Imagined Realities, and The End of Money

In Sapiens: A Brief History of Humankind, Yuval Hurari posits the strength of our species versus other humans (Neanderthals, etc.) who coexisted with us 300,000 years ago was Sapiens’ ability to gossip. (But let’s call it “networking”. ??) By sharing info on who is and isn’t trustworthy, groups collaborated on hunting, fishing, gathering, and keeping the fire going while everyone else was out hunting, fishing, and gathering.

But beyond about 150 people, gossip is unwieldy, and “Imagined Realities” are necessary to maintain the social fabric. These are socially accepted “truths” to which we all align, even when not objectively provable. Also known as “shared beliefs”, they exert forces on the world through governments, constitutions, religions, and nearly all the “ism’s” (communism, capitalism, liberalism, libertarianism, nationalism, altruism, etc.).

The most influential imagined reality is “money”, whether in gold, cash, or the numbers in your banking app. When students pay tuition to attend my course, numbers in their ledgers are magically subtracted and a number is added to mine. (It’s a different and smaller number ?? but a positive number just the same.) This in turn allows me to swipe my watch past an electronic device in a store and receive food. Students, the school, the store, the farmer, and I are all comfortable in the knowledge that whatever bank or cryptocurrency underlies our many devices, I will give you something to think about (an imagined reality), and a completely unrelated store will provide me with the objective reality of food and beer.

But imagined realities cannot stray far from objective truth; fires, floods, droughts, hurricanes, and rising sea levels are objectively true, and we may need a different reality to imagine.

Objective Realities Approach Miami, Florida

130,000 years ago, sea levels were 8 meters higher than current, and southern Florida was covered by a shallow sea. During an ice age 100,000 years ago, levels fell 100 meters, and a porous foundation of limestone formed, known as the Biscayne Aquifer[1]. By 4,000 years ago, the sea rose to two meters (6 feet) below the land which now forms Miami-Dade County[2]. The aquifer collects rain and provides potable water for nearly 3 million residents.

In the past century, the state undertook large-scale engineering projects to provide more land for urban development and agriculture, leading to the draining of both the Everglades and the Aquifer. But for the aquifer to remain potable, freshwater must keep out the salt, and a 2011 study showed that may no longer be true. 1200 km of the aquifer has now been infiltrated by saltwater, an increase of 2% since the previous study in 1994. Increased salinity levels are also found in local canals.[3], [4]

Shifting water tables have other unexpected consequences. During a quiet early morning in June 2021, a 40-year-old, 12-story condominium known as Champlain Towers South collapsed (in just a few seconds) killing 98 and creating $2 billion in damage and litigation. A year later, the cause is still unknown, but “subsidence” is a possibility; the building had been sinking at 2 mm per year, possibly unevenly. If so, it would have faced stresses leading to a collapse[5], and other buildings in the region may also be vulnerable.

And last, saltwater can just come over the top. NASA’s satellite measurements in May of 2022 show a 10 cm sea level rise since 1993[6], and the UN’s Intergovernmental Panel on Climate Change (IPCC) predicts that, barring substantial changes in GHG emissions[7], levels will rise one meter by the end of this century. This would leave Miami-Dade just a few centimeters above sea level on calm days, but as hurricane forces increase, storm surges are larger, creating another source of saltwater infiltration.

Zillow, the real estate website, investigated the US cities most impacted by a six-foot sea level rise this century.[8] (This is 40% higher than the IPCC estimate. Read the article for their reasoning.) Miami is the US city most impacted in the study, with 480,000 homes underwater at a cost of $200 billion; New York City is not far behind, with 180,000 underwater homes valued at over $123 billion. In total, the ten worst-case cities in the US (five are in Florida) would lose 900,000 homes and $500 billion in real estate value to sea level rise. On a global scale, many of the world’s financial centers originated as ports and are within a few meters of sea level.

For more on insurance risk in Miami

But in terms of lives impacted, losing a million homes over a few decades might seem small to the 33 million Pakistani’s currently displaced by 100,000 square miles of floodwater, enough to entirely submerge all of Great Britain or my home state of Michigan. Pakistani’s likely face a coming food and poverty crisis.[9]

The Unimagined Burden of Hopeful Futures

In Sapiens, Hurari discusses the role of credit markets in capitalism. Banks provide funds because they will reap more over the life of the loan than initially provided, and even if homeowners default the property will return to the bank. Capitalism relies on owners and lenders to see more value in the future than the present -- but what if that hope conflicts with the objective reality of fires, floods, droughts, sea level rise, and collapsed buildings? At what point do banks stop providing 30-year loans in regions which may not last that long? At what point can the homeowner no longer find insurance, which is often a condition of the loan?

