Are climate change policies responsible for the GFC and recessions throughout the world?

We are well used to claims that global warming (aka climate change) is being affected by emissions of CO2 from human activity. Proponents for action on climate change ignore the myriad of other factors that might affect the climate.

But has this flurry of activity purportedly aimed at reducing (or slowing) anthropogenic carbon emissions actually caused the economic crisis that has affected much of the world since 2008? Did it cause the GFC or was it a major factor leading the financial crisis?

To be sure, just as there are a myriad of possible causes of climate change, there are many possible factors that led to the GFC. Among these include complacency, moral hazard, excessive government debt and structural deficits, poor understanding of risk and the growth of highly complex derivative instruments and synthetic financing tools which the management of banks did not understand. Plus the use of VAR modelling tools which proved valueless in the face of adversity.

But I am coming to the view that the principal catalyst of the GFC – the smoking gun if you like – was the wholesale capitulation by governments and big businesses to the siren song of AGW.

The diversion of resources to “fight” climate change has been astounding. I can scarcely conceive of an area of public policy that has sucked and consumed more resources  than this folly. Perhaps the construction of the pyramids in Egypt, or Versailles during the time of Louis XIV might have consumed more resources, but they were certainly less insidious.

There is not one area of public policy that has not been affected by this crusade. The eyes of the governments of the world were off the ball. Instead they were focused on climate change policy. Rather than being a second-rate pseudo-science were it belongs, climate scientists became more important that physicists, mathematicians, chemists and engineers.

More fundamentally, in their efforts to jump on the new rent-seeking band wagon, financial institutions developed new and ever more complex financial derivatives which were often driven by the desire to jump on the potentially lucrative returns of carbon permit trading. Do not forget that it was commonly claimed that the carbon market would be more valuable than every other commodity market. I knew we had moved into Alice in Wonderland territory when people thought that an anti-commodity would be more valuable than a commodity.

We have a number of reasons that climate change policies have been a key factor leading to a global recession:

  • the microeconomic inefficiencies caused by the numerous extremely costly distortions
  • the opportunity cost of resources – human and physical capital –  being diverted to a considerably less efficient use because of government policies
  • the increase in the cost of energy (present and future): affecting the growth of the economy as energy is a fundamental input in the production of goods and services (and the increase in energy prices has damaged the standard of living of many poor people in developing countries), also an increase in the risks of energy shortages and disruptions
  • the macroeconomic costs of expensive climate change policies
  • the wanton destruction of energy production capacity well before its end of useful life
  • the corruption of financial markets with the lure of easy money but actually to a high risk trap
  • attacks on the legitimacy of the free market: in the past we could expect this from communists and the Soviets; now many governments are complicit. Indeed there has been the effective brainwashing of our children by the education authorities which has succeeded in taking away from many the power of critical thinking.

I’m sure there are many other reasons.

But do you agree – is it credible to attribute blame for the state of the world economy over the past few years at the feet of climate change policy?

==============================================================================

UPDATE

In response to  some comments:

Monetary policy

A couple of commentators said that recessions can really only be caused by inappropriate monetary policy. I don’t agree. It is true that inappropriate monetary policy can affect the real economy. One only needs to look at the US during the Great Depression when the Fed allowed deflation to set in and it reached something like 25% or more. With nominal wages being sticky, this led to a dramatic increase in real wages, and hence a dramatic shedding of labour. On the other side, one only needs to look at Zimbabwe, Argentina, the Weimer Republic etc to see the effects of hyperinflation on the real economy.

But my point is that a recession must ultimately be part of the real economy. Yes, faulty monetary policy can affect the real economy. But so too can real economy decisions. Going to war, for example. Or changing other policies can detract from economic growth and even cause a recession.

To take an extreme example to illustrate the point. When Pol Pot took over in Cambodia, he and his cronies destroyed human and physical capital. The economy collapsed. No matter how sound or appropriate the monetary policy might have been in response, the economic collapse could not be prevented.

The claim that AGW policies caused the GFC is overegged

Well, yes, perhaps it is. But I have said that it is one of the factors, but further it also affected institutions contributing to further factors. In that sense AGW policy is insidious.

The lack of financial regulation was not the cause of the financial crisis. Poor supervision was one factor – that is, through regulatory forbearance or through the distraction of supervisors who did not monitor properly the carbon trading market, financial institutions became ever more exposed to risk with many not realising this.

There was a misallocation of resources in the financial sector – this misallocation was helped along by AGW activism.

The sequence of the GFC rules out AGW policies

2dogs makes the point that the US had soft climate change policies but was hardest hit by the GFC. That’s true, but it doesn’t mean that AGW policies were not a significant factor. The interlinkage the world’s financial institutions helped spread the contagion. Some of the worst offenders for the carbon market were American: Lehman Brothers for example. State governments (California) have long been strongly activist in climate change policies.

