Friday, March 22, 2019

Trump Says He Doesn't Believe It. The Market Disagrees.

When the US government's fourth National Climate Assessment came out, Trump dismissed it saying, "I don't believe it."

The Economist reports that the markets aren't having any of Trump's foolishness. They're betting on climate predictions and it's paying off.

In a poll conducted by the Pew Research Centre in 2016, just 48% of respondents said they believed that the Earth was warming because of human activity. One likely reason for such widespread ignorance is that most people do not incur any penalty for being wrong. In contrast, the group most likely to learn the facts are traders in financial markets based on climate data, who stand to profit if they understand the issue and lose money if they don’t. The consensus view of such experts—as measured by the prices at which they buy or sell futures contracts—lines up almost perfectly with leading academic research.
A new paper by Wolfram Schlenker and Charles Taylor of Columbia University studied the relationship between mathematical climate models and prices for contracts at the Chicago Mercantile Exchange, which have allowed traders to place bets on the monthly total of days that are hotter or colder than average since 2001. The authors assessed the match between the two sources’ predictions.  
...They found that the market’s predictions were remarkably well-synchronised with the forecasts made by NASA’s climate scientists. The mathematical models explained fully 94% of the variance in aggregate market prices. In many years, bettors barely deviated at all from the scientific predictions.  
...It is hardly surprising that traders make use of scientific models when making investment decisions. Real money is at stake. What is noteworthy, however, is that the correlation between the two sets of forecasts is so close that it suggests that they base their choices almost exclusively on these models. 


Trailblazer said...

Perhaps and hopefully we will reach a watershed moment such as they have in New Zealand with gun control.
After the tragedy gun laws were changed 180 degrees and within a week of governmental discussion.
Would it not be nice to see a similar result to the news of yet another climate catastrophe?


The Mound of Sound said...

After the Paradise fire last summer we saw how the Washington powers were unmoved. Trump even threatened to punish them by withholding federal emergency funds.

There does seem to be a rift emerging from the corporate sector. The market types realize there's nothing to be gained by utilizing the clearly plain science. They also know there's a great deal to be lost by ignoring it.

Yesterday I put together a post on the global insurance industry, specifically the giant re-insurer, Munich Re, warning that climate change may drive insurance premiums, for some, through the roof and that ordinary people might find they can no longer insure their homes and major possessions.

Trump can say "I don't believe it." The rest of his country is coming to a different view. Wait until they have to walk away from their homes, a la the Dustbowl of the Dirty 30s.