Lambert here: Short capitalism? But how?
By Eric Holthaus, a meteorologist and columnist for Grist, covering climate science, policy, and solutions. He has previously written for the Wall Street Journal, Slate, and a variety of other publications. Originally published at Grist.
Climate change was already worrying enough — now a report from the U.S. central bank cautions that rising temperatures and extreme storms could eventually trigger a financial collapse.
A Federal Reserve researcher warned in a report on Monday that “climate-based risk could threaten the stability of the financial system as a whole.” But possible fixes — using the Fed’s buying power to green the economy — are currently against the law.
Glenn Rudebusch, the San Francisco Fed’s executive vice president for research, ranks climate change as one of the three “key forces transforming the economy,” along with an aging population and rapid advances in technology. Climate change could soon hit the banking system “by storms, droughts, wildfires, and other extreme events” making it harder for businesses to repay loans.
Rudebusch warns that crops and inundated cities have already started to hurt the economy: “Economists view these losses as the result of a fundamental market failure: carbon fuel prices do not properly account for climate change costs,” he writes. “Businesses and households that produce greenhouse gas emissions, say, by driving cars or generating electricity, do not pay for the losses and damage caused by that pollution.”
A hefty carbon tax alone wouldn’t be enough to fix the problem — what he calls an “intergenerational and international market failure.”
Since Congress has yet to take sufficient action, Rudebusch says that the Fed could, in theory, take matters into its own hands by encouraging a shift away from fossil fuels. The problem is, the Fed’s only official job is to keep inflation tame and unemployment low. And its tools are limited to buying and selling government debt to tweak interest rates.
That means it can’t help companies make a shift to a low-carbon economy by, for instance, lending them money in the bond market. By contrast, the European Central Bank has been buying “green” bonds since 2016. An ECB research note last July found that those purchases have helped boost the market for these kind of investments, helping spur environmental improvements.
Along with a report last week from the insurance industry saying that climate change could eventually make insurance unaffordable for most people, Rudebusch’s report is part of a growing body of evidence that climate change poses an existential threat to the world economy as it currently exists.
Last month, Fed chairman Jerome Powell told legislators that asking why the Fed doesn’t currently consider the risks of climate change was a “fair question.”
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It’s good that officials are speaking publicly on this subject. Strange as it seems, this is a positive step in an environment of widespread corporate-sponsored denialism. And it is outside the powers of the Fed to interfere – Climate change mitigation requires political and social action.
Anyway, it seems to me that people are making changes on their own, to the extent they can in our fossil-fueled economy. It’s hard to buck the system and in my considered and sad opinion it will take cascading catastrophes to force the changes that are required to de-fossil fuel our economy. Miami under 6 ft of water with a million hurricane deaths will catch even the dullest Faux news watcher’s attention.
Yep, we are still in recognizing the problem phase. A big finantial loss migth be a driver for changes in Fed mandates.
The problem may be once this threshold (“Miami under 6 ft of water”) is reached, there might be no stopping cascading effects of even greater magnitude.
There is one nation in the world that is not adding CO2 to the atmosphere, that is tiny Bhutan, population 826,229. So the rest of the world has a long way to go to approach Bhutan’s efforts.
If one looks at how the world has solved prior problems (world wars, man in space, food supply, transportation) it has come from expending even more energy, usually by burning hydrocarbons.
Given that humanity has had one go-to play in its prior playbook, expend more energy, usually via hydrocarbons, I suspect that the first response of many locales to ameliorate climate change effects will be to use even more fossil fuel, if available, to counter its effects.
To me, de-fossiling of the world wide economy to a significant enough extent, seems very unlikely to arrive in time.
Federal disaster funding, subsidized flood insurance, and crop insurance means that “The Market” can’t be effective in driving change regarding the causes of the disasters. The costs are being socialized across the entire society without being identified as such.
There are numerous areas that would have been depopulated by now except that the government funds their reconstruction. The private insurers are generally not playing a role in those areas and if they did, the prices would be much higher for areas with high risk making it uneconomic to remain there.
So we are left with a system replete with numerous moral hazards and no market capability to address them until the costs become so outrageously high that the US voters revolt at the polls.
The Faux News audience is not the only audience out there.
Pat Robertson’s Seven Hundred Club also has an audience out there.
