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Global Warming and the Stock Market

Al Gore came to Washington and told Congress that global warming is “the most dangerous crisis we have ever faced,” and that the legislators should immediately freeze current carbon emissions (and several other recommendations). Gore got a great welcome - except from a few Republicans, who were either dreamers, skeptics or optimists.

Gore was bringing to Congress the words of scientists. The New York Times reports that the Intergovernmental Panel for Climate Change states:

In a bleak and powerful assessment of the future of the planet, the leading international network of climate change scientists has concluded for the first time that global warming is "unequivocal" and that human activity is the main driver, "very likely" causing most of the rise in temperatures since 1950.

This is the culmination of many reports from scientists telling us in no uncertain terms that man-made global warming is building and will cause havoc to the environment of the Earth.

The Dreamer

After so many years of talk about global warming, some doubters are using the term "climate change." We even got the head of ExxonMobil to admit there is such a thing as "climate change." But this is no switch at all. Ever since the Earth was born there has been "climate change." This is the nature of climate: it changes constantly.

Let's compare a dreamer's attitude with the attitude of a stock market investor in the year of 1929. Normal people would say "there has been a stock market crash." A dreamer would say "there's been a stock market change." You bet there has been a change: it crashed.

Similarly, with the current crisis. Dreamers should wake up and see that indeed there has been "climate change." The entire Earth is warming. And the warming is dangerous to our future. And the warming is caused mainly by human use of fossil fuels. And we must act now to reduce its effects.

The Skeptic

We have people like Senator James Inhofe who ridicule Al Gore and claim that the whole global warming business is a hoax. They claim that scientists are not 100% sure, that it has not been proven completely, that there are areas of doubt.

OK, let's go along and say there is doubt. There always is doubt about the future. Nobody can be sure about what may happen tomorrow. Again, let's go back to the stock market. Assume that you invested $10,000 in the stock market and you did extremely well: after a few years your stocks grew to be worth $1,000,000. Wonderful. Then your holdings began to decrease in value, to $900,000, to $800,000, to $700,000 and to $600,000. At this point the majority of economists say that they are pretty sure we may have a stock market crash soon.

If there were a crash, your holdings would be worth less than when you started. Would you get out of the stock market? You have no guarantee that there will be a crash. But if you have any prudence at all you will get out of the stock market fast - if you haven't already left.

We have a similar situation with reference to global warming. There are doubts. However, if the scientists of the world are correct, the environment of the world will crash. Not merely energy industries, as some skeptics worry, but living conditions all over the planet. Under such circumstances, no prudent person can do nothing.

The Optimist

The optimist says that of course there is global warming, but we are so inventive that we are sure to find a way to counteract it. We have licked other natural forces before and we can do it again.

Maybe we can and maybe not. Today we do not know. We do know, however, that if we do not recognize a problem, nobody will try to fix it. Al Gore has not only defined the problem, but offered recommendations for fixing it. He wants to freeze carbon dioxide emissions immediately. (He has made other recommendations that I will discuss in the future.)

Gore is among the real optimists. He is going to all this trouble because he is sure that if the people understand the problem, they will be able to fix it. He is sure that Congress will do what is necessary.

The possible environmental crash is not much different from a market crash. None of us can afford to be dreamers, skeptics or optimists with reference to global warming. We must act as prudently as we would with regard to our stock market investments. It is many orders of magnitude more important to prevent an environment crash than a stock market crash.

Posted by Paul Siegel at March 22, 2007 6:19 PM