Harry Clarke

Good ol’ Harry has a swing at me by stating (along with John Quiggin)

Do Sinclair Davidson and Judith Sloan endorse these views?   These are (or have been) professors in universities who have studied economics. How do they respond to this idiocy?

So one needs to be a professor in a university to be a good economist?

I’ll back my economics over that of Clarke and Quiggin any day. I am not proposing a policy (a carbon tax) that cannot achieve its stated goal and which must reduce economic growth and slow the growth in living standards. Quiggin and Clarke are proposing such a policy. They – supposed economists – are supporting a policy that has purely negative consequences and not one single positive consequence (since it cannot under any assumption make a difference to the world’s climate).

What is climate change policy?

Let’s be clear: the goal of climate change policy is to increase the cost of so-called polluting energy sources. By pricing these sources sufficiently high, people will be encouraged to invest in and buy so-called non-polluting energy sources.

Since energy is essential to economic growth, there are only a couple of outcomes (recall that improving the efficiency in the use of energy is a one-off gain):

  • a new non-polluting energy source will be developed that is as cheap or cheaper than present polluting energy sources in which case economic growth and the growth in living standards will be high and perhaps higher than under a business as usual scenario. That is, the gamble/investment of climate change policies has paid off (although the counter-factual is that such an energy source might have been developed without these policies). Such a energy source is nuclear fusion.
  • non-polluting energy sources are never as cheap or efficient as polluting energy sources. This to me is the most likely scenario. The outcome of this is the permanent reduction (and probable decline) in economic growth and living standards. Take wind power. It is a mechanical source for generating electricity. Its efficiency in generating electricity is linearly scaleable – it cannot possibly be as cheap as current polluting energy sources. Even if wind turbines were 100% efficient and the wind blew 100% of the time the cost of construction, maintenance and distribution exceeds an efficient coal-powered station.

About Samuel J

Samuel J has an economics background and is a part-time consultant
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113 Responses to Are climate change policies responsible for the GFC and recessions throughout the world?

  1. 2dogs

    It was not the cause of the recession, but rather it is causing a lack of recovery.

    Those countries with the most severe climate change policies are getting the smallest share of the recovery pie.

  2. Sleetmute

    This is up there for one of the silliest posts I have read on this blog. Recessions are usually monetary phenomenons and this one was no different. The resources wasted on climate change action might slow potential growth in developed countries by a fraction, but they did not cause the GFC – blame for that lies largely with the Fed for holding monetary policy too tight (for the conditions) in late 2008. We had looser monetary policy, so we escaped recession.

  3. John Comnenus

    I agree that it was an important factor for all the reasons you list. As a matter of simple logic, you can’t de industrialise your economy, as AGW policy aims to do, and then hope to keep the benefits of industrialisation.

    A useful graph to highlight this is Europes industrial output which has been going backwards for a number of years. AGW policy, especially energy policy, will have had an impact on production.

    The purpose of the Carbon Tax in Australia was to reduce CO2 emissions. Emissions are a by product of economic activity, the tax a direct cost impost on economic activity. Is it any wonder we are heading into a slow down? After all the government sold the tax, pre legislation, on itsnability to change behavior. Now it wants us to believe that the tax wont change our behavior.

    The purpose of the tax is to make economic production and activity more expensive. The slowdown we go into should prove your thesis.

  4. John Comnenus

    It needs a name. Who can develop the best name for this effect?

    the Greenhouse Recession Effect, Or the Carbon Slump, The Green Depression.

  5. samuel j

    2dogs: I think it both a cause of th recession and areason for a delay in exiting.

    Sleetmute, do you really believe that government’s cannot cause recessions by their actions and policies? And that recessions are purely the result of monetary policy? That’s a somewhat unorthodox view.
    A recession is after all negative growth. You acknowledge that climate change policy can slow economic growth, but seem to think it is unable to slow it below 0. If half the population disappeared would we have a recession in Australia? (clearly yes). could the RBA prevent a recession in such circumstances (clearly no).

  6. alan

    This is the most idiotic piece of writing I have read this year. The gfc had nothing to do with climate change policies and problems in Europe have nothing to do with climate change. It’s all about loose financial regulation. The problem with arguing against climate change deniers is we come from a position of peer reviewed science which is overwhelmingly supported by scientists around the world. You just make stuff up as you have done here.

  7. It’s probably a contributing factor. A lot of capital and the efforts of talented people have been diverted into economically destructive work.
    The increase in energy prices along with a growing uncertainty of supply has probably been a factor in the movement of manufacturers to China and India.

    The other factors you mention all have their own negative effects. So how did we get to a situation where otherwise intelligent people act in a manner so detrimental to the people of the world? The ‘Elites’ seem to have been completely captured by the AGW meme. Is it a lack of religious belief? I’m sure that many of the leading advocates of AGW would have been Methodist Ministers 100 years ago.

