Introduction: An Economic System on the Brink

The global economy has entered a period of extreme vulnerability. Climate, geopolitical, financial, and social crises no longer occur in isolation; instead, they interact, reinforce one another, and generate unprecedented systemic risk. Since the 1970s, the dominance of neoclassical and neoliberal paradigms has profoundly restructured global economies. Systemic tax cuts, interstate regulatory competition, financial deregulation, and escalating inequality have severely eroded our collective capacity to address environmental and social shocks.

The neoclassical paradigm rests on the assumption that continuous GDP growth can be sustained indefinitely through technological innovation and decarbonization. This framework fundamentally underestimates the cascading impacts of global warming on human well-being, financial stability, and resource availability. Concurrently, neoliberal policy regimes have constrained fiscal flexibility, weakened public services, and widened social divides, rendering the political economy of the ecological transition increasingly precarious.

The Already Devastating Impacts of Climate Change

The consequences of climate change are no longer distant theoretical projections: they are empirically measurable across both economic indicators and public health metrics. The planetary boundaries framework indicates that seven of the nine critical earth-system thresholds have now been crossed, most notably regarding biodiversity, the nitrogen cycle, land-system change, and ocean acidification (Findlay et al., 2025). 

The macroeconomic repercussions are immediate and severe. According to the European Central Bank (2025), unmitigated warming could reduce eurozone GDP by 5% over the next five years alone. The human toll is equally stark: between 2012 and 2021, extreme heat exposure contributed to an average of 546,000 deaths annually, while wildfire smoke accounted for 154,000 deaths in 2024 alone (The Lancet Countdown Report, 2025). Broader environmental degradation and air pollution are estimated to have already caused 9 million excess deaths per year globally since the start of the century (Fuller et al., 2022). During the summer of 2026, health authorities in Germany, France, Spain, and Italy registered more than 25,000 heat-related deaths—a record-breaking mortality toll expected to rise further through late autumn (Euractiv, 2026).

Medium-Term Outlook: Accelerating Trajectories and Systemic Limits

Without rapid, structural transformation, the socioeconomic and human costs will become catastrophic. In her updated empirical evaluation of the Limits to Growth World3 model, Gaya Herrington (2020) demonstrated that empirical data track most closely with the « BAU2 » (Business-as-Usual) and « CT » (Comprehensive Technology) scenarios. Both trajectories project a complete halt in global economic growth around 2040. Maintaining the status quo—defined by relentless capital expansion—is physically unviable. Even when paired with aggressive technological deployment (as modeled in the CT scenario), industrial output, agricultural yield, and human welfare metrics inevitably decline over the course of the twenty-first century. In the BAU2 scenario, industrial production contracts by 85% between 2040 and 2100, accompanied by a steep population decline; in the CT scenario, industrial output drops by 40% over the same period.

While Herrington initially argued that a « Sustainable World » (SW) trajectory—stabilizing industrial output by 2040—remained reachable, subsequent developments suggest we have crossed the threshold where marginal reforms suffice. Global economic growth will cease within the next two decades, whether managed by design or forced by physical limits. Systemic resilience, therefore, no longer means attempting to preserve growth, but rather building the structural foundations of a post-growth economy today to cushion impending environmental and social shocks.

Physical climate projections reinforce this urgency. Under the CMIP7 framework, updated global warming ranges for 2100 have been narrowed to 1.6 °C–3.3 °C (with a central estimate around 2.9 °C), adjusting the broader 1.5 °C–4.7 °C range from AR6. While the upper bound was revised downward due to the exclusion of highly unrealistic coal-consumption pathways, the central trajectory still implies an irreversible breaching of the 2 °C threshold by mid-century, alongside a 25% tail risk of reaching 4 °C by 2150.

Furthermore, the World Climate Research Programme (WCRP) and leading climatologists warn that existing climate-economic models systematically underestimate true warming trajectories and physical impacts. Current models routinely omit critical non-linear feedbacks, such as accelerated permafrost thawing, the degradation of terrestrial carbon sinks, and the sudden decline in cooling aerosol masking due to air quality regulations. These limitations are compounded by high climate sensitivity uncertainties and an over-reliance on speculative negative-emissions technologies to achieve post-overshoot temperature drawdowns.