Pat Robertson teaches that ” Miami under 6 ft of water with a million hurricane deaths’ is a Sign of the End Times and means that The Rapture is getting ever closer. Pat Robertson literally told his audience in exactly so many words that Global Warming is part of God’s End Times and that trying to work against Global Warming is literally doing Satan’s work on Earth, because Satan opposes Global Warming.
Mainstream economists’ worship of “growth uber alles” strikes me as a secular-religious analog of Robertson’s crazypants-ness. And of the 2 kinds of zealots the economists are the more dangerous, because they’ve been setting the economic and industrail policies of the neoliberal world order.
Ever-expanding growth (“growth uber alles”) is a form of Ponzi scheme. Physics tells us that there are fixed amounts of everything (First Law of Thermodynamics). Just as the giant trust fund created by Great-Grandpa can eventually run dry if expenditures exceed income, so too can growth based on non-renewable energy sources and raw materials.
Indeed, we’re seeing the impact of scarcity now – it’s why fascism is on the rise worldwide. When things get scarce, folks no longer want to share.
The problem is that it is impossible to grow the economy while cutting emissions at the rate required, and all financial assets are dependent upon future growth (shares, bonds, loans, patents etc.). Action has now been put off for so long that we are damned if we do (collapsed financial asset prices due to the acceptance of no future growth or degrowth) and damned later if we don’t (climate change driven collapse).
The logical way out for those in power is to go the geoengineering route to protect big fossil fuel interests, and all the growth interests (including many people’s pension plans): Solar Radiation Management, Bio-Energy Carbon Capture and Storage, massive amounts of Enhanced Rock Weathering and Direct Air Capture. They may not save society, but they will keep the growth engine going for a while and deliver lots of juicy profits for the very industries that helped create the problem.
Not a happy thought, but where it does seem that we will be going.
“Solar Radiation Management” probably means filling up a narrow layer of Upper Atmosphere with minute little sulfuric acid droplets to reflect a bunch of sunlight back into space before it hits Earth surface.
But less incoming solar radiation means less solar radiation available to drive less photosynthesis to power less Bio-Energy Carbon Capture and Storage. It all dead-stops with Solar Radiation Management.
As we freeze and starve and die, beneath a silver-yellow sky.
My preference for the weather gods of chaos is to take Palm Beach first, return it to being a low lying sand bar. Oh, and Rush and Don and the kids shelter in place.
What bull –
We are told the FED can do nothing since it’s purview is only employment levels and buying and selling federal debt. So children go to bed and sleep soundly there is nothing to be done.
Could the FED not use it’s power to create government energy bonds to reduce the dependence on fossil fuels ?
The funding could support energy efficiency improvements, using the dams already in place to generate power – at least a dozen coal fired plants could be replaced, funding LED lighting projects (some 20% of the country’s electrical load is lighting) , capturing methane presently vented from sewage treatment plants and land fills not to mention feed lot operations, DOE’s wind 2020 study shows that much of the electricity used in the US could be generated by wind farms.
And no we don’t need nukes.
The fact is that a switch towards efficient use of energy is constrained by interests who see a threat to their cash flow.
We know how to reduce green house gas emissions. It is a matter of funding and political will.
I think that the Fed also has a “financial stability” mandate and I would like to think that the governors are clever enough to notice how climate change will threaten financial stability.
The myth of an “efficient market place” doesn’t account for the positive feedback loops of climate change–which in turn drive up negative externalities when climate disasters occur and ecosystems collapse.
Yet these negative externalities, based on consumption, also fuel our GDP. (System Failures: Gross Domestic Product and Hyper Consumption Loops by Leyla Acaroglu)
Could we transfer financial risks associated with the full life cycle of fossil fuels to the entities responsible for creating the hazards in the first place through fossil fuel risk bonds?
https://sustainable-economy.org/fossil-fuel-risk-bonds-making-polluters-pay-for-the-climate-crisis/
Or would this just be another low regulatory hurdle for the purveyors of our consumer culture?
This article sounds like an attempt to appeal to corporate America to get onboard with climate change with a Helen Lovejoy-like “Won’t somebody please think of the profits?” wail. I doubt that they will pay attention however as they will still be thinking of that quarters financials as well as any bonuses that can be made. Perhaps when things get worse, he can go back to them and say something like “Ladies and Gentlemen. With climate change going full bore now, we seem to be having a problem with chronic violent death”.
It is the Treasury Department which issues bonds — not the Fed.