  8. Blogstrop

    The Gang Green Depression.

  9. Entropy

    The problem with this post is it overcooks the egg. I think I am with two dogs on this one. The cause of the GFC was the misallocation of resources in the finance sector (of course this is overly simplified too). AGW policies are an example of this, but really, not that significant prior to the GFC. They have certainly become more so since, and if anything, will cause problems with recovery as resources continue to be artificially redirected to green policies.

    I would also say that for some proponents, the drag on economic growth caused by AGW mitigation policies is a a feature, not an unintended consequence.

  10. Token

    Green Fiscal Contraction (GFC)

  11. Biota

    An ABC breakfast presenter this morning said that today’s schoolkids shouldn’t be planning for jobs in coal mines because they won’t be there. Another commented that this was because ‘the market’ was directing financial resources into renewballs. We have a long way to go before this dragon is slayed.

  12. 2dogs

    Samuel j, exceptions show why it could not be a cause. Initially, the US, which at the time had soft climate change policies was hardest hit. Climate change policies were much more severe in the Netherlands, but it was relatively unscathed. The prudential position of the banking sectors in both countries is the better explanation as to the cause of initial decline in countries.

    But the distribution of recovery has not been in proportion to the distribution of the decline from the GFC. The US has generally done better in recovery than Europe. Spain and Greece went down and stayed there. The Netherlands never went down, but rather has stagnated in its position. Big winners have been in the developing world. The correlation of climate change policy to recovery is a lot more certain.

    To demonstrate this, I’d like to graph the change in CAPEX 2007-2012 against for countries against the severity of their climate change policies, any advice as to the best source for the latter?

  13. Sleetmute

    Samuel, resource misallocation happens all the time – consider the BER, NBN etc. It slows potential growth in the long term but doesn’t cause recessions if monetary policy is accommodative. External shocks like rocketing oil prices or natural disasters can cause recessions if severe enough, but even then the recession will be relatively mild if monetary policy is appropriate. A recession the magnitude of the GFC or the Great Depression can only happen if monetary policy is faulty. That’s what Friedman would say and that’s what Market Monetarists like Scott Sumner are saying now. Check out his blog like JC and I have done and see the light – macroeconomics finally makes sense.

  14. .

    Samuel, resource misallocation happens all the time – consider the BER, NBN etc. It slows potential growth in the long term but doesn’t cause recessions if monetary policy is accommodative.

    Yes and not always – then the accommodation causes further misallocation. Accommodation is sometimes not possible and adjustments happen like it or not.

    Europe and the US had productivity problems for a long time. I think it is related to a. wastefulness b. undesirable demographics c. both of these leading to a lower savings rate d. the war e. ever increasing regulation resulting in “sclerosis” f. previous loose money in both areas g. a bad tax mix in europe h. the loss of trade/exports to europe from the US and i. the loss of industries through competition but no will to reform remaining ones (such as US steel etc)

    More here:

    http://www.voxeu.org/index.php?q=node/3760

    What we do know is the Australian stimulus worked against capex. It increased the decline in investment.

  15. Rabz

    Well, these ridiculous ‘policies’ are hardly going to assist growth, are they?

    It’s been pointed out many times over the last few years that people are now so stupid they will actually vote for braindead politicians who advocate policies that will make the said voters worse off.

    Unbelievable.

  16. Poor Old Rafe

    To test the “sucking up resources” hypothesis we need some figures on the amount of resources consumed. In that figure you could count the extra cost of desal plants compared with dams.

    In addition you could say that climate hysteria ran interference for a whole suite of other bad policies, distracting attention in public debate so the limited resources of rationality in the community could not all be applied to other issues.

    There is also the collateral damage to the image of science and the corruption of science education in the schools – not immediate monetary costs but bad news for the future.

  17. Rabz

    In that figure you could count the extra cost of desal plants compared with dams.

    Classic example, comparing the cost of damming the Richmond River in Victoria as opposed to building that stupid bloody union rorted desal plant.

    As I’ve stated before, certain politicians should be languishing in jail over that one…

  18. .

    This is the most idiotic piece of writing I have read this year. The gfc had nothing to do with climate change policies and problems in Europe have nothing to do with climate change. It’s all about loose financial regulation.

    From one idiotic position to a completely bullshit one.

    Please Al, tell us how the Federal Housing Administration paying the PMI on NINJA loans is “loose regulation”?

  19. Poor Old Rafe

    How does the exponential growth of the carbon market from 2005-2009 play in to the GFC?

  20. John Doe

    ninja loans were offered by investment banks.

    They did this knowing the loans would fall over but in their hubris thought they could overcome this thus we got the CDO’s.

