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     Oct 9, '13


THE BEAR'S LAIR
More to fear than warming
By Martin Hutchinson

On September 30, the Intergovernmental Panel on Climate Change released its new report on global warming, which was duly played up by the world's media.

Actually, if you read it carefully, it represented a considerable backing off from the previous report, released in 2007. It has now become clear that, not only has global warming receded as a significant threat in the next century, but there are also several other threats that are well within the bounds of possibility and would have far more serious consequences.

Needless to say, the resources we are devoting to combating



them are modest in comparison to those devoted to the warming boondoggle.

The backing off by the IPCC can be quantified: the mean forecast warming by 2100, 3.1 degrees Celsius in the 2007 report (with a worst case of 6.2 degrees) was reduced to 2.2 degrees with a worst case of 4.8 degrees in this version. That sounds mildly dangerous, until you consider the differences in incentives between Wall Street traders and global warming scientists.

Wall Street's traders and risk managers are paid to shove risks under the rug and allow manic trading to go on, thus producing disasters like the 2007-08 crash and the "London Whale" blow-up. Conversely, global warming scientists are out of a job if they don't rattle the chains of the worst case scenarios, making it appear the globe is imminently about to share the fate of a meatball in a wok over an open flame.

Thus you can round the estimates down rather than up as in the case of financial risk, and assume that 2.2 degrees by 2100, together with a rise of 0.5 meters - slightly under 2 feet - in the world's oceans is the worst we can expect.

If you look at past trends, the world has heated up by about 0.85 degrees since 1880 (which is well within the range of natural variation, although humans could be responsible for part of it). Extrapolating that to 2100 gives you a temperature rise of 0.7 degrees, which isn't worth spending money on, although I grant you we should probably keep a few global warming scientists around (far fewer than the 800 who collaborated on the IPCC report) to keep an eye on the ecosystem in case it surprises us.

The huge amount of money we save by firing most of the global warming scientists and - much more important - shutting down the various half-baked subsidy schemes that have been instituted in the area cannot however be put back in taxpayers' pockets, alas, for there are several other problems that before 2100 may well cause a great deal more damage than global warming.

The best known of these problems, with considerable discussion but no solutions in recent years, is a cyber meltdown. This could be caused by an electromagnetic pulse attack, by a cyber-war probe from hostile states or other entities, or even by a solar flare, such as the Carrington Event of 1859, which knocked out telegraph systems all over Europe and North America, setting several telegraph stations on fire.

Needless to say, we are a lot more dependent on electronics than our ancestors were in 1859; it is also a pretty good bet that our systems are considerably more sensitive to solar flare activity than the early telegraph systems, which were remarkably robust, with quite large currents and chunky receiving equipment.

A joint venture of Lloyds of London and US atmospheric experts in June 2013 estimated damage from a repetition of the Carrington Event today at US$2.6 trillion. That's not total destruction, but it beats global warming - at any rate this side of 2100. And given that the last one happened only in 1859, the probability of a similar event between now and 2100 must be reckoned at least one in three.

There are two levels at which such an event could paralyze our systems. At one level, it would simply take down the power system. That would have an effect similar to an ordinary power cut, except that restoring the grid would be a matter of considerable difficulty. In such an event, there might well be casualties, for example on aircraft whose guidance and control systems cut out, but the damage would be finite and short-lived.

The other possibility, however, is that such an attack could wipe out all the information stored in the world's server farms. That would be much more serious, and far more damaging than an equivalent event 30 or 40 years ago, before we were all interconnected and dependent on electronic media for all our information.

Without stored data, both we and our banks, brokers and credit card companies would be completely ignorant as to our balances (except for a few old fogies like me who still insist on getting written statements). All packages in transit during the outage would be lost. Those of us who rely on IT to earn our living would be unable to communicate, or to locate past files (though IT specialists as such would be hugely in demand). And so on.

I'm not sure whether that would bring our civilization crashing down currently, but by 2030, with fogies reliant on paper records having died out, it undoubtedly would. And the solution that would have been proposed in 1859, of replacing the Internet with a gigantic steam-powered system with mechanical relays and pneumatic tubes, is probably not practicable.

The second destructive possibility, which in recent years has received much less attention, is that of a democratic disaster. By this I mean a malfunctioning of one of the major democracies, a country powerful enough to represent a significant proportion of the world's economy and military capability. This happened in 1933, when Adolf Hitler was democratically elected in Germany at a time of unparalleled depression, but we have rather lost sight of the possibility in the years of prosperity since World War II.

