Co-authored: Nina Eichacker, University of Rhode Island; John Hogan Morris, University of Nottingham

Full Title:

“Climate Change, Distributional Inequity, and Balance Sheet Crises: Using Black Swan Lessons to Avoid Green Swan Inequities”

Abstract:

Climate change is likely to trigger balance sheet crises as the propensity for and scope of natural crises increases in the near and medium term. This paper uses Keynesian theories to argue that governments and central banks should use expansive policies to stabilize domestic and global economies that may result from both physical and financial consequences of climate change. This paper takes lessons from the Global Financial Crisis and the Coronavirus Pandemic to suggest how governments and central banks have learned some positive lessons in how to more equitably sustain economic activity. It also highlights the global inequity of recent responses to the COVID-19 pandemic. While higher-income economies emit most global carbon emissions, and while lower-income economies are generally at higher risk of natural calamity as a result of climate change, more expansive fiscal and monetary responses to the risks of climate change will yield improvements for developed and developing economies alike. If governments and central banks proactively shift economies away from carbon-emitting activities while increasing relief efforts to help domestic and foreign non-financial interests, economic growth, social welfare, and global equity may all improve.