    Indeed they were so confident they loaded them onto their balance sheets.

    they were wrong.

    It was the freezing of credit markets that caused the GFC and this was directly related to the mess of the sub-prime market in the US.

    It had nothing to do with climate change policies.

    I was under the impression people here were saying they were having little effect.

    Now they are having a huge effect.

    They cannot be both. Try to be consistent.

  21. Bruce of Newcastle

    This is a delayed debt cycle crisis not a normal monetary cycle recession. Which is why the massive interest rate cuts worldwide since 2007 aren’t doing anything much. In fact it is a double debt crisis, first over-leveraged banks in the GFC and second sovereigns.

    That is why the CAGW policies have been so catastrophic in suppressing recovery.

    In the GFC managers of banks by and large could take appropriate action and keep their jobs. So they did, and after the big Lehman confidence hit there was a rapid recovery on the Dow-Jones and ASX.

    But the sovereign phase is a stinker. Pollies cannot fix the fiscal issues without losing their jobs. So they’re reluctant. Especially in the EU. Confidence remains terrible.

    The CAGW policies are a double-whammy on top because (a) they raise the cost of living in painful ways (eg no heating in winter) and (b) they can only be justified by scaring the pants off the electorate (making lack of confidence even worse). So voters and companies won’t spend, and aren’t going to restart until they’re positive the world has stopped ending. You can see that in ‘safe’ bond yields, which are silly.

    This reverse side of the story is that CAGW policies are so toxic right now that if/when political solutions finally are achieved in the EU, US and Japan then those policies will be chucked out by the new owners (ie next generation of pollies).

    But CAGW policies haven’t had much of an effect on going into the double crisis – that was just usual overdosing on debt. The root cause has nothing to do with CAGW, other than that debt-loving progressives swallowed the green Kool-Aid much worse than conservatives did (Turnbull and Cameron excepted).

  22. .

    ninja loans were offered by investment banks.

    Dude

    Ever heard of the CRA? You really reckon a single mother in detroit could get a loan from Goldman Sachs?

    Sam has a nutty theory and then the real lunatics come out and attack it and load up on an even more bullshit theory.

    Hilarious.

  23. Tom

    This is the most idiotic piece of writing I have read this year … The problem with arguing against climate change deniers is we come from a position of peer reviewed science … You just make stuff up as you have done here.

    See, we just know armageddon is happening. Believing anything else is just “making stuff up”.
    Good morning to all the zombies from The Drum, taxpayers’ main contribution to the Australian political debate.

  24. It’s such an important point: the damage already done.

    When radical but sane energy polices were implemented in France under Pierre Messmer in the 70s, the results were soon tangible.

    By contrast, anyone who has recently spent time moving around rural Spain will be staggered by the scale of the waste engendered by insane energy policy. The BER etc cannot be compared.

    Of course, folly and debt on this scale can’t be separated from monetary madness. It’s a package.

    Environmentalism must be recognised as the anti-Conservation mass neurosis it truly is. Uranium and coal rich Australia has no nukes and burns coal in antique clunkers. Our Green Betters wouldn’t want it any other way!

    If Collectivism were ever to try a re-run of last centuries horrors, Bolshevism or the black leather look wouldn’t cut it now. The misanthropes and self-loathers need a plausible new dogma with moral and sensual appeal, one which can infest the middle-class mind and the control points of a modern society. Like all good totalitarian dogmas, it must be strengthened by the very poverty and dislocation it creates.

    What might such a fashionable new dogma look like?

  25. cohenite

    This is the most idiotic piece of writing I have read this year. The gfc had nothing to do with climate change policies and problems in Europe have nothing to do with climate change. It’s all about loose financial regulation.

    You’re a fucking moron mate; what do you think GIVING $13 billion between now and 2015 to wind and solar and other ‘renewable’ energy bullshit scams is if not the mother of all “loose financial regulations”?

    Wind and solar DO NOT work; and really any one who says they do should be litigated against for misrepresentation.

    As for this:

    The problem with arguing against climate change deniers is we come from a position of peer reviewed science which is overwhelmingly supported by scientists around the world.

    Peer review as it applies to ‘climate science’ is hopelessly corrupted as the emails have shown; the ‘consensus’ amongst the large scientific organisations of the world, such as in Australia with the CSIRO and BOM, are nothing more than bureacracies toeing the line of their political masters who provide the finance for these bureacracies.

    And this arrogant bullshit:

    You just make stuff up as you have done here

    .

    All the stuff being made up is by the pro-AGW believers such as yourself.

  26. Rabz

    This is the most idiotic piece of writing I have read this year.

    Hi Alan,

    F*ck off, you brainwashed hippy deadsh*t.

  27. John Comnenus

    Green policies drove the cost of energy through the roof because, initially a lack of certainty about the carbon tax which delayed investment, mis-allocation of resources to all the scams and then certainty. Now the carbon price which will up the price further.