With the West's economies no longer reliably producing rising living standards, the chance of malfunction has once again risen. By malfunction, I mean something more than simple election of an inept government within the normal democratic traditions of the society; we have had plenty of those - think the Edward Heath, John Major and Gordon Brown ministries in Britain or the Jimmy Carter, George W Bush or Barack Obama administrations in the United States. Those episodes are damaging but transitory, except to the extent they may disrupt the economy sufficiently to produce a pathological election result to follow them.

The probability of a pathological election result has increased everywhere in the last decade, and especially since the 2008 downturn. In Italy, for example, a clown got 25% of the vote last February, and missed by less than 5% being asked to form a government.

In relatively prosperous Austria at the end of last month, the Grand Coalition of Christian Democrats and Social Democrats got a mere 50.8% of the vote, a pretty un-Grand result, with the socially unacceptable Freedom party and other fringe parties getting the rest. In Greece, the government has arrested the leaders of the Golden Dawn party with the clear approval of the European Union, an event more disturbing than the modest electoral success of Golden Dawn itself.

At some point, in some major rich and/or powerful country, a government will be elected that is as far outside the comfortable consensus as Hugo Chavez in Venezuela or Robert Mugabe in Zimbabwe. That government may be hard-left or xenophobic nationalist right; it doesn't really matter. The economic and political damage it does to the country concerned will be incalculable, and if the pathological government takes to military expansionism it may bring about a regional or general Armageddon.

A third potential disaster has arisen since the 2008 crisis, and the foolish measures taken by governments worldwide to combat it: that of universal bankruptcy.

Japan's government debt is now approaching 250% of the country's gross domestic product, which would be the highest level ever successfully brought down without default (by Britain in 1815 without inflation and in 1945 with it). Prime Minister Shinzo Abe has now announced he is accompanying the increase in value-added tax due next year (which might be recessionary but would go some way to solving Japan's budget problem) by a $50 billion package of yet more wasteful spending, all while the central bank buys Japan government bonds at a rate of $130 billion a month, more than the US on an economy one third the size.

This can't end well, it really can't. Abe's monetary stimulus was worth trying, and has got Japan's economy off dead center. However, the country's real problem is that, year after year, government spending is more than 50% higher than revenues. With Japan's population beginning to decline (a very healthy development overall) further boosts to spending are utterly counterproductive. Abe's policies will almost certainly succeed in causing inflation, but at the cost of debt default.

As is well-known, several European countries are also close to default, with bets being taken by traders on which one goes over the edge first (Greece, of course, has already partially defaulted). The US budget position has improved this year, but the budget deficit remains over $600 billion and demographic factors, President Obama's enthusiasm for all kinds of spending, the poisonous atmosphere in today's Washington and the next recession could easily combine to push the country into debt default or at least rescheduling.

The real risk is in a general loss of confidence in government debt. This would immediately endanger the balance sheets of every bank in the world because those institutions have for the past decade being playing the yield curve and loading up on assets that their regulators told them were risk free.

Governments being unable to borrow would be a substantial economic improvement over the current position, in which they borrow like madmen without regard for the morrow. However, we can't afford to lose the banks, and we can't afford to lose that large proportion of people's savings that are invested in either government or bank paper.

A general default is by no means impossible, and if it happened it would cause more economic damage than a cyber collapse or all but the most serious war-causing democratic failure.

Finally, within either the next 1,000 years or the next 20,000 years, according to whose theories you believe, we are due to enter another Ice Age, with temperatures some 6 degrees Celsius below the current level. Given that plant growth is heavily dependent on temperature, this would have a far more devastating effect on agriculture than an equivalent warming, apart from the land lost under glaciers - it would almost certainly wipe out a substantial fraction of our current world population. You can guess the probability of this occurring before 2100 as between 1 in 10 and 1 in 200, but either way it's not zero.

All these threats, except the renewed ice age, should be easier to combat than global warming and would be much more devastating if they occurred. Resources should be concentrated where they are most useful.

Martin Hutchinson is the author of Great Conservatives (Academica Press, 2005) - details can be found on the website www.greatconservatives.com - and co-author with Professor Kevin Dowd of Alchemists of Loss (Wiley, 2010). Both are now available on Amazon.com, Great Conservatives only in a Kindle edition, Alchemists of Loss in both Kindle and print editions.

(Republished with permission from PrudentBear.com. Copyright 2005-13 David W Tice & Associates.)






Going to extremes to ignore climate change (Oct 8, '13)

 

 
 



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