I was watching Ken Burns’ The Dust Bowl about the extended Midwestern drought of the 1930s.
At the time, these were dryland farms meaning no irrigation and absolute dependence
upon the weather. In 1938, at age 15, I spent the summer on my grandparents
farm is central Iowa. This was a dryland farm and the risks a farmer took every
year would have a Wall Street financier shaking in his Guccis. The corn crop
could be wiped out by a hailstorm, which often accompanied thunderstorms. So
every time the summer air got thick and the flies gathered in layers on the
screen door we knew a thunderstorm was on the way and a possible deluge of
crop-destroying hail. Additionally if the rains did not come at the right time
and the crop could be damaged by too little or too much rain for a given stage
of crop growth. These were small farmers who, unlike today’s Wall Street
capitalists did not have hedge investments in other assets that could offset
much of the damage of a failed investment. These farmers were capitalists par excellence.
These farmer capitalists knew their business and had
little use for government, especially government “interference” in their
business of farming. Initially they rejected the advice of government
agricultural experts who said the dust bowl was largely a creation of their
straight line plowing method, indeed plowing straight furrows was regarded as a
hallmark of farming competence. It was suggested that they adopt contour
plowing which followed the undulations of the land and which would retain much
more of what rain fell. It took a year or more of demonstration to convince
farmers to change. Other measures such as leaving stubble in the field until
the next planting season and planting rows of wind-breaking trees and letting
land lay fallow for a year came from the government and were eventually adopted
by farmers. The process of restoring the land had begun and when another
drought set in and dust began to blow the farmers themselves went after the
miscreants who had not maintained their soil.
The lesson here is that free market farmer capitalists
thought they knew it all and distrusted a government that told them they were
the primary cause of the event that overtook them. The deeper lesson, omitted
from the segment of the documentary I watched, is that short term thinking, i.e.
the annual crop production can lead to long term disaster i.e. the dust bowl.
All of this struck me as almost exact paradigm for Wall
Street free market capitalism.
Here we have the experts who want the government kept
out of “their” business as well as out of affairs they want to control for profit. Their practices
have caused global recession instead of regional disaster. They too disregarded,
indeed saw to the overthrow of government regulations created to avoid
disasters such as the Great Depression and the Great Recession. However, unlike
the farmers, they never learned to accept the regulations their business
requires. Under the leadership of Milton Friedman they even developed an
economic theory that said it was wrong for the government to be involved in its
practices and made that absurd claim public policy in the oft-repeated sole
remaining super power.
However, decision making practices of those running
this largest casino on the planet leave a bit to be desired.
As with the short-term thinking of farmers that
resulted in the Dust Bowl, the short- term thinking elicited by free market
capitalism also generates disastrous consequences.
In an article titled The Blindness of Short-Term Thinking ‘Quarterly Capitalism’ Desperately
Needs Tempering With Long-Term Guidance, that
can be found by goggling the title, the short-term thinking of financial
executives is explored.
A group of top asset managers attending a conference sponsored by
Morgan Stanley (MS) were asked about their investment time horizon. Fifty-five
percent said a quarter or less; only 20% said more than a year. Another survey
revealed that 78% of managers would reject a net-present-value-positive project
if it would lower quarterly earnings below consensus expectations, and 80%
would focus on this short-term metric at the expense of building long-term
shareholder value.
This should send
shivers down the spine of every investor looking for long-term value
creation, because climate risks alone could cost investment funds $8 trillion
by 2030, according to Mercer.
The point here is that capitalism has, as perhaps its
worst trait, short-term thinking built into it. Despite hopes to lengthen corporate
reporting cycles this will remain true because one of capitalism’s primary money
making strategies is rapid reinvestment turnover in order to optimize profit. In
some types of currency differential investing in the Foreign Exchange Market the
profit per transaction is often a fraction of 1%. However, because these transactions
take place at computer-driven speed 24/7, worldwide, an average of 1.9 trillion
dollars a day is invested. Rapid turnover has become a leitmotif of capital investment. The long-term perspective upon
which the future of our species depends is absent in the major arenas of global
resource allocation under the sway of capitalism.
Heidi Cullen, in her book The Weather of the Future, deals at length with the failure of the
mass of mankind to grasp the gravity of what our species faces. Cullen, a
climatologist, consulted psychologists who described two systems inherent in
human beings for dealing with risk. One is analytic, carefully considering all
aspects of risk. She offers stock market investing as an example of this. The
other risk-evaluating system is emotional and stems from very early human
evolution. The fight or flight syndrome of threatened animals is an early
version of the system in human beings. Cullen’s psychologists told her that
this type of decision making has regard only for the immediate, prioritizes in
terms of the individual’s experience and assumes that every problem has one cause
and, hence, does very poorly in cases where many factors function to cause a
threat. Her psychologists told her that, in case of conflict between these two
systems, the emotion-driven system will trump the analytic system every time.
Cullen suggests bridging this gap between the analytic
and emotional risk assessment systems by including climate forecasts with the
regular weather forecast. This, presumably, would give climate forecasts credibility
in the public mind. Whether this would work or not, it may not be necessary. Hurricane
Sandy’s massive destruction could go a significant way in associating the
process of climate change with the immediacy of weather.
Whether or not the intensity of that hurricane was
associated with climate change, its track almost certainly was. The normal
track for hurricanes going up the Atlantic coast of the United States is to head
out into the ocean somewhere between Virginia and Rhode Island. My surmise is
that it is following the warmer water of the Gulf Stream. Instead of turning east
however, Sandy turned west and tore into some of the most populous areas of the
United States. My hypothesis is that the heavy Arctic ice melt this summer poured
an immense amount of cold water into the Northern Atlantic, which disrupted the
flow of the Gulf Stream, which is also responsible for mild winters in England
and other parts of Western Europe. This is a scenario climate scientists have
feared for some time. It is known that a high pressure area over Greenland probably
blocked what would have been Sandy’s normal path East. Whether that high
pressure ridge was caused by exceptionally cold water in the Northern Atlantic
I do not know. Scientists are working intensively to understand the dynamics
surrounding hurricane Sandy. And as the evidence accumulates the relationship
between global warming and this kind of extreme weather will become clearer.
Hurricane Sandy may be a significant event in creating
an effective link between climate change and weather. Even more importantly it
advances the process of establishing science in the popular mind as the institution
of trust when dealing with the real world. The turning from the emotion-driven
to the analytic account may get a significant boost in the popular mind if we
can get past the corporate control of the mass media with its vested interest
in pursuing fossil fuel as the primary energy source. Science may need the
public protest of knowledgeable citizens to get past the corporate control of
our mass media.
If we are to preserve a democratic society we must, when
considering such unprecedented threats as climate change, global food and water
shortages and overpopulation, change the mode of risk decision making from
short term emotional to long term analytical quickly and pretty thoroughly. If
we don’t the decisions will be made by arbitrary authority and probably be made
too late. It is time to let that which made us unique as a species rise to the
top of the decision making process as we have done in science. It is time to understand
that believing something does not make it a fact. In short, it is time for
mankind to grow up.
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