    Clearly the most energy dependent sectors of the economy will be hardest hit. But that was what the tax was designed to achieve.

    Why do the carbonistas deny the Greencession their policies were designed to induce.

    This is the greencession we had to have to reduce our carbon footprint. That was the Gillard-Brown/Milne-Turnbull plan from the beginning.

  28. Max

    •the increase in the cost of energy

    As John C mentioned above governments around the world sold the tax and cap’n'trade systems based on the ability to “change behavior.”

    what they didn’t figure on is that change in behaviour would mean that people would substitute away from consuming alot of other goods and services just to keep the lights on at home.

    I know that in my own case Petrol and Electricity up have meant that gym memberships, yoga memberships, piano and karate lessons and work lunches / beers have all been cut to keep the lights on at home.

  29. Max

    Clearly the most energy dependent sectors of the economy will be hardest hit.

    John C , for my household we cut every other item of disgressionary spending, including retail. We are already seeing it in this country with Fitness first having a fire sale of their gyms.

    Coles and Woolies are hard to substitute away from – the’ll be able to pass on most of the tax. Myers and David jones not so much.

    Carbon Tax = win High Market power players

    Carbon Tax = lose for low Market power players

  30. Winston SMITH

    I’d agree with John Comnenus on this one – misallocation of resources is just another stick breaking the camels back. Along with the excessive taxation stick, the excessive regulation stick, the bloated government bureaucracy stick, and the disincentiveness of the welfare stick.

    Plus: The Greens must be destroyed.

  31. Token

    ninja loans were offered by investment banks.

    They did this knowing the loans would fall over but in their hubris thought they could overcome this thus we got the CDO’s.

    The way the Renew-ball Energy industry has been funded is just an extension of the NINJA loans.

    The ROI on Renew-balls is negative. Emerging economies in countries like Spain have been ham-strung for years by the subsidies.

    Yet those turkeys continue to be funded.

  32. cohenite

    The CO2 tax and Green policies generally are designed to punish unnatural lifestyles.

    It has taken a long time for this fact, that the Greens are using the AGW lie to force in the Western world a drastic cutback of lifestyle, consumerism and materialism, a la Hamilton, to emerge.

    The Green ideology is based on the ascendancy of natural priorities; nature comes first and since lifestyle is based on encroachment of nature, lifestyle must be curtailed and primitivised.

    Literally, the Greens want far less humans living much harder, miserable and natural lifes.

    One of the great ironies of this debate has been the complete failure of the Green constituency, which is almost entirely composed of urban dwellers, who are completely reliant on unnatural energy sources and technology to maintain the lifestyles they enjoy, to properly understand that their support of the Green bastards will mean their lifestyles and benefits will end. This is called cognitive dissonance and the only pleasure I will have when the Green policies put out the lights will be the screams of outrage from the Green supporters as their little dinky lifestyles and appliances switch off.

  33. Token

    Plus: The Greens must be destroyed.

    Factio Viridia Delenda Est.

    To avoid a Life of Bryan type gramatical mistake I’ve checked the grammar. I believe it is appropriate that the noun Green should be neutered.

  34. Nanuestalker

    Catallaxy jumps the shark!

  35. Sinclair Davidson

    Catallaxy jumps the shark!

    Again?

  36. Nanuestalker

    Again?

    Sinc -

    Seriously, this post reminds me of when the Lavatory users used to convey their one-eyed opinions in the guise of questions.

  37. Pingback: Right-wing lunacy at Catallaxy « Harry Clarke

  38. cohenite

    Seriously, this post reminds me of when the Lavatory users used to convey their one-eyed opinions in the guise of questions.

    Do you have a point or has the cold weather frozen your testicles to your pinhead?

  39. .

    Green policies drove the cost of energy through the roof because, initially a lack of certainty about the carbon tax which delayed investment, mis-allocation of resources to all the scams and then certainty. Now the carbon price which will up the price further.

    Wow. There is actually something to this and Samuel has actually embarrassed most of us. The decline in US housing prices in early 2007 was in part due to energy prices (see von Thunen and energy prices during the war, also decades of anti nuclear, anti oil and anti development bias) [but also caused by a short sharp loss in output - partly due to energy prices].

  40. $130b euros of spanish debt is solar subsidies.

    disaster. collective insanity.

  41. JC

    Actually I agree with everyone here in a way. :-)

    What Steve Kates is referring to (in a fashion) is a good old old supply shock hitting an economy that could take it off the road. Of course that’s possible. Combine that with a central bank that doesn’t understand monetary policy while interpreting higher CPI as inflation …it could all come together and really send an economy into the shithouse.

    Although Spain is in the Euro zone, i would bet a few dollars that part of the reason it suffered a more severe downturn was because of the sheer bastardy of their leftwing government introducing the quantity of renew ball produced energy.

