The crisis, and the sluggish recovery from it, surprised both the economists who advise governments on economic policy, and the academics who develop the theories and write the textbooks that train new economists. Not only had they expected a continuation of the boom conditions that had preceded the crisis, they in fact believed that crises could not occur.

In his Presidential Address to the American Economic Association in January 2003, Nobel Prize winner Robert Lucas declared that crises like the Great Depression could never occur again, because ‘Macroeconomics … has succeeded: Its central problem of depression prevention has been solved, for all practical purposes, and has in fact been solved for many decades’ (Lucas 2003, p. 1). Just two months before the crisis began, the Chief Economist of the Organization for Economic Cooperation and Development (OECD), the world’s premier economic policy body, declared that ‘the current economic situation is in many ways better than what we have experienced in years’, and predicted that in 2008, ‘sustained growth in OECD economies would be underpinned by strong job creation and falling unemployment’ (Cotis 2007, p. 7, emphasis added). In the depths of the crisis, George W. Bush’s Chief Economic Advisor Edward Lazear argued that, because the downturn had been so deep, the recovery would be very strong (Lazear and Marron 2009, Chart 1-9, p. 54). He was bitterly disappointed by the actual outcome, which was the slowest recovery from an economic crisis since the Great Depression itself.