This latter situation is already occurring. Seven home insurance providers in Florida’s neighboring state of Louisiana declared bankruptcy in the first 6 months of 2022. In at least one case, the Louisiana bankruptcy occurred because the Florida state government (where the insurer also did business) denied its request to raise premiums by 85%.

To recap: In Louisiana insurance is unavailable, because in Florida it is unaffordable. Louisiana state government is now providing homeowners with insurance. [10]

The End of Money

I began to pay serious attention to climate change as I researched an article on how COVID-19 might impact the air travel industry in the summer of 2020. (Not much else to do… we were all stuck at home.) I realized that seemingly everyone was reading 2020’s Ministry for the Future by Kim Stanley Robinson. This “climate-fiction” book begins with a series of disasters, including a heat dome in southern India which kills 20 million in the space of days, a similar dome in the southern US which kills hundreds of thousands, and an atmospheric river (days of heavy rain) in the Los Angeles basin which washes most everything into the sea. In the book, these disasters generate worldwide concern (and a good deal of ecoterrorism), leading to the creation of a Ministry responsible for creating a sustainable world for future generations.

Economists in this Ministry discuss the financial costs of climate disasters, saying: “Insurance companies are in a panic over last year’s payouts… can’t charge premiums high enough to cover them, nor could anyone afford the premiums. The re-insurance companies are refusing to cover environmental catastrophes, much as they don’t cover war or political unrest… Governments become the payers of last resort, but most are deep in debt. Nothing left to give without endangering the public’s belief in money.

Interviews with the author on NPR and Marketplace.org

Which returns us to the fragility of our imagined realities. Louisiana is now the insurer of last resort for its homeowners, due to risk both there and in Florida. But US states are unable to issue their own currency, and as hurricanes and floods hit the US Southeast (and mid-state’s, such as Kentucky), and fires, droughts, mud slides, heat domes and wildfire smoke hit the US West, states will attempt to shift their debt burdens onto the US Federal Government, which is already $30 trillion in debt.

Asset Managers and $100 Gasoline

Society benefits from a shared belief of easily transportable currency (aka “money”), and it may fall to the Asset Managers (who control so much of it) to best understand both its importance and fragility. It is the Asset Managers who fund the secondary insurance market, mentioned above.

The managers have aligned: 5000 signatories have pledged $121 trillion in assets under management to the UN Principles for Responsible Investing[11]. (In context, the 2019 Gross World Product was only $88 Trillion[12].) I personally imagine that asset managers will see it financially rational to dramatically decrease the availability of coal, oil, and natural gas to protect their other assets[13]. One mechanism in doing so would be to refuse insurance to the fossil fuel supply chain; if mining, delivery, and service stations are uninsurable, fossil fuels will be unavailable. These managers have the leverage and the incentive to do so.

I teach young engineering managers in Detroit, and I worry that their careers (in auto and aero) will outlast their industries, and this objective reality has already occurred to the Internal Combustion Engineers who took my class just a few years ago. But while much attention is placed on Battery Electric Vehicles, the supply chain for both battery minerals and integrated circuits seems problematic, as we discuss here: Global boom in electric vehicles will strain mineral supply | World Economic Forum (weforum.org)

In my previous article, What if Gasoline were $100 per Gallon?, I discuss externalities as an objective cost on society not reflected in the price between buyer and seller. I also discuss “Jobs To Be Done” theory, and how the jobs currently performed by automobiles might be done in more sustainable ways; from e-bikes to trains to city planning.

IMO - we will need substantial modifications to our current imagined realities if Sapiens are to have a sustainable future. [14]

References

[1] Biscayne Aquifer - Wikipedia

[2] Miami - Wikipedia

[3] Origins and delineation of saltwater intrusion in the Biscayne aquifer and changes in the distribution of saltwater in Miami-Dade County, Florida (usgs.gov)

[4] Miami’s Other Water Problem - Bloomberg

[5] Practical Engineering provides interesting video on what is known of the collapse.

[6] Sea Level | Vital Signs – Climate Change: Vital Signs of the Planet (nasa.gov)

[7] Summary for Policymakers (ipcc.ch) (SSP5-8.5)

[8] Climate Change and Homes: Who Would Lose the Most to a Rising Tide? - Zillow Research

[9] Very Dire’: Devastated by Floods, Pakistan Faces Looming Food Crisis

[10] A new storm is brewing in struggle over climate change: homeowner’s insurance (msn.com)

[11] Annual Report 2022 | PRI (unpri.org)

[12] Gross world product - Wikipedia

[13] BlackRock has roughly $10T in assets, and is vocal in their view of a net-zero future. See BlackRock Bottom Line | The net zero economy is arriving - YouTube

[14] For a deeply theoretical economic paper on carbon pricing, see: Hypothesis for a Risk Cost of Carbon: Revising the Externalities and Ethics of Climate Change | SpringerLink