    Did climate change policies singularly cause the GFC. No, I don’t think so. Did they fan the fire? Of course they did.

  42. Amfortas

    It takes time to build up the invoices society has to pay for rorts and corruptions. It is F.E.M.I.N.I.S.M. that has sucked economies dry for the longest time.

  43. thefrollickingmole

    How many man hours were spent by financial institutions/regulators/investors pumping up the carbon trading scam?

    If those same man hours were spent in the “real world” of existing financial instruments could have the cat been belled earlier on the coming of the GFC??

    All purely speculative, it probably would have happened anyway, probably?

  44. Cato the Elder

    Token

    or should that be “Factio Viridis delenda est”?

    In either case, I agree with the sentiment, of course.

  45. JC

    The carbonic price arriving in July is quite possibly something a little more adverse than what happened in Spain. It’s going to absolutely root the innards of our economy, which combine with the slowdown around the world sink us further.

    I can’t believe the timing of sticking a carbonic price 3.5 times the world average which makes us around 4.5 times over (as we currently have mitigation impacts that aren’t disappearing) just as the world economy is slowing down.

    It’s absolutely fucking insane policy. I’m not saying it will happen, but if the RBA doesn’t read the macro tightening going on from the carbonic tax and ease monetary policy more swiftly, we could have a humdinger of a recession. They have to ease monetary policy in order to engineer a real fall in the exchange rate because of out lost competitiveness.

    I hope the RBA doesn’t and lets these putrid clowns wear it all.

  46. C.L.

    It’s all about loose financial regulation.

    And there’s none of that in the climate change racket is there, Alan?

  47. Cato the Elder

    or even “Ceterum autem censeo Carthaginem Factio Viridis esse delendam”?

  48. John

    Of course the GW hoax is responsible for debt. Trillions have been wasted on the words of activists and looney greens from the discredited IPCC. Graduate students writing non-science nonsense and becoming lead authors are just a few of the shenanigans from that organisation of lies.

  49. Winston SMITH

    Cato the Codger, if I remember correctly, at the start of WW1, people would sign off letters with “God curse the Hun.”
    The updated version, of course, is “God curse the Greens.”

  50. Mother Hubbard's Dog

    Winston, I didn’t realize you were that old.

  51. Mother Hubbard's Dog

    part of the reason it suffered a more severe downturn was because of the sheer bastardy of their leftwing government introducing the quantity of renew ball produced energy.

    And that bastardry was compounded by further bastardry when they slashed the subsidies for solar power. Farmers who, enticed by the subsidies, had borrowed up to the hilt to cover their land with solar panels went broke overnight.

  52. blogstrop

    For Australia, the real damage is about to commence. Once all our industries are hollowed out and a long depression sets in, who should take the blame? Those who’ve campaigned for this ridiculous (and ineffective in controlling climate) scam.

  53. Simon

    It’s a symptom not the disease. The disease is the severe overvaluation of western products, services and commodities, we gave up being richer for merely looking richer by pretending that 1/4 acre block in New York has more economic value than a similar block in an Asian metropolis. Quality is a value adding measure but not to the extent that we have recently pushed it. Right now quantity is winning the race and the vast pools of investment cash that were underpinning our cause have moved inexorably towards the other half of the equation. If money makes money then worldwide we drained the big reservoirs and created a moonscape of tiny ponds. It’s the adjustment to this new terrain that has ruined confidence and pumped the recession talk. That’s my uneducated opinion anyway. The green scam was the last rearguard action of the west to try and regain market dominance through the “quality” angle.
    That’s where the desperation comes from, not some tree hugging whale loving BS.

  54. Alphonse

    Since the GFC was down to reckless deregulation and dereliction of prosecutorial duty, a writer who supports the policy and ideology that gave us the GFC feels a dire need to project.

    Not surprisingly, his geophysics is as abysmal as his economics.

  55. .

    Since the GFC was down to reckless deregulation and dereliction of prosecutorial duty, a writer who supports the policy and ideology that gave us the GFC feels a dire need to project.

    No. There is NO “since” at all doofus.

    What prosecutions? WHAT deregulation?

    FHA PMI, CRA, GSEs – most certainly not deregulation – they are a part of a woeful dirigisme.

    Not surprisingly, his geophysics is as abysmal as his economics.

    Cheaper energy would have seen the shocks of the war in Iraq make less impact on US industry and house prices.

    You re just a clueless, uneducated idiot who is incapable of higher order thinking.

    The carbon tax in Australia and the MRRT will kneecap our most productive and strongest exporting industries – the continued recovery will be a dead cat bounce.

  56. Token

    Since the GFC was down to reckless deregulation…

    Strange, sub-prime would never have happened if the debt in the US residential real estate market was not channelled through Fanny Mae & Freddy Mac – the mother of all stupid statist regulation.

