Last Wednesday the SEC (Securities and Exchange Commission), on a 3 – 2 party line vote, decided to “encourage companies to disclose the effects of climate change on their business”. According to the New York Times and the Wall Street Journal:
“SEC Chairman Mary Schapiro, an Obama administration appointee, said the agency wasn't weighing in on the global-warming debate and wanted to ensure that investors get reliable information.”
The agency “wasn’t weighing in’? Right, and monkeys just flew out of my butt. What we have here is the Obama administration acting prudently to ensure that, no matter what happens to any proposed climate change legislation, steps will be taken to increase regulation aimed at reducing so called green house gas emissions.
By the tone of the fifth grade level prose above you may have gathered that I’m an anthropogenic global warming skeptic. Correctamundo. (For the breakdown of your humble shade tree economist’s official position on climate change please look below.) Skepticism aside, what really bugs me about what the SEC did is the smoke and mirrors use of a supposedly free market device to enact not so free market regulation.
Here’s how my thinking goes (you might want to break here for a couple of whip hits to help your brain function for a moment the way mine works all the time); The SEC requires public companies to disclose certain information when reporting financial information. The intent is to provide context for all the numbers that don’t make sense in financial statements detailing balance sheets, cash flows, etc. Many of these ‘notes’ disclose potential risks not reflected in the made up numbers in the financial statements. Usually these disclosures are things like “There are potential revenue fluctuations due in part to our CEO being a degenerate gambler who likes to raid the accounts receivables for meth money.” Or “We don’t really make any money, we just keep issuing stock and borrowing wads of cash to make it look that way”.
These disclosures are sensible when they directly relate to the revenue or expense generating activities of a firm. With Wednesday’s decision the SEC, under pressure from activist groups like the Social Investment Forum, has further politicized the disclosure practice by trying to relate an abstract risk to a tangible business impact often referred to as ‘material’. The SEC defends its decision by saying “…a company must disclose the significant risks that it faces, whether those risks are due to increased competition or severe weather.” An SEC staff paper further detailed the justification stating that a company should make disclosers to the public if it believes a new law or international treaty limiting carbon dioxide emissions might increase operating costs. Now that’s interesting. Why? Remember, disclosures are rarely seen as positive, so if pending climate laws or regulations potentially impact your business and you’re forced to take a guess on what may or may not happen, you are put at a competitive disadvantage.
Who cares? It seems reasonable to make a company tell its investors that proposed regulation may add risk or detriment to its operations. But here’s the rub, the SEC can punish a company for failure to disclose and therefore gets to make a judgment call on who they, or any wronged party, believes is a potential green house gas emitter.
In the recent housing market bubble and subsequent crash we saw what happens when multiple government agencies target a specific social outcome and use regulation and policy (often uncoordinated) as means to an end. If you liked what you got as a result of the regulatory gumbo produced for the housing market, you’re going to love the coming onslaught of green based government initiatives.
Official Shady Climate Change Position Statement: It seems average global temperatures have risen over the past century. Not disputing that. Anyone who thinks the majority or sole contribution to this rise is the result of human activity is delusional. Anyone who thinks human activity has zero impact on the environment at large, not just climate, is delusional. Therefore, most people who argue about climate change/global warming, no matter their position, are delusional. Talking to, let alone arguing with such people, is akin to trying to get a tennis ball out of the mouth of the Boxer-Rottweiler mix that lives across the street.
Addendum to the Official Shady Climate Change Position Statement: Delusional thinking aside, if you think you can alter future global climate and weather patterns by drastically reducing your carbon footprint or by forcing your friends and neighbors to buy into your delusional life choices, you’re on the bullet train (green of course) to disappointment central. It is the opinion of this completely clueless and unlearned person of all things climate and weather that for millions of years the climate has swung from extreme to extreme without coal fired electricity generation and Ford F350s. Therefore, to believe that human action can have a greater impact on long term climate trends than impacts from solar activity, the position of the earth relative to the sun, global ocean currents, and terrestrial phenomena (everything from volcanoes to the migration of the earth’s magnetic pole) is nutty. Furthermore, if you think we’re smart enough or technologically advanced enough to actually predict these trends through modeling, go ask the fantastically smart folks who used to work for BearStearns about how all that modeling stuff plays out in real life.
Addendum to the Addendum to the Official Shady Climate Change Position Statement: Why do so many smart people (as well as journalists and college professors) believe that human activity is the predominant, even sole cause for climate change/global warming? Some of them are convinced and have completely sold themselves on this. Don’t ask why, it is what it is. Most are taken with the possibilities created by the perceived need to change human behavior to address the ‘crisis’. Simply put, the thought process goes like this:
We’re fucked. Wait a minute, maybe we fucked ourselves. If we fucked ourselves we can un-fuck ourselves by stopping, or better yet reversing, the behavior that got us here. Let’s fuck with everybody to make sure those other fuckers do what we want so we can control all the fucking around that got us fucked in the first place. Since merely existing as human beings causes activity that in turn causes global warming, or better yet climate change, almost every aspect of our daily lives should be overseen by someone who really knows what the fuck their doing. The wicked smart people who think like this honestly believe that the vast majority of mouth breathing resource consuming humanoid locusts on this planet need to be instructed (told) how to behave. Climate change/global warning is the latest and perhaps greatest opportunity to be leveraged by these real life Ellsworth Tooheys.
Final Addendum: To be honest, I’m in favor of most of what the global warming/climate change crowd wants. More investment and tax credits for green energy, clearing the way for increased use of non-carbon energy sources (solar, wind, nuclear, etc.), and basically anything that moves our economy away from imported oil and gas. However, my rational is quite different from theirs. I do not fear an apocalyptic end to humanity from bad weather. Rather, I fear an elongated demise of western civilization from the continued transfer of wealth from a creative, progressive, and pluralistic group of societies to an enrichment of largely repressive, intolerant, and static group of societies. Mix in the fact that many of these petro-states want to harm us by any means possible and you’ve got a heck of a good reason to invest in a Prius and a pellet burning stove.
If you think Cap and Trade is the answer you should delve deeper into the way the current system works. I won’t go into it hear (NPR’s Fresh Air does one of the best covers on C&T I’ve seen: Cap And Trade And The New Carbon Economy) but it’s a mess with no measurable returns to date that has created a speculative market that makes real estate derivatives look like green stamps.