According to the Institute and Faculty of Actuaries (2025), a 3 °C temperature increase by 2050 would cause a minimum 50% contraction in global GDP and contribute to over 4 billion cumulative deaths between 2070 and 2090. A warming trajectory of 2 °C to 3 °C would yield a 25% GDP loss and 2 billion deaths, while even limiting warming to 2 °C by 2050 entails a 10% GDP contraction and 800 million deaths in the late twenty-first century.

Similarly, Bilal and Känzig (2024) estimate that a 3 °C temperature rise relative to pre-industrial levels would reduce global real GDP per capita by 53%. However, because their econometric framework focuses on historical macroeconomic shocks, it does not fully account for absolute resource scarcity, rebound effects, or cascading systemic failures. As Kemp et al. (2022) emphasize, climate damages may prove order-of-magnitude greater than historical extrapolations suggest, presenting genuine risks of societal collapse or human extinction that standard economic literature has consistently neglected.

The Insurance Sector and Financial Contagion

Escalating climate extremes pose an existential threat to the insurability of physical assets. As severe weather events frequency and severity intensify, private insurers are drastically raising premiums or withdrawing coverage entirely from high-risk geographic areas, forcing state authorities to step in with underfunded public safety nets.

This coverage crunch creates a direct transmission mechanism into broader financial instability:

• Uninsurable commercial and residential properties suffer rapid devaluation.
• The inability to secure property insurance halts mortgage underwriting and freezes credit markets.
• Rising loan defaults impair banking balance sheets and institutional solvency.

As Allianz executive Günther Thallinger noted, insurance acts as a foundational pillar for capital deployment; the withdrawal of insurance coverage across entire regions threatens an abrupt, disorderly market repricing across global asset classes.

Private Debt, Shadow Banking, and the AI Bubble

Beyond extreme equity valuations, the funding architecture supporting the artificial intelligence (AI) boom exhibits severe accounting and credit vulnerabilities. Much of the expansion in AI infrastructure is financed through private debt and non-bank institutions rather than traditional equity or venture capital. This shifts financial risk into off-balance-sheet structured credit instruments backed by physical assets (such as specialized GPU clusters) subject to rapid technological obsolescence. While bank debt among corporations and households has remained relatively stable, non-bank financial intermediation has surged: between 2022 and 2025, assets managed by non-bank financial entities rose from 201% to 268% of U.S. GDP.

Simultaneously, the massive capital and material allocation toward AI infrastructure directly competes with the requirements of the energy transition. Data center infrastructure demands immense baseload electricity. By absorbing substantial shares of newly deployed low-carbon power, AI expansion threatens to crowd out critical electrification efforts across heavy industry and transport.

This resource competition extends to critical minerals. Both the AI and clean energy sectors rely heavily on the same raw materials—specifically copper, lithium, cobalt, nickel, and heavy rare earth elements required for semiconductors, grid expansions, high-density batteries, and wind generation. Unchecked AI demand thus exerts upward price pressure on inputs essential for decarbonization.

Fiscal Competition, Wealth Concentration, and Sovereign Debt

As Gary Stevenson emphasizes, contemporary tax regimes disproportionately favor capital income over labor income, driving extreme wealth concentration among top earners while eroding middle-class real incomes. This secular decline in living standards fuels widespread economic disillusionment, serving as a primary structural driver for the rise of far-right populism. Gabriel Zucman highlights that high-net-worth individuals rarely hold assets in personal names, utilizing holding structures and shell companies to accumulate untaxed capital while avoiding personal income taxation. To counter this systemic leakage, Zucman advocates for an international corporate tax reform paired with an annual global minimum wealth tax on billionaires.

In corporate governance, short-term incentives encourage political lobbying for lowered tax burdens. While tax cuts may enhance individual firm margins temporarily, their aggregate macroeconomic impact is highly destabilizing. During the post-WWII era under Keynesian policy frameworks, top marginal tax rates were significantly higher, coincided with robust public infrastructure investment, and supported sustained broad-based productivity growth. International tax competition deprives states of the revenue necessary to fund green infrastructure, inflating sovereign debt ratios to historically high levels.