The Fed can purchase bonds. In the aftermath of the GFC, I was hoping that creative thinkers at the Fed would notice that they could finance fiscal stimulus by purchasing municipal infrastructure bonds. I think it was Bernanke who had suggested that the Bank of Japan could respond to that nation’s stagnation by purchasing a wide range of private financial assets.
I think it would at present be politically controversial for the Fed to pursue an “independent climate policy” by purchasing bonds to finance green power generation. But we have seen how public discourse can change with surprising speed. Who would have thought in 2014 that “Medicare for All” would be moving in the direction of a litmus test in the “D” party?
I think that we may see similar change on the climate change policy front before too long. (though perhaps not before “too late”)
It’s good that officials are speaking publicly on this subject.
IMO the GNDs most powerful point is that the paradigm of our modern economic system must change radically starting now.
If one accepts that, then speaking openly and often to the ‘public’ around oneself starts to be the next personal course of action.
It can be more awkward trying to open a conversation in the grocery line than with the restaurant waitstaff-but my experience is that I get more positive confirmation than negative pushback–which has encouraged me to do it more(and get more comfortable and practiced with it).
I think every little thing helps
So, the Fed and the Dept. of Defense now both are on record saying Climate Change is affecting their planning and operations. Two talking points to share with my Republican Congressman and Senator.
The CIA has been warning long before that already.
https://history.aip.org/climate/impacts.htm
https://www.cia.gov/news-information/speeches-testimony/1996/dci_speech_072596.html
And the DOD was also aware of the potential impact:
https://www.eesi.org/files/IssueBrief_Climate_Change_Security_Implications.pdf
The Fed and the defense department still have a little bit of rationality that hasn’t been bought and sold (mind you the defense department will use that in the service of it’s killing machine). Your Republican congressperson and Senator have likely been entirely bought and sold and are barking like mad dogs at this point.
But sure always good to write the congresscriters (no for the R party members, I refuse to even grant them any other name).
RE: Fed Official: Climate Change is an ‘International Market Failure’
The market will ‘clear’ at the same time these “market monkeys” stop yelling “GIMME”; nice to know that these ignorant clowns will welcome “extinction” with the rest of
us!
Really? Does he mean that the $16 trillion the Fed found to green the big banks was illegally obtained?
to nitpick, it’s not an economic problem, it’s a political problem.
less developed world consumption,
more tariffs to discourage the intercontinental supply chain,
CO2 tax,
more fission,
fewer births in the developing world (ie the countries with high religiosity),
coordinated global Manhattan project on alt energy.
every single thing above isn’t being done for a political reason as it affects one/many interest groups.
with respect, it IS a problem of economics. Economics is the most significant direct and indirect driver of politics
Oh, FFS, don’t fall for the trap of thinking that economics and politics are two different things. Our US academies decided that political economy should be divided into separate disciplines of poli-sci and econ (the better to obfuscate actual social dynamics), but that doesn’t mean they aren’t still just two aspects of the same process/system. And remember, Political Economy started out life as Moral Philosophy — i.e. even calling it political economy is an obfuscation of the real underlying issue which is morality. Morality is the undeclared underlying basis of political economy and therefore also of politics and economics. You have to start out with moral assumptions before you can justify any particular social scheme, and I think the defenders of the status quo would prefer we not examine the amoral/immoral underpinings of our political-economic system.
Thank you, diptherio.
Various economic grid-matrixes and theo-economic ritual beliefs are bought and paid for by various groups of Social Class Based political operators.
And their pre-engineered economic outcomes can then feed back in ways the Overclass did not expect or plan for to create new politics. If runaway heat-crashes occur too fast for the Overclass’s pet butler media to spin away and deny, and if the heat-crashes crash systems of social violence containment before the Overclass have retreated into their bunkers; then one could say that the economics they unleashed have indeed driven the politics to an endpoint situation developing not necessarily to their advantage.
Re: Lambert’s “Short capitalism? But how?”
Don’t use banks, use credit unions; don’t use Facebook, use the telephone; don’t use Amazon, go downtown; don’t buy the newest gizmo, read a book, etc. It’s a long process.
