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Your Grandchildren Have No Value

 

Jeffrey Dow Jones
Cognitive Concord
July 18, 2013

Climate Change.

That’s all I need to type — a single pair of words — and you’ve already formed a dozen conclusions, adopted a defensive posture, and entrenched yourself into well-defined position. Gloves up. Two little words and every single one of you is ready for battle.

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Today we’re going to put the gloves down. We’re going to find some common ground and then we’re going to figure out if we can make some money and maybe change the world while we’re at it. But before we do that, we need a quick understanding of how we wound up here in the first place.

See, somewhere along the line climate change stopped being a scientific issue and became instead an ideological one. When you think about it, it’s all very strange. Why is a topic that is so obviously only able to be addressed via research, data, and the scientific method one that has deeply such entrenched socio-political roots?

Personally, I blame Al Gore. He made that freakin’ movie. You know the one. In 90 minutes, he became the indisputable global spokesperson for climate change. And from that distinct moment on, it stopped being a matter of scientific inquiry and became instead a debate. Today the topic is as contentious and divisive as ever.

It could have played out differently. Imagine if Grover Norquist was the centerpiece of An Inconvenient Truth. Or John McCain, who, I’ve been told by people in the know, was intended to represent half the film in its early drafts. That would fit, especially given that McCain was the guy who introduced landmark legislation in 2003 to curb trends in global warming. That was back when Republicans loved technology like hybrid automobiles because it reduced our dependence on foreign oil. Screw those Saudis!

But no, it was Al Gore. Co-captain of the Blue Team. And even though he helped make a movie that did a fantastic job explaining the topic and why it matters and mobilized a huge chunk of the population to unprecedented extent, Washington D.C. was cleaved in two, because, dammit, the Red Team really hates Al Gore. As the figurehead for global warming, no Red Teamer in their right mind could stand alongside him. In fact, they’d have to take on an adversarial stance. Screw this global warming hoax!

That political divide had real world effects. Policy efforts to curb climate change were thrown out the window. What was once possible under the bipartisan banner of McCain & Lieberman became impossible in a post-Inconvenient world. The Obama administration tried to address the issue by promoting and subsidizing “green” technologies instead, but those efforts were co-opted by even more rapid technological change in the traditional energy sector. Today, we don’t really worry about running out of crude oil quite so soon and now we’re sitting on more natural gas than we know what to do with.

High up Mt. Olympus, some supernatural deity with an extreme sense of irony is laughing at us.

And we’d probably all be laughing too if the possible consequences weren’t so large.

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We’re in this together, really.

This isn’t the first time I’ve written about climate change. I swear, it isn’t a pet issue. I’ve just always been fascinated by situations characterized by irrational behavior, incentives to maximize short-term outcomes, and where the fundamentals don’t match up to the psychological sentiment. In the investment world, setups like that are classically indicative of massive profit potential.

That’s exactly what I looked at last year. As it happens, it’s definitely possible for investors to profit in a world of global warming. It feels dirty, but inexpensive traditional energy is a great investment whether alternatives win out or not (though in the final stage they go to zero because they either run out or are made illegal). The nastier the effects get from a changing climate, the more difficult it becomes to produce food and the more investors will want to own the companies involved in making it. Timber companies, too, especially since timber is a renewable resource with great versatility. I really like all of those investments in a world where global warming starts getting out of control.

Even though those investments could make you some money, it’s tough to argue the environmental externalities they generate are positive. So let’s now take a step back and look at this topic from a totally different angle. Let’s drive towards an idea where it might be possible for investors, and especially traders, to make a buck or two. But also an idea that could realign everybody else’s interests in a way that’s more conducive to our long-term collective survival.

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It is a classic psychological tactic to begin any discussion by establishing a foundation of shared principles. As it happens, there’s a lot here that virtually everyone will agree.

First, you could sit down today with any sensible individual, regardless of political ideology, and agree that the long-term sustainability of the planet and its resources is something we all should concern ourselves with. Next, each and every one of us probably agree that we should be a little more sensitive to the sustainability of what makes life on Earth so rich and rewarding. And we all agree that the potential long-term costs — the main ones being side effects of continued climate change and food/water scarcity — are simply unfathomable. Catastrophic. Impossible to understate. If left unchecked these become, quite literally, existential threats.

Obviously, it’s impossible to have a productive dialog with any extremist on either pole. But for the mass of us in the middle, I’d suggest that we all agree with those aforementioned points. Yes? Even a coal lobbyist would agree that it’s better to have a healthy, functioning planet than one that’s all jacked up. And only the most irrational among us believe that the current trajectory is one that can sustain us for the next hundred years.

So if we all know and agree where the current trajectory ultimately ends up, why are we so unmotivated to do anything about it? It’s very strange, and seems to defy basic human nature. Are we not interested in the continued existence of our species?

To borrow a phrase once used by Jeremy Grantham, we’re acting as though “our grandchildren have no value.”

