Here is an example of a quote from his piece;
By 2050, for example, between $48 billion and $68 billion worth of current property in Louisiana and Florida is likely to be at risk of flooding because it will be below sea level. And that’s just a baseline estimate; there are other scenarios that could be catastrophic.
Here is another quote:
And dramatically rising temperatures in much of the country will make it far too hot for people to work outside during parts of the day for several months each year — reducing employment and economic output, and causing as many as 65,200 additional heat-related deaths every year. That’s almost twice as many deaths as those caused by motor vehicle accidents in 2012.
Let's take a second look at each of these quotes;
First, let's start with damage to coastal property. If we anticipate that this property will be flooded in the future, then its asset value will fall today. The owner of the asset will suffer an income loss unless he figures out a way to protect it from sea level rise. If the property will literally be under water then the owner of that asset will lose $ but anticipating this, he will stop investing in maintenance of the asset so that when the flooding occurs the actual value of all of the flooded structures will be much less than the number that Mr. Rubin announced. Doom and Gloomers always ignore endogenous depreciation in their asset impact calculations. Unlike the Titanic, coastal property owners will strip out all of the valuables in their at risk assets and won't repaint their homes for years as "doomsday" approaches. Yes, the land will be lost but the structures themselves will be heavily depreciated at that point.
Second, Mr. Rubin ignores the element of the zero sum game. If property in coastal Florida vanishes, there is other property that is a close substitute for the submerged land that will go up in value as its competition vanishes. (Recall that in the movie Superman that Lex Luthor recognized that purchasing Colorado land was a great investment because it would be beachfront property after he nuked California). This windfall gain should be factored in by an asset expert such as Mr. Rubin! A good accounting exercise examines the winners and losers from coastal climate shocks. His analysis implicitly assumes that there are no "winners" from the shock but think of this simple example. Given that Coke and Pepsi are close substitutes, a labor strike at a Coke plant leads to more Pepsi sales. Substitutes exist and they gain when a rival suffers. Rubin is conveniently not looking at the two sides of the asset market and ignoring cross-elasticity effects. Bad economics for a Harvard man!! In case, he is looking to refresh his micro skills, he could look at my 2014 paper with Devin Bunten where we discuss how emerging coastal flood risk should affect real estate prices and household locational decisions.
His second paragraph implicitly assumes that nobody in the year 2050 has access to air conditioning. Powerful air conditioning is the reason that Singapore is a prosperous urban nation today. Robert Rubin has been a leading benefactor of Michael Greenstone's Hamilton Project at Brookings. Recently, Greenstone and co-authors have written about air conditioning's impacts on quality of life in India. Here is a draft of the paper . Here is a direct quote from its abstract:
"We find that a one standard deviation increase in high temperature days in a year decreases agricultural
yields and real wages by 12.6 % and 9.8 %, respectively, and increases annual mortality among
rural populations by 7.3 %. By contrast, in urban areas, there is virtually no evidence of an
effect on incomes and a substantially smaller increase in the mortality rate (of about 2.8%
for a one standard deviation increase in high temperature days)."
From a poor developing nation, we see that urbanization is a major adaptation strategy. So, it is not a big reach to say that in the year 2050 that urbanized USA will have many coping strategies for the challenges that Mr. Rubin outlines. The key issue with respect to extra heat is what will be the cost of buying and operating a high quality air conditioning unit in the year 2050? Free trade with China and other exporters would be one way to guarantee that these prices are low so that the urban poor can afford them.
Dear Reader, please note that my skepticism about Mr. Rubin's arguments are based on logic and common sense. I share his big goal of the U.S adopting a carbon tax. I support one but we need to be more honest about what real risks we face and how large these risks will be. Mr. Rubin and Paul Krugman and Joe Romm have not figured out how to pitch these ideas to suburbanites who are well aware that they have locked into a high carbon lifestyle (see my 2014 paper with Holian).
Returning to Mr. Rubin's second quote let's focus on his eye-catching claim that of 65,200 deaths per year in future heat waves.
This crazy estimate of 65,200 extra heat related deaths a year would be horrible if true but I would ask the person who created that number the following; who are these people at risk? Why weren't they aware of the outdoor temperature? Why don't we cloth them in "spacesuits" if they must work outside on such a day? Why haven't such heat resistant clothing been invented and mass produced? Capitalism evolves to solve our quality of life problems (look that up on your cell phone, my grandfather didn't have one in 1950). In places such as Phoenix where it is 110F each day for weeks during summer, how many people die of heat related deaths? How has Phoenix adapted in the year 2014? By the year 2050, won't our strategy set be even larger?
I would ask Mr. Rubin why he is so pessimistic about the potential for human ingenuity to address many of the challenges listed in Risky Business? Human ingenuity made Goldman Sachs into a powerhouse. What's the difference between financial management and climate change risk management? He would correctly say that it better to manage risk ex-ante versus letting it build up and facing its consequences ex-post. I agree with him but I think his group needs to be more honest about the potential for adaptation and who bears the losses from climate change.