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Notes -
Allow me to clarify. I'm aware of some of the weaknesses in the models that are used purely for the physical systems, but I actually don't think they're that bad. They're actually pretty decent, AFAICT, where "pretty decent" is a sort of term of art to describe situations where you have an okay sense for the scale of your error analysis and can sort of understand when it might be a problem or not a problem.
Sigh. I really don't know that I have a good way of explaining this intuition. Maybe a story. Long ago, I paid a lot more attention to fairly straightforward aircraft control topics at conferences. One question that came up surprisingly often was, "...would you fly on an airplane that is being controlled by your controller?" There is just a qualitative sense that you develop for how bad the badness is. How the error is likely to be structured, how likely genuinely destructive failure modes are, magnitudes of expected error under various noise distributions, etc.
With that, I guess I'll just say again that I don't think the climate models are "that bad". They're not garbage. There is error, we know some of the sources of error (you mention a couple), and we have an intuitive sense for about how big it may be.
Conversely, what I have significant theoretical disputes with is specifically trying to model economic systems coupled with climate systems. We basically can't even get off the ground, theoretically speaking. The timescales are the wrong way round. When you talk about the apparent fastness of climate dynamics, they are still figuratively glacial in comparison to the dynamics of economic systems (and I sometimes tack on political systems, because it's amazing how many people try to make completely whacko claims about these, too). You did great to realize that attempts like using a static damage function and then proceeding with a simple amortization are bonkers. My point is that the underlying theoretical reason why they're bonkers is because that's just not how one does anything with timescale-separated coupled dynamical systems.
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