Analyzing these fiscal constraints, Jackson and Jackson (2025) note that transitioning away from growth-dependent economic structures creates severe tension between fiscal contraction and rising debt loads. They contend that flexible monetary and fiscal policy coordination is essential to grant governments the policy space required to fund ecological and social stabilization. If structural growth ceases, utilizing budget deficits to fund long-term transition investments becomes infinitely more complex under rigid fiscal rules.

Consequently, the continuous growth of public debt-to-GDP ratios across major economies (including the United States, France, and Japan) represents a central macro-financial vulnerability. External supply shocks—such as energy supply disruptions through the Strait of Hormuz—would trigger renewed inflationary pressures, forcing central banks to maintain high policy rates. Surging sovereign debt servicing costs would crowd out public investment and risk triggering bond market dislocations. If markets demand higher term premiums, a sharp steepening of yield curves would directly threaten the capital solvency of institutions holding long-duration sovereign debt.

Social Polarization and Conflict Dynamics

Climate change rarely acts as a direct catalyst for violent conflict; instead, it operates as a threat multiplier that destabilizes fragile ecosystems and amplifies pre-existing socioeconomic, political, or ethnic tensions. Rather than cultural or identity-based divisions inherently driving civil warfare, conflict propensity is primarily rooted in poverty and low state capacity, which hinder local security provision while lowering the opportunity cost of rebel recruitment (Fearon & Laitin, 2003). However, when economic, political, or resource disparities align with identity fault lines—a condition defined as horizontal inequality—the risk of violent mobilization escalates dramatically (Stewart, 2000, 2008). Empirically, this dynamic exhibits a non-linear pattern: global geospatial analysis reveals that ethnic groups positioned at either economic extreme—being significantly poorer or wealthier than the national average—face a markedly higher probability of engaging in armed conflict against the state (Cederman et al., 2011). Consequently, mitigating intergroup socio-economic disparities remains a critical mechanism to defuse the politicization of grievances in climate-vulnerable regions.

This societal fragility is further compounded by structural wealth distribution dynamics. Drawing on cliodynamical modeling, Turchin (2023) demonstrates that advanced economies experienced a distinct structural shift over the twentieth century. Between 1929 and the late 1970s, wealth concentration contracted alongside Keynesian policy frameworks, strong labor institutions, and expanding social protections. However, this trend reversed sharply during the 1970s with the rise of neoliberal policy regimes, systemic market deregulation, and the weakening of collective bargaining. Turchin conceptualizes this shift as the activation of a structural « wealth pump » that systematically redistributes economic surpluses upward, driving real wage stagnation for low-skilled workers while accelerating elite overproduction. The resulting surge in frustrated counter-elites, combined with popular immiseration, destabilizes political institutions and heightens the probability of civil conflict and state collapse.

Conclusion: Navigating Interconnected Systemic Risks

The global system faces a convergence of interconnected, compounding risks. As Luke Kemp (2025) argues, emerging risks surrounding AI deployment, nuclear proliferation, autonomous weaponry, and climate breakdown should not be treated as isolated policy challenges. Rather, they represent interconnected outputs of the « Global Goliath »—an extractive socioeconomic system structured around elite capital accumulation. Left unaddressed, these cascading dynamics threaten widespread institutional failure, significant global population loss, and systemic civilizational disruption.

Averting catastrophic outcomes demands a fundamental paradigm shift away from GDP growth toward structural post-growth economics. As empirical literature demonstrates, achieving high levels of human well-being does not require unbounded resource throughput. Millward-Hopkins et al. (2020) prove that decent living standards can be universally provided to a global population of 10 billion while reducing global primary energy demand by 60% relative to current levels. Because our current economic framework is physically unsustainable, profound structural transformation is inevitable; the severity of the human and social impact will depend entirely on how rapidly governance structures adapt to these physical realities.

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