Let’s Support Capitalism, Not Stupidity

Stuart Kirk’s “Who cares if Miami is 6 meters underwater?” speech illustrates how poor Gross Domestic Product and Stock Prices have become as gauges of human wellbeing.

I’m a capitalist at heart, but one of the major flaws in our system is businesses passing on part of the cost of their products to members of the public who did not purchase the product. This artificially inflates their profits and stock prices at the expense of everyone else. Not only is this unfair, but it hurts everyone collectively. Governments allow their citizens to be hurt by these negative externalities because the Gross Domestic Product figures used by decision makers do not account for these harms and do not accurately measure our economic health. ?I am going to jump around here, but I promise it all ties together if you are open to making the connections.

Professional Blackjack is Good Life Skills Training

In a former life as a professional blackjack player, profits depended on adjusting my actions dramatically in the space of seconds as each card seen gave new information as to what might come next. While I figured out some things on my own, being part of a blackjack team was critical to my personal success. Whether it is star athletes, Fortune 500 CEOs or Entrepreneurs, all personal success has been aided by fellow humans. (On the flip side, fellow humans can hinder the success of others, but let’s leave that for another day.)

The reality is that most lose at blackjack because they don’t focus on expert level info (provided by scientists, mathematicians, winning players…) and have already decided how they are going to play their hand regardless of any new evidence that is available. The world is too dynamic for such closed mindedness; I encourage everyone to openly evaluate new information, reconsider how they measure success and take immediate action to achieve personal and planetary goals.

What We Measure Matters

Gross Domestic Product (GDP) is the total market value of all final goods and services produced in the economy. According to Investopedia, GDP functions as a COMPREHENSIVE scorecard of a country’s economic health and “is a key tool to guide policy-makers, investors, and businesses in strategic decision-making” despite its limitations.?

Simplified, on a world-wide basis, anything new that we pay for is part of (some country’s) GDP while everything that is free is excluded. It is human nature to undervalue things that are free until they are gone whether it is the air you breath, the beach you walk on, a kiss from a loved one, fertile soil or a healthy body. Sometimes it takes work to maintain what has been freely given to us by the planet earth, but unless it is sold in the marketplace, it is not counted in GDP. On the other hand, when we destroy natural capital, like clean water or a stable climate to produce goods and services, the sale of these goods and services adds to GDP without accounting for the natural capital that has been expended. This is flawed accounting and is like a blackjack player who ignores the loss of Tens and Aces as they are played!?

While GDP & stock prices have certainly correlated with human prosperity in past decades, we can use better key performance indicators of human success going forward.

For us to maximize personal and collective prosperity, we need our leaders to shift their focus to measurements directly related to human health and happiness. Sure, the United States has had good GDP growth and stock market performance, but these don’t measure or explain why we lead the world in school shootings and lag top European and Asian countries by 4 to 6 years in life expectancy.

We Need to Take off our Financial Blinders

Intelligent members of the business community are split about Stuart Kirk’s May 2022 speech titled “Asset Management- Why investors need not worry about climate risk” because each group is measuring success differently.

Kirk believes that climate disaster fears are being overblown because GDP and the stock price of successful companies has been going up and will continue to rise even if Miami is 6 meters underwater in 100 years. However, that doesn’t mean that humans will be better off. Early on, Kirk stated “I take a very financial and investment view of the topic.” Later he says that financial asset valuations consider almost nothing that happens after year 20 with the primary focus being under 10 years. While a 10 to 20-year outlook makes sense from a discounted cash flow perspective, many human tragedies feature childhood and teenage success stories that go bust once they hit adulthood. Of course, a 10-year time horizon is better than most politicians who only seem to care about the next election. Yes, money can provide access to food, shelter, health care and other things that improve quality of life today and in the future but putting on short term financial blinders that disregard immediate and future quality of life considerations is unfair to yourself and future generations.

Kirk, now suspended as HSBC’s Head of Responsible Investing, complained about the amount of time and effort his team must spend on regulatory compliance around climate risk analysis.

While I would argue that this is more productive for humanity than time spent navigating the US tax code, let’s assume Kirk correctly infers that climate risk analysis is a waste of time (with the costs being passed on to HSBC clients). This highlights how bad GDP is at measuring benefits to humanity. WHY? Because all purchased goods and services, even ones that are part of BS jobs, bureaucratic red tape, and products that don’t benefit anyone are included in GDP. If your kid comes home from school and gives you a hug, GDP doesn’t go up, but GDP increases when money is spent burying the victims of a school shooting. Even the trash we discard accounts for 0.5% of world-wide GDP according to the IMF. Politicians pat themselves on the back for GDP increases, but there is a whole lot of GDP that we would all like to see less of.

Spending $1,000,000,000,000 to build a sea wall around South Florida to prevent Miami from flooding will elevate GDP and elevate the stock prices of construction companies. However, Floridians won’t be better off than they are today by having to spend money to preserve what nature used to give them for free. Even if the wall was free, hanging out on South Beach covered by 20 feet of water just doesn’t seem as fun as one covered with sand, athletes, supermodels, and pop stars.

