An Easy Trillion
In a previous post, I wrote about the $2 trillion gap in financing the UN’s Sustainable Development Goals and some of the structural barriers to increasing investment. A few weeks later, in response to COVID-19, the Federal Reserve lent $1.5 trillion to repo markets, which was followed by a Congress-approved $2 trillion economic stimulus bill (the CARES Act). While it is important to note that the trillions suddenly made available did not come from extra cash lying around — the Fed issued securitized loans to banks (that will likely get paid back) and the stimulus bill came by raising the debt ceiling on the Federal budget, essentially borrowing from the future — the juxtaposition is poignant. Here we are, in a pandemic, and suddenly trillions of dollars appear.
I have been struggling to make sense of the fact that climate change remains a very similar emergency, and yet governments and diplomats manage to find all sorts of ways to put off investing in solutions on a wide scale. So why are some trillions hard, and others easy?
COVID-19 and Climate Change have an important commonality. In both cases, despite years of scientists’ (and journalists’) warnings of potential threat, most governments have failed to make extensive preparations.
Standard public health policy calls for a pandemic-readiness unit. Often because of budget cuts, and the lack of an immediate threat, governments tend to beef up these entities with funding and resources after an epidemic or pandemic has already started; it’s hard to secure money to fight an invisible threat that isn’t affecting anyone (unless you’re the military, but I digress). President Bush created a Pandemic Influenza Strategy in 2005 in response to the H5N1/Bird Flu outbreak in Asia in 2004. By the time H1N1/Swine Flu came around in 2009, President Obama built on Bush’s playbook to mount his own response. Obama also had to deal with Ebola and Zika, and strengthened government response efforts after each outbreak, eventually creating the Global Health Security and Biodefense unit, a team responsible for pandemic preparedness under the National Security Council. Bush and Obama were mostly able to control these virus outbreaks due to these response efforts, as well as the type, severity, and transmissibility of the viruses that happened on their watch.
So despite what Bill Gates tells us we should do, governments’ pandemic responses are usually ramped up in reaction to an existing threat. So yes, President Trump made a massive mistake in 2018 when he got rid of Obama’s aforementioned pandemic response team at the NSC. His decision unfortunately demonstrated a short-sightedness to which others have succumbed, due to the difficulty of perceiving — and convincing others — of a threat in the long term.
When it comes to preparing for Climate Change we are even worse for the wear. There is no Department (or czar) of Climate Change, we haven’t been able to agree on a national Green Bank, and, until recently, one of the two American political parties refused to even acknowledge that the climate was indeed changing. On the global scale, it’s not much better. Five years after the Paris Agreement, international negotiators at the UNFCC’s Conference of Parties (COP) have yet to determine how they will actually achieve global emissions targets. Research shows that 75% of nations’ climate pledges are furthermore insufficient to halve global emissions by 2030. We are running out of time. The non-binding commitments agreed to in Paris were intended to limit the Earth’s warming below 1.5°C; we are now at 1.1°C.
So why are we so bad at preparing for the future?
It boils down to the fact that — as humans — we have an inherent problem with assessing risk. Some people are afraid to fly, despite the low probability of a plane crash, while others worry about getting murdered, despite the fact that twice as many people die every year from suicide. We often cannot fully comprehend a risk until it happens to us or someone that we know: a phenomenon that is studied widely by behavioral economists.
In their brilliant book Nudge, Richard Thaler and Cass Sunstein explain that when we undertake a risk assessment, we use a process called the availability heuristic; that is, we assess the likelihood of risks by employing readily available examples that come to mind. If you can recall an example of a risk — let’s say a massive earthquake — you are more likely to be concerned about that risk, and you are also more likely to believe another earthquake will happen to you, than someone who merely reads about it in the news. This phenomenon also explains why there is a spike in the purchase of earthquake or flood insurance after a natural disaster has taken place, and then a steady decline in demand as the event gets further and further in our memory.
So that is why, smacked in the face with a pandemic, our government was able to quickly galvanize support for a stimulus, but when facing the future threat of climate change — the effects of which are being felt, but the worst is yet to come — we are having a hard time changing our habits and reallocating capital and resources to prepare. The issue with climate change being, once it fully impacts the planet, is there will be no opportunity to buy insurance.
While the CARES Act was passing through the House and Senate, on the sidelines it received very little pushback from economists from all schools of thought. The analogy employed, was that during World War II, we didn’t ask ourselves how we were going to make it a revenue-positive event, we asked ourselves what was it going to take to save the world?
The world post-COVID-19 will be very different from the one we left behind. If we are going to survive, we will constantly have to remind ourselves to think beyond our natural instincts on risk and rely instead on probabilities. In the middle of a crisis often the the rules don’t apply: postponing student debt, stopping eviction, or keeping the hot water running, all these things we were told weren’t possible, can suddenly happen. We need to employ this crisis mindset to solve for Climate Change. I am not suggesting total panic, but there is a need for greater flexibility in problem solving, action, and thinking outside the box. We have to make the trillions of dollars of investment needed easy.
The good news is once we are aware of our tendency to mis-assess risk, we can work to overcome it. We can hold ourselves and our politicians accountable, start to change our behaviors, and educate others. While many experts are using the COVID-19 pandemic as an example of why we will not be ready for Climate Change, I remain steadfast to the belief that we can be. We must be. Otherwise we will not get a second chance.