  57. pedro

    Were you on the piss Samuel?

    Your claim seems to be that GHG policies have amounted to a real shock at the heart of the recession. But, what is the aggregate size of the OECD economies and what is the level of waste on GHG? And even then, where is the shock? Govt’s wasting money is not exactly a new phenomena.

  58. Max

    In other leftist news. Leftist Regressive thinking caused the death of these babies.

    http://www.news.com.au/national/coronor-says-homebirth-babies-could-have-lived/story-e6frfkvr-1226386151996

    THREE babies who died during or after home births would have survived if born in hospital by caesarean section, a coroner has found.

  59. Pingback: #Euro-geddon…global warming hype a key factor | pindanpost

  60. Viva

    a tax a direct cost impost on economic activity.

    The government would argue that it is a tax on emissions inefficient economic activity. It seems to believe that you can drive a 21st century economy with windmills and solar panels – in the meantime hoping that some large-scale renewable energy source will turn up.

  61. Max

    in the meantime hoping that some large-scale renewable energy source will turn up.

    If only we could use moral vanity to run the economy.

  62. It seems to believe that you can drive a 21st century economy with windmills and solar panels

    You can’t even reliably drive an iPhone on solar cells. No. its deliberate vandalism and confluence of various evil forces of socialists who realise that it’s do or die. everything socialists has turned to shit. an aging population becomes more conservative and abandons the idealistic rubbish of youth. Expect more desperate attempts at revisionism and revivalism of ideas way past their use by date.

  63. Samuel J

    I like how Harry Clarke changes my correct use of the word ‘principal’ to ‘principle’.

  64. Samuel J

    By the way, while I have been speculating that climate change policies may be the principal cause (musing might be a better word), I haven’t said that they were the only cause of the GFC.

  65. in the meantime hoping that some large-scale renewable energy source will turn up

    Already did, it’s called nuclear. Thorium in development, the rest is hippy crap on par with mung beans mixed with recycled faeces water

  66. Cato, I think that should be: “Ceterum autem censeo Factionem Viridem esse delendam” – feminine gender, accusative case after “censeo” and agreeing with gerundive “delendam”.

    Token, I think “Factio Viridis Delenda Est” is correct for the main clause form, feminine gender and nominative case before “Est”.

    But, like the other grammatical critic, I totally love the sentiment!

  67. cohenite

    Govt’s wasting money is not exactly a new phenomena.

    Money wasted on AGW is not a difference in degree with previous examples of waste but a difference in type. People who argue otherwise just don’t get the intention of Green ideology; or are part of it.

  68. Poor Old Rafe

    Isn’t it great that dear old Harry Clarke can’t resist the temptation to pop over and see what we are up to. You would hope that he has better things to do if he thinks we are so stupid.

  69. Samuel J

    I’ve tried to address some of the comments in an update to the post.

  70. JC

    Sorry Samuel , I thought it was Steve k’s thread.

    Look I think a supply shock such as a sudden change in the price of energy can impact an economy and actually cause a recession, I really don’t think it caused the GFC.

    The GFC was caused by the large central banks misreading the change in the relative prices of commodity prices brought about by a demand spike from the developing world. They raised rates far too high when in fact they should have left well enough alone or even eased monetary policy. The rest is history.

    However I do think that renewballs did impact on places like Spain for example and caused them to tip over even more.

  71. Token

    Cato, I think that should be: “Ceterum autem censeo Factionem Viridem esse delendam” – feminine gender, accusative case after “censeo” and agreeing with gerundive “delendam”.

    Token, I think “Factio Viridis Delenda Est” is correct for the main clause form, feminine gender and nominative case before “Est”.

    But, like the other grammatical critic, I totally love the sentiment!

    This is why I love the Cat. Together we create things of beauty.

    “Ceterum autem censeo Factionem Viridem esse delendam”

  72. Token

    …and I still say the Factionem Viridem should be neutered.

  73. interesting trial balloon SamJ. Cause and effect? Is global warming hysteria the cause of GFC, or a symptom of a hidden variable that also cause the GFC, such as baby-boomers’ brain-cell demise?

    Thanks for the updates. I guess that the proposal comes from the view that the cause of recessions is malinvestment, and global warming is a malinvestment, therefore global warming caused the GFC. Interesting…

  74. capimus haud captus

    quite, lets go roo shooting

  75. blogstrop

    I came, I saw, I concurred.

  76. blogstrop

    Laterite, you haven’t been paying enough attention to cause and effect in the pre and post GFC world. Perhaps your brain cells are as rusty as those of the boomers, as your name implies. The forces at work differ, depending on location. In the USA the CRA led to mortage madness. In the EU it was quite different. Socialism and PC plays a large part everywhere these days. The pendulum has swung a long way towards nanny state and away from a basic safety net. Pure capitalism hasn’t actually been seen during the lifetime of what you derogatorily refer to as boomers.