As this Bloomberg News story points out, “digital banking” is a sensible alternative to the mega-banks, offering decent APY on savings accounts, and the convenience of “mobile” banking:
https://www.bloomberg.com/news/articles/2019-03-27/sick-of-getting-0-01-interest-online-u-s-banks-pay-much-more
Prepay all debts on your house down to zero, if you can. Resurrect the interesting comment Guy Fawks Lives wrote here several years ago on how it may be possible to de-MERS-ify your home-ownership records and force them back to analog earth on analog paper in a Recorder of Deeds Office. That comment really should be found, explained, expanded upon and maybe be turned into a little guidebook for immunising your home ownership against fraudulent challenge.
Armor up your house against violent police or national guard home invasion. it works better if hundreds or thousands of neighbors do the same thing at the same time. Find a way to surround your house with multi-feet-thick walls of the kind of Ultra High Performance Concrete that the Iranians have built their underground nuke facilities with. The guard or the police may decide to not even try to chop their way through that.
https://www.cement.org/learn/concrete-technology/concrete-design-production/ultra-high-performance-concrete
Set up your own roofwater collection systems to store all the water your roof can shed over a year. Put in waterless composting toilets. Create food-growing beds of several-feet-deep fertile soil to grow a survival diet on. That will take the kind of physical work which permaculture does not require. But permaculture may not be enough to food-impregnify your little “short Capitalism” survival doomstead.
Here’s a book called One Circle: How To Grow A Complete Diet In Less Than A Thousand Square Feet.
https://www.goodreads.com/book/show/1329373.One_Circle
Unfortunately, it will take more work than permaculture would. But if one really wishes to “short Capitalism”, one does the work one must to prepare what must be prepared. Because part of “short Capitalism” means no more food to buy, and no more money to buy food with. At least for weeks or months at a time.
That sounds like a miserable existence. Have a few survivalist friends always going on about stuff like that. Always tell ‘em it’s much easier to down a flask of tequila and find a tall ledge somewhere. That Mad Max life ain’t for me.
That’s a fair point.
Can one take the “Mad Max” out of it? Perhaps prepare the house and yard for doomstead survival but don’t bother with the concrete fortification. Share your knowledge with those you pre-know to be interested in acting on it. Learn to look poor and obscure but happy and smiley.
And perhaps co-build with like-minded people the “pre-capitalist” style time/labor/stuff barter networks needed to keep rudimentary economic and social functions functioning. Find people with who to be the co-stub of a Transition Town on the way to Power Down. Less miserable, more hopeful.
And one can plant flowers among the survival subsistence food plants for joy and beauty.
What was the Fed buying in the various phases of quantitative easing?
Quantitative Easing Explained
What an amazing confession. By the Fed as usual, and not congress, so that makes it just another comment for congress to ignore. Rudebusch, the VP of the SF Fed no less, just said this. He said the markets have failed. The markets have failed. He said it. He said we have created a dysfunctional market which has failed. It has failed because the structural design of the free market externalizes costs that become exponentially too expensive for the market to adjust to and still make a profit. He just said capitalism has failed. Stunning. He said the real cost of pollution by fossil fuel use has not been priced into the goddamn market, well duh. It is a structural failure over decades if not centuries. We are in an unsustainable situation because all those externalized costs are now overwhelming us and the market can no longer function. We need an intervention. We need green bonds and lotsa money to create a new “low carbon” economy. It’s impossible for the fed to issue the bonds, Treasury must do this. Good luck with Trump’s Treasury. That clown. Ignoring this, Trump style, will make everything in our current dysfunctional economy irrelevant. As irrelevant as politics itself. The economy will simply collapse.
One is reminded that “Market Failure” is the term that economists who claim that the market can never fail, use when the market has failed.
The Market can never fail, it can only be failed.
It is we imperfect humans who cause the problems; we who ruin everything through our original sin of not being exact duplicates of each other, of not exclusively pursuing our individual financial interests, as demanded of us by the Models of the holy Economists. The Market is Perfect and Eternal, All-Powerful, All-Knowing, All-Beneficient. It is blasphemy to imply that the Market could be the cause of problems. Humans are the cause of problems and the Market is our only possible salvation. Repent ye sinner, and be sold!…er, I mean saved…
isn’t this the definition of insanity?
Why is everything always conceived of in terms of markets? Climate Change is a moral failure, not a market failure. Or rather, it is the result of repeated human moral failings. We prefer comfort whenever we can get it, so anything promising physical or psychological comfort we feel justified in producing and consuming, even if the thing also causes manifold problems. So long as the producer and consumer of the thing aren’t the ones being harmed by it, they discount that harm…and so the harms multiply.
