I wrote this for my newsletter, but it’s worth reposting here… as well as adding more based on some reader feedback.
People usually say “Amsterdam is burning” for Pride week (started Saturday), but we’re really burning up. The last few days have seen record temperatures in the Netherlands (as in never recorded at this level) and Europe. It’s 30C in my office (86Freedom units) and it’s going to be 37± later today. The Economist writes the obvious: Record temperatures in Europe and the US are the result of climate change. Also read the article for its discussion of “attribution,” as in, “these temperatures (or this hurricane) are 5x more likely due to climate change.”
I think our name for these trends needs to change again. We’ve gone from global warming to climate change, but I think climate chaos is clearer. (Others have added a new season: The Bad Season.)
What does climate chaos mean? “At Amsterdam’s Schiphol airport the taxi runways are being sprayed with water to stop it from melting.” Or here’s a personal example: I ordered an air conditioner* for delivery yesterday, but PostNL’s IT systems failed, and it’s a day late. (Sleeping last night with 28C indoors was not easy.) Can PostNL blame record temperatures? Maybe. Maybe that’s why Schiphol’s fuel systems also failed on Wednesday, stranding thousands of passengers.
Speaking of flying, I flying Tuesday (hopefully) for a week in California. Is this another selfish act *like the A/C purchase, above? Yes and no. Yes because I am flying and buying an A/C, both of which contribute to climate chaos. No because it’s my best response to two failures of collective action: In California, my 86-year old dad has no safety net so I need to fly there to sign service contracts with private providers. I also need to buy an A/C because so many politicians have decided that it’s more important to make money now from burning oil than protect our atmospheric, earth and oceanic commons — and our futures. Since 90+ percent of people will follow in my logic (rather than the logic of that noble minority that will denying themselves everything to help the collective), we’re going to see a lot more damage result from our attempts to avoid damage.
These days, I cannot be too pessimistic about where we’re going as a species, but I have a few ideas. First, we’re going to suffer damage via a thousand little cuts (e.g., delayed flight, dead trees, or falling oxygen levels) that will reduce our quality of life for the first time since the beginning of the Industrial Revolution. (People will not be able to handle this psychologically, socially or politically, since our institutions are built on growth and increasing prosperity.) Second, people are going to divert more time, money and resources to adaptation. In 2052: A Global Forecast, Jorgen Randers (of the team behind Limits to Growth) suggests that this spending will help mitigate climate chaos, but I think that damages will be coming too fast for us to notice that upside. Third, I think that a slow shift in our spending and behavior will turn into a tidal wave that will overwhelm the “old economy.” Demand for quality of life goods (everything from new electronics to cars, to larger houses) will drop as people shift to defensive spending. These shifts will hit share prices (thus portfolios and retirements) and jobs (thus housing markets), leading to a massive panic to dump shares, sell houses, and so on. (Will the rich be immune, in their enclaves? Only in the sense of The Titanic.) I’m not sure if this panic will take 10 years or 1 year, but it’s going to have bigger economic and social (and thus political) impacts than the Great Recession.
We could have prevented most (if not all) of this if political leaders had embraced change 40 years ago. Even oil and gas companies could have pushed the effort along, if they had been sufficiently and persistently motivated to shift their focus to delivering energy (I still think there’s a chance, by diverting carbon tax revenues to them), but that didn’t happen. So, buckle up: it’s gonna be a long, ugly ride down 🙁
(1) WA responded with:
I definitely share your pessimism about the future. In particular, I get anxious thinking about climate change and our future well-being (socially, economically, etc.). I know there are people who fear this future less, and emphasize our ability to adapt. They also have many historical examples on their side. I would say I’m more susceptible to the “this time is different” reasoning, and if there was ever a time this was right, I think it has to be for climate change/chaos. Yet at the same time, to try and save for retirement (~35 years out), I think the only option is to maintain an optimistic view of the world and tuck away as much of my paycheck as possible into low-cost, equity based funds.
I guess my question would be, do you see this “massive panic” as something that would eventually lead to a result where we right our course? I.E., we’re going to sustain self-inflicted wounds, but at least there would be some albeit slow course correction. Would you take a similar “optimistic” approach about investing for a longer time horizon? I feel like if I don’t adopt this mindset, I won’t at least give myself the chance to have a solid nest egg in retirement (note: that’s assuming I don’t go medically bankrupt in my elder years in this broken healthcare system).
My reply:
“This time is different” means discontinuity, which could up-end some asset markets by 100% (similar, but different, to the way Enron’s share price dropped by 99 percent when its fraud was uncovered).
Save for retirement assumed that savings are worth something and that “retirement” can be bought. I think it’s worth putting more effort into assets (boats, land, food) and friendships, as “market solutions” will disappear. We’re seeing this now with various types of insurance against floods, crop failure…
We will not be able to “correct course” even if we want to once we pass the tipping points. We’ve not hit one this bad in human history, as climate forcing will continue for 40 years even if we stop 100% of emissions today, and GHG concentrations would not fall to “normal” (CO2 @ 280ppm) for millennia. Put differently, the weird weather, heat waves and other disruptions we’re seeing today are the result of actions dating from the early 1980s.
Finally, it’s good to be optimistic — otherwise, there’s nothing to live for — but our optimism is more likely to resemble that of gulag prisoners who find a bit of meat in their slop than winning the lottery. Dark Age Ahead.
(2) ND responded with:
What’s the economic impact of the scenario where all governments suddenly mandate to stop all CO2 emitting industries and vehicles?
I see GDP declining massively of course. Unemployment goes up, inflation falls, we probably enter deflation. But does that mean value of money goes up? Wouldnt there be just too much money lying around for it to be worth anything, considering there is less need for it?
And then a more self interested question: what’s the financial hedge for the above? And for armageddon? My view: invest in building a self sustaining community in the mountains.
My reply:
A sudden stop to CO2 emissions would indeed require most industry, transport and other “lifeline” industries to shut down. There wouldn’t be a recession, but an apocalypse, as drinking water stopped flowing, electricity shut off, and so on. Only a few people, off the grid and growing their own food, would be immune.
So that’s not going to happen. An order to phase out CO2 emissions over 10 years would do a lot less damage while protecting most of the gains, but I’d recommend a carbon tax that started at $25/ton and doubled annually (to $12,800 in year 10) as the most efficient way to kill carbon.
The impacts on GDP would be high, but not by more than 5% per year (that’s a LOT for “my dick is as big as my GDP” politicians, but not as bad as the end of civilization), especially if we stop paying attention to that flawed measure and focus on something more useful like the Genuine Progress Indicator.
(The value of money is not very important here, except if we get into international trade and other countries NOT doing anything about CO2. That’s a mess…)
As for financial hedges, I agree with sustainable community in the mountains. The break down in trade and financial markets that can result from climate chaos brings to mind an old joke:
Two economists run into each other at the coffee shop
Bob: Wow. The markets are really in trouble, and politics are worse.
Tom: Yeah, I think it’s really bad. Losing faith.
Bob: So, what’s your investment strategy? Bonds and gold?
Tom: Nope. Guns and rice.
Be prepared.