light, the seasons, and the agricultural growing season. This was summarized by the economic historian Fernand Braudel, who wrote, “The world (before the nineteenth century) consisted of one vast peasantry where between 80 and 95 percent of people lived from the land and nothing else. The rhythm, quality, and deficiency of harvests ordered all material life” (Braudel, 1973). Gradually, with growing linkages through national and international trade, and as agriculture’s share of economic activity has decreased, the role of local weather on harvests (and of climate on the economy) has declined in significance. Many people are surprised to learn that in 1999, farming contributed only $74 billion of the $9.3 trillion (about 0.8 percent) of US gross domestic product. Furthermore, in 1999 agriculture’s share of total hours worked also totaled 0.8 percent (Bureau of Economic Analysis, 2001).

Today, modern technology enables humans to live in large numbers in virtually every climate on earth. For the bulk of economic activity, variables such as wages, unionization, labor-force skills, and political factors overwhelm climatic considerations. For example, when a manufacturing firm decides between investing in Hong Kong and Moscow, climate will probably not be on the list of factors considered. Moreover, the processes of economic development and technological change tend progressively to reduce sensitivity to climate as the share of agriculture in output and employment declines and as capital-intensive space heating and cooling, enclosed shopping malls, artificial snow, and accurate weather or hurricane forecasting reduce the vulnerability of economic activity to weather. This trend is seen even in developing countries; countries classified as “low income” by the World Bank (including China and India) had 31 percent of their output coming from agriculture in 1980, while by 1998 that share had declined to 23 percent (World Bank, 2001).

Changes in the historical vulnerability of the US economy to weather can be seen by looking at variability of output in agriculture, which is the most weather-sensitive sector of the economy. The variability is measured as the deviations from trend of real gross output originating in agriculture in 1996 prices over the 1929-2000 period (Figure 5.2)1 and is caused by a wide variety of factors including weather, floods, exchange-rate changes, demand volatility, as well as bad harvests abroad. The year-to-year variability of agricultural output has risen over time along with the growth in


Real gross product output above originating in agriculture is the value added in the agricultural sector, which equals total output less purchases (such as fuel) from other sectors. The quantities (tons of wheat or pounds of bacon) are valued using market prices in 1996.

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