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You don’t have to read much science fiction before you discover that humanity’s hidden fear isn’t extinction at the hands of an exogenous force, it’s that the seeds of our destruction are sown deeply inside our own nature. Aliens aren’t going to wipe us out — we always beat the aliens, anyway. No, we’re terrified we’ll wind up slitting our own throats because we can’t help ourselves. Tinkering too much with the sustainability of our environment is an area where that’s actually possible. We have the power to really screw this one up.

It’s a modified version of Pascal’s Wager. Why not make a few simple adjustments to eliminate the small probability of an infinite loss?

Allow me to suggest two possible reasons:

First, we only really act in types of crisis. This is especially part of the American DNA, but it’s something that other humans in other cultures share to a lesser extent. We only rally together and do great things when we can see the aliens in orbit powering up the planetary death ray. That’s when we finally say, “OK, somebody get Will Smith on the phone.”

Second, every effort to change this type of thinking and action has totally stalled. Banging everyone over the head with climate science hasn’t worked and never will — the entire global scientific community may agree on this stuff, but data is never enough to uproot deeply entrenched ideologies. To make matters worse, having a sensible discussion about long-range policy in the media or policy sphere is simply impossible given the extreme variance in short-term interests. And entrusting this topic to our elected representatives, individuals who, theoretically, are supposed to act in our collective long-term interest, has been an incontrovertible disaster.

We’ve hit a wall.

And what’s more, we’re exhausted. It’s easier to just ignore the issues altogether than try and hash out the same old arguments again and again.

It reminds me of that scene at the end of Revolutionary Road where the old husband just turns off his hearing aid and smiles blankly while his wife drones on and on and on. I can’t think of a book that left me with such a devastating emotional wallop on its final page. And that’s sorta where we’re at with respect to environmentalism. We’ve all just closed our ears and minds to the subject. And this stuff really matters, too! This isn’t a story of interpersonal drama.

So the final thing I think we’d all agree on is that if we’re going to do anything — if anything is ever going to happen here — it needs to be radical and it needs to be disruptive. It needs to come from left field.

It must.

I recognize that this is scary and that we’ve got at least a two thousand year track record of rejecting ideas that are new and crazy. Remember when that Jesus guy was traveling around the Middle East? We all thought he was nuts and it turned out some of his ideas weren’t so bad. Since then we’ve had a pretty strong bias for the status quo, even though radical nut jobs like Gallileo, Gandhi, and Martin Luther King win us over time and time again.

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For a species with a history of eventually incorporating paradigm-shattering ideas into our daily way of life, you’d think that we humans would have at some point developed minds that were generally more open to fresh ideas that arrive in unexpected ways from unexpected places.

But we’re not, and this is where we’re at when it comes to environmentalism. We’ve got a tired public that almost unilaterally agrees we probably should, y’know, at some point, change a few basic behaviors that would at least improve our grandchildren’s quality of life and at most stave off planetary disaster, but couldn’t be less interested or less motivated to actually do such a thing.

No subject in the world is more desperate for a perceptual revolution than this one.

Here’s how we change all that.

To steal another idea from Jeremy Grantham, nobody listens to environmentalists anymore. So if we really want to do something disruptive here, to start, it not only needs to be radical and different, it needs to be led by a different body of the public.

As a concrete, modern example, consider Elon Musk. We don’t think of him as a classic environmentalist. He doesn’t come from politics or the activist world that has traditionally led the charge on matters like climate change. He’s just a guy with a unique way of looking at the world and interested in making a buck in ways that others hadn’t considered or are afraid to try.

But think about what he’s really doing and consider the unintended consequences of an increasingly popular Tesla. He’s getting the world wet with desire for a method of transportation that is environmentally friendly and highly sustainable. Forget about Who Killed the Electric Car. Musk’s message is unstoppable. Who cares if the environment would benefit in a massively positive way if everyone drove one of these things¹. This thing is sexy and cool and even kinda practical.

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So here’s a suggestion: why can’t efforts to curb global warming be led in a roundabout way by markets people and the financial sphere? Or why not the entrepreneurial sector? That’s where every other (economic) revolution was born.

It might not seem obvious on the surface, but this is an area where markets can get involved in a big way.

Here’s the thing: humans in general and Americans specifically are really, really bad at dealing with long-term problems. It just isn’t part of our cultural DNA. But we are excellent at dealing with market signals. We are reactionary, emotional, and when aligned collectively, quite possibly the most powerful force the world has ever known. Market signals tell us what to do. We’ve been relying on them to make important decisions for millennia.

This is another aspect I’ve always admired about guys like Grantham. He sees everything as an asset class. Everything has investment implications. On the spectrum of concern about environmental matters, he’s pretty far out there, farther than most though well short of where it shifts into blind extremism. When he talks about issues like soil erosion or depletion of natural resources, it doesn’t come across as environmentalism. It sounds like he’s giving us investment advice.

His aims and perspectives aren’t too different than an organization like Greenpeace. He wants to reverse trends in global warming and establish a very long-term energy infrastructure. But I’m always in awe about how he completely re-frames the subject. He talks about how we’re using more of this and more of that and there’s only so much of it out there and the bottom line is that some of these assets are going to be worth a whole lot more in the future. There’s no emotion, no ideology; it’s simply a rational case about asset class outperformance with major environmental implications.