  77. #

    I came, I saw, I concurred.

    Veni, vidi, concurrit

  78. The forces at work differ, depending on location.

    Drivel. Pure demographics driving post-WWII GNP ala HS Dent IMHO.

  79. Nanuestalker

    Do you have a point or has the cold weather frozen your testicles to your pinhead?

    Yes cohenite (Anthony Cox?) I do. The post doesn’t even beg the question, it presents it and ends with it. It seeks the trust of the reader through feigned skeptism…not a very sutle sales technique for persuasion. Quite simply the writer in my opinion could have said “I don’t like the AGW settled science hysteria and here’s another reason not to like it”

  80. Nanuestalker: the plateau in global temperature, arctic ice extent and sea level is not enough to convince you the pinheads are wrong, so you out cohenite… classy (not).

  81. Alphonse

    Token drinks the kool-aid:

    sub-prime would never have happened if the debt in the US residential real estate market was not channelled through Fanny Mae & Freddy Mac – the mother of all stupid statist regulation.

    Non-absolutist nuanced facts, rather than absolutist ideology, here. Among them:

    More than 84 percent of the subprime mortgages came from private lending institutions in 2006 and the share of subprime loans insured by Fannie Mae and Freddie Mac decreased as the bubble got bigger (from a high of insuring 48 percent to insuring 24 percent of all subprime loans in 2006)

  82. Nanuestalker

    Pardon? Please clarify.

  83. Alphonse

    Catallaxy is “centre-right” the way Fox News (US) is “fair and balanced”. Claims like this do little to assure readers, coterie aside, that this blog has any connection to reality.

  84. JC

    Alphonso,

    Go ride a donkey. You’ll enjoy it.

    Little turd.

  85. Nanuestalker

    JC -

    Leave my new pinhead coterie alone. They’re my new friends somehow!?!? :)

  86. Jim Rose

    schumpeter said the amazing thing about the 1924 tokyo earthquake was it was not blamed on capitalism. perhaps there is a calming lesson in there somewhere

  87. Sinclair Davidson

    Lefties in 1924 were tame?

  88. Poor Old Rafe

    Don’t take any notice of JC Alphie, just stick around and keep us in touch with reality.

    Actuall I was going to tell you to FXXXX off but remembered just in time that I am supposed to be the good cop to JC’s bad cop.

  89. Nanuestalker

    Rafe -

    Leave Britney alone! :)

  90. 2dogs

    The link between the GFC cause and climate change issues is the decline of the independent expert.

    The rating agencies were independent experts, and they failed. When people stopped listening to them, they saw how both the developed and developing world had sovereign risk issues and chose to go where the returns were higher.

    Climate scientists present themselves as independent experts. They may as well present themselves as raving lunatics for all the credibility that gains them.

  91. .

    Non-absolutist nuanced facts, rather than absolutist ideology, here. Among them:

    More than 84 percent of the subprime mortgages came from private lending institutions in 2006 and the share of subprime loans insured by Fannie Mae and Freddie Mac decreased as the bubble got bigger (from a high of insuring 48 percent to insuring 24 percent of all subprime loans in 2006)

    The GFC started in 2007. This information is sort of irrelevant.

    You stupid git. Did you include the NINJA loans enforced by HUD directives, made through the CRA, repurchased by Fannie and Freddie, and insured by the FHA?

    I didn’t think so.

    You don’t understand how bad it was and thus try to disprove that intervention caused the crisis with one partly irrelevant stat.

    If you know why CDOs became toxic (or, how they work), you would know that even a shrinking share of shit ABSs from Freddie and Fannie could spoil the whole brew.

    Freddie and Fannie were able to issue debt at the sovereign rate.

    If 24% of poorer credit in Australia was issued through a social credit bank and lent out at 5.5% rather than 7%…this would obviously cause a problem.

    You just don’t get economics. Everything is political to you and can be “disproven” with a factoid. You have bearing of the facts nor a coherent narrative.

  92. Jim Rose

    in the way out there department, is the sign of the productivity shock from carbon taxes more out there than Bordo having to write ‘Does inequality lead to a financial crisis?’ at http://www.voxeu.org/index.php?q=node/7764

    Which is more out there as a cause of the GFC: a new tax or more inequality?

    Which has better understood transmission mechanisms?

    The supporters of which hypothesis are more smug? which is easier to test?

  93. .

    You’re being a bit cryptic Jim. Aren’t they saying it is a nonsense theory?

  94. Sinclair Davidson

    As interesting as this hypothesis is, I’m sticking to the CRA and monetary policy failure as being the cause of the GFC.

  95. Jim Rