The Economic Consequences of Youth Pessimism About Climate Risk: Lessons from Slemrod's "Savings and the Fear of Nuclear War"

 The media keeps running articles that Greta Thunberg and a majority of the world’s young people worry that “society is doomed” because of climate change. I understand that they seek to create a political movement to enact a global carbon tax. I support the carbon tax but do they really believe their rhetoric?  Are they really such adaptation pessimists? What are the implications of their mindset for their mental health and their investment in themselves at this key point in their life-cycle?

Joel Slemrod is a top economist at the University of Michigan.  In 1986, he published a paper that today only has 40 citations. It was titled; “Savings and the Fear of Nuclear War” .   The point of this blog post is to rehabilitate his paper in a new context.   Here is his paper’s abstract;

The hypothesis of this article is that the performance and, in particular, the rate of saving in the postwar U.S. economy has been influenced by the changes in the public perception of the threat of a catastrophic nuclear war. An increased threat shortens the expected horizon of individuals, and thus reduces their willingness to postpone present consumption in favor of investment. The hypothesis is tested by expanding a standard savings function estimation technique to include a measure of the perceived threat of nuclear war. Several alternative measures of the perceived threat are considered, based either on the setting of the “doomsday” clock published monthly in Bulletin of the Atomic Scientists, which reflects the editors’ judgement about the likelihood of a nuclear conflict, or on an index of the extent of press coverage of nuclear war issues. The tests all support a large and statistically significant impact of the threat of nuclear war on the rate of private saving. These tests are not viewed as conclusive evidence in favor of the economic impact of the perceived threat of nuclear war. Nevertheless, this research suggests that economists may have been overlooking an important source of influence in the postwar, postnuclear U.S. economy. Conceivably, it could affect not only the private savings rate but also other economic variables such as the level of investment in human capital, the level of asset prices, the term structure of interest rates, and the rate of inflation.

Substitute the word climate change for “nuclear war” and let’s focus on young people who are still being “Formed”.   The last sentence of the article is what really interests me.  Based on standard life-cycle investment models, if the young truly believe that we are doomed;  this creates several predictions;  relative to a world where we are “not doomed”;

Predictions due to over-estimation of future “doom”

The young will be more likely to currently engage in substance abuse

The young will focus on leisure (Instagram, social media)

The young will be less likely to bear the fixed costs of training that only payoff in the future

The young will not invest in understanding our institutions.

If youth is an essential investment stage such that at middle age we can’t reverse our past choices, then the current “doom and gloom” will affect humanity through the OLG mechanism.  The current young will inherit this world.  

Older economists will see that this is a repeat of David Meltzer’s University of Chicago thesis on the causal effect of AIDS in Africa on educational attainment there in the 1980s.

I will be writing more about this but adults who agree with this blog post should encourage their teens to read my 2021 book and to study some economics.