Tuesday, September 6, 2011

Talk to the Invisible Hand: "On Climate Change, the Market Has Spoken"

Stephen Colbert likes to say, for example, that movie X must be better than movie Y because "the market has spoken." All good satire is grounded in truth, however, and Mr. Market is speaking up on the issue of climate change. This week's issue of Businessweek (Sept. 5-11) has an editorial subtitled, "Where GOP naysayers err on climate change." In sharp contrast to the drivel that appears on the editorial pages of the Wall Street Journal, it takes a non-ideological view:
On at least one subject, the free market and its traditional political supporters have been thrust into conflict. That subject just happens to be the most important one facing the planet. A number of Republican Presidential candidates have made questioning the legitimacy of climate change a significant part of their campaign strategy. Rick Perry and Michele Bachmann dispute whether global warming is man-made. Perry suggests that climate is affected by many variables, which scientists can manipulate “so that they will have dollars rolling into their projects.” Mitt Romney is on the fence. Only Jon Huntsman Jr. has declared definitively that he “trust[s] scientists on global warming.”

Politicians have been known to dissemble about risk because voters don’t generally like to hear bad news. The insurance industry makes its money telling it to you straight—how long you’ll likely live, what price your home will fetch, whether to repair or trade in your car. For this reason it’s worth noting that insurers already factor climate change into their models for measuring, pricing, and distributing risk. Insurers have no incentive to lie. If they are more scared than they should be in pricing risk, shareholders will punish them. If they aren’t scared enough, nature will do the job.
Follow the link to see the full text.

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