The Scientists Have Been Right

Kirk asked the audience if anyone remembered Y2K and stated “the lifts didn’t stop” as proof that these fears were overblown. The problem with Kirk’s logic is that the potential Y2K problem was identified ahead of time and billions of dollars was spent in the 1990s rewriting flawed computer code to prevent the fears from being realized. Rather than using Y2K as an illustration of conspiracy “nut jobs” Kirk should have used this as evidence of his other theme that humanity is good at solving problems and adapting to obstacles.

In 1982, Exxon’s scientific research accurately predicted our current greenhouse gas levels and most of the havoc this would cause. Climate change, biodiversity loss and mass extinction are much bigger threats than Y2K, but unlike Y2K, sufficient time, money, and action have not been devoted to preventing catastrophic impact to humans. In terms of human capacity for problem solving, Y2K was “easy” in that coders could clearly see that there was a flaw, knew exactly when this flaw would cause software programs to break and knew exactly how to fix the problem (by re-writing 99 to 1999 and 00 to 2000). While the Exxon scientists have been uncannily accurate in identifying the problem of carbon emissions and predicting the global warming that would follow, it is not as easy for most of us to comprehend the significance of the issue and “solve” the problem as the effects worsen over many years and the solution is not as simple as adding 19 or 20. Yes, Climate Change, Biodiversity Loss & Mass extinction are more complex issues, but we ignore them at our own peril. As Kirk stated for one scenario, “If we solve climate risk, markets are really going to boom, which is also fantastic for investors.” We need an immediate Y2K effort on steroids to maximize the chance of that playing out.

Meaningful Climate Action Has Been Delayed Too Long

The focus on GDP and stock price and their inability to accurately measure human health and happiness are one of the main reasons we have kicked the can down the road for far too long. If we had been measuring the things that really matter, we would have already addressed climate change and biodiversity loss in meaningful ways.

Had we built on our Y2K success and rolled our efforts right into Climate Action 2000, we could have made much more gradual changes to mitigate the crisis. Now we must make radical changes and adaptations within a handful of years to minimize the pain.

“Non-Survival” is a Bad Choice

Kirk noted that an earlier speaker raised the issue of humans being unable to survive pending environmental disasters and stated, “Most of you barely looked up from your mobile phones at the prospect of non-survival.” Sad, but true that most of us are burying our heads in the sand or only taking relatively small actions as long as GDP and stock prices are rising. While I am optimistic that some humans will be able to survive for many years as the negative effects of greenhouse gas pollution and biodiversity loss increase, maintaining our current course is misplaying the cards we have been dealt and will bust billions of peoples’ lives.

Kirk criticizes those who he feels are overstating the potential effects of climate change, but a study published just days after Kirk’s speech found that changes are happening more rapidly than previously predicted. Unfortunately, most have closed their eyes to any new climate cards being dealt. This is as smart as rooting for blackjack when there are no aces left in the deck. People need to open their eyes to the fact that 40 years of data now supports the predictions that the Exxon scientists made in 1982 and realize we need radical action starting immediately to avoid ending the 11,000+ year Holocene period that has allowed humans to thrive.

The Future

In recent years, sports enthusiasts, handicappers, and team executives like Money Ball’s Billy Bean have devised and adopted more accurate ways to measure a professional athlete’s productivity, yet our leaders still focus on GDP numbers that are becoming more and more detached with what really matters. To be clear, I am not saying we should completely abandon everything related to GDP or be happy if stock prices plunge. Rather, we need to get better at measuring what really matters (i.e. Useful or Beneficial GDP that properly accounts for natural capital gains and losses) and realize that this will be the best guideline to shape actions that improves quality of life.

There is a growing community of climate activists, investors and technologists working on biodiversity loss, climate change mitigation and adaptation efforts. However, unlike Y2K where the problem could only be fixed by software coders, everyone, especially those in the top half of the world financially, can make a difference when it comes to these planetary problems. To this end, each individual’s efforts support team humanity.

I challenge our leaders and each one of us as individuals to raise our games to the next level by measuring what really matters and taking the following actions:

1. Blinders off and head out of the sand (so you don’t miss the cards being dealt and the wonderful benefits nature has bestowed upon us).

2. Figure out how to improve the quality of your life, health and happiness while using less fossil fuel and consuming fewer products that rely on natural resources or degrade our environment.

3. Support politicians and spend/invest/work with companies who transparently measure what matters while taking IMMEDIATE & SIGNIFICANT ACTION to improve quality of life by getting to net zero and beyond (like regenerative agriculture).

The rapid progress humans have made in recent centuries provides compelling evidence that we can survive this crisis, but only if we are honest with ourselves, measure what matters and take meaningful action to alter our current course. It would be great to see individual info and actions related to the items above as you pass this on to your contacts. Try naming at least one thing you have done that has lowered your Planetary Footprint while raising your quality of life.