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What happens when your wealth disappears?

Ricardo Fuentes's picture
What happens when your wealth disappears?
   Photo © Ray Witlin/World Bank

The latest data on home prices in the US is pretty dismal. According to the Case–Schiller index, home prices fell by 18.5 % from December 2007 to December 2008 – the largest drop in record. Add the jump in unemployment figures in recent months and we have a bleak outlook.

But what do the housing and labor market in the US have to do with the changing climate? Nothing, at first glance. But the sudden loss in wealth and income is similar to what other asset owners experience in less fortunate parts of the world, where climate change is a threat to well being. Cattle herders and farmers who depend on rainfall often experience a dramatic fall in their assets –typically bullocks or goats- after a drought. The sudden lack of resources when rainfall is low forces them to sell their surviving cattle, pushing their prices down and sending whole communities into destitution.

Typically, homeowners can foreclose their less valuable houses. If they lose their job they can claim unemployment benefits, declare bankruptcy and be protected by the government. Herders and farmers in poor countries face starker choices. In the face of falling income and wealth, they often take their children out of school, abandon family members and reduce food consumption to avoid selling their remaining livestock. The long term consequences of these choices can be dramatic and there is no recovery package in place to support them.

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