We have also decided, as a culture, somewhere along the way, that the pursuit of wealth for the sake of wealth was a legitimate and moral way to behave…or, at the very least, not an immoral way to behave. But it is an immoral way to behave and the fact that so many have, for so long, been content to play along with this immorality (or have been forced to by circumstances) is what is causing climate change.
If we had taken non-economic, non-human, un-quantifiable values into account when building our society, our economy, our lives, we wouldn’t have found ourselves where we do today…a place where we’ve become so blinded by the rhetoric of “the Market” that we find it difficult to even think in any other terms.
“Markets” are but the medium for transactional exchanges that global capitalism has established for relationships between employer and employee, between producer and consumer, and even between the governed and their political masters. Markets like to believe they are “value-free”, and the concept of morality simply doesn’t enter the calculus. A highly reductive methodology adopted by political economy to explain the organization and rationalization of societies, it is allowed to even express man’s relationship to his environment, faute de mieux. The ethos has so permeated the modern world that one wonders if even an impending global catastrophe would be sufficient to displace “market-based solutions”.
“We” ? Which “we”?
The market is what modern America defines its morals by. From the Prosperity Gospel to Trump to “influencers” to credit scores – it’s a sick mentality that has overtaken the populous.
Perhaps we can only de-sickenize the populace one person at a time. The (real) hippies tried to do it in their day.
“Make a living, not a killing”.
“Make love, not money.”
We witnessed a neat parlor trick when the powers that be conjured up enough money vis a vis the mouse clique to get ourselves out of a financial jam a decade ago, but mother nature’s lay of the land is a different kettle of risk.
I watched the price of an acre foot of water go from a few hundred bucks to almost $2000 in the long drought, as no computer could spit out 20 trillion gallons on demand, markets right?
https://www.youtube.com/watch?v=N2tpEBG4_HY
Or as a fire chief explaining the need for more taxes to support the fire department with put it:
” When you call the fire department, do you want us to fax you a picture of a fire truck?”
And how much better off would we be environmentally if capitalism hadn’t been bailed out? If instead we had used the opportunity to entirely change the economic system or even just let it collapse of it’s own accord? Whatever arose from the ashes would probably beat this. It was a once in forever opportunity, completely blown in order to save the status quo.
Human needs should be met, but capitalism should have been allowed to collapse as it would have in 2008 without the bailout. They kept the death system that is capitalism going, that is all, and maybe killed the world in the process.
How about buying shares in companies that advance the deployment of sustainable energy (wind, photovoltaic, hydro etc) or nuclear?
Let us all remember Nancy Pelosi lecturing against the rise of socialism during the last campaign – she actually got on her soapbox and said we can’t be a socialist government because we live in a capitalist society and we have capitalist “institutions” which we cherish and blablablah. Nancy didn’t then, and doesn’t now know what she is talking about. She touts the free market finding the correct price nonsense with the dumbest of them. And there she sits, Speaker of the House, able to prevent any and all solutions that don’t satisfy her capitalist misunderstanding. Her long, self-serving fantasies. This could turn out to be a real fiasco as aparachik idiots like Nancy go all out to save face and try to blame any and all things except the sacred capitalist free market system. And the longer they prevent critical changes to the system the worse the situation gets. Even the herky-jerky Liz Warren intentionally misunderstands “structural changes”. All she is proposing are cosmetic tweaks. She’s as dangerous as Nancy. Their stubborn incompetence is easily as nauseating as watching Brexit.
There she sits because there her voters put her. She represents the San Francisco limousine liberals just perfectly. She is a perfect expression of everything they stand for.
You know, there used to be this thing called “credit guidance” (government set interest rates differentiated by industry sector) before the long international nightmare of neoliberalism took hold.
It’s well past time that it was rediscovered, along with capital controls to defang “hot money” and those who profit from it.
This short post reads as if there were no government other than the Fed. Has the Fed become our government of last resort? Is the Market the only answer to every question and the Fed is there to bail out business when the Market needs ‘adjustment’ after a failure? Given the nature of Climate Chaos I am touched that the Fed is concerned about its impacts on the financial world.
There was only one sentence in the Fed letter by Rudebusch referenced by this post that made any sense to me:
“Without proper price signals and incentives in the private market [signals I view as impossible to create], some kind of collective or government action is necessary.”
However I fear some might push for an action like geoengineering, and not the planting of more trees, grass, sea-grass or chickpeas.