Within the financial industry, I’d guess that only a small fraction of the population is willing to listen anything Greenpeace or Al Gore has to say. It’s probably drawn along party lines, too. Yet 99.9% of us in this business listen to Grantham and what’s more, most of us even agree with him.

So here’s an idea, hopefully one that will lead to a new type of dialog and generate a new class ideas as well:

What if we got some of the Earth’s natural assets traded on a public exchange where we could aggregate information and derive some market prices that more accurately reflect these assets’ intrinsic value?

Sound intriguing?

Well, I can’t take credit for the idea. It’s called the Intrinsic Value Exchange. There’s a wealth of information about it on their IndieGoGo page, including an entertaining little video that explains the concept start to finish.

Check it out.

In short, the theory boils down to:

  1. Put a few natural assets like trees or bats or the Lake Tahoe Basin on an exchange.
  2. Let the free markets figure out exactly how much these assets are worth.
  3. Use all of this aggregated information and market values to make better decisions.

The project is being led by a guy named Douglas Eger. He’s a business guy with a business background, having served as chairman & CEO of a publicly traded company as well as raising $300 million in capital for young firms. But he’s also a Hollywood guy and knows how to tell stories, even earning an Academy Award nomination for a film he produced. Despite what his bio might suggest, he’s not a blowhard and is actually a super nice, grounded individual.

Like Elon Musk, he’s the kind of guy who is just crazy enough to make something like this work, crazy enough to approach a conventional problem in an unconventional way.

I encourage you to chip in a few bucks to back their IndieGoGo campaign. Or check out their website. If this sounds like the type of project you’d like to take a more active interest in, send me an email or contact me via the form below. It’s a startup project and it needs some manpower on the ground, a good team leading the way, and a robust network top to bottom.

I should also mention that this project has one very large backer that is willing to match every large contribution to the campaign up to $10,000 (and possibly more). So if you do want to make a meaningful contribution, let me know first so I can put you in touch with the right people and the right way to go about it.

The project also has backing from some regional environmental groups.

Why it could work.

I get it. This is bold, radical stuff. It’s scary.

But as a markets guy with an extensive background in trading & investment, I find ideas like this fascinating. I believe deep in my core that the best way to determine the value of anything is to put it out in the public with all known information and let it trade freely. Freely trading markets are mechanisms of beauty and are part of the reason why the U.S. generated such unthinkable economic wealth and attracted so much capital in the last century.

Obviously, something like the Lake Tahoe Basin has extrinsic worth. We could chop down all the trees for lumber and hunt all the bears for meat or fur. But Lake Tahoe has intrinsic worth as well. How much would it cost to build infrastructure that serves a similar purpose of capturing necessary water from the sky, storing it, and delivering it to hundreds of thousands of people? How much would we pay to maintain that type of infrastructure?

If we all know and agree that something like this provides legitimate and even quantifiable economic value, there’s nothing stopping us from aggregating this type of data in a more efficient and effective structure. And there shouldn’t be a single one of you out there that disagrees that the most efficient way to determine the value of something is in the public market.

We trade corn, gold, and lumber on an exchange. Most of the activity is strictly for speculative purposes. Why couldn’t we speculate on the value of other natural resources?

And if trading a bat or a Lake Tahoe Basin contract in the market sounds crazy, why? Those things provide us with goods and services of tangible value — arguably more than something like Silver, Cobalt, or Palm Oil, all of which have futures contracts that trade publicly. A regional water-infrastructure asset like the Lake Tahoe Basin certainly provides a more important function than a 3x leveraged inverse financials ETF.

I can think of hundreds of trading firms who would love to trade in a few new niche markets like this. I can think of a bunch of states and local governments who’d like to have data that quantifies just how much their natural assets are worth.

And who knows where this project will go from here. At the very least, it is attempting to bring together massive amounts of data and information about what these assets are worth. That’s pretty ambitious. And that’s the low end. At the other end, the project is nothing less than an attempt to totally reprogram the alignment of incentives between the public and the natural assets we all share.

Look, I have no idea what will happen to this project. I have no idea what it grows into from here.

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But I know that the people behind this project are really smart and totally unafraid. I know that at some point we’ll have to do something about climate change and until that acute moment our society isn’t going to do a darn thing unless we start approaching it radical in new ways. I know that conversation needs to be led by a different group of people like the financial sector or the entrepreneurial world instead of divisive politicians and activist groups. And I know that if the public finds a way to connect all the dots, whether that’s through sex appeal or a profit motive, the change we currently theorize about in the academic world will actually happen.

You and I could sit down and think of a thousand reasons why something like this would fail. And another thousand reasons why it could succeed.

But I can’t come up with a single reason not to try.

Can you?

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*That’s Mrs. Concord & family up at Lake Tahoe a few weeks ago during a really wild sunset.

¹Assuming less of our electricity came from coal and more of it came from renewables or cleaner burning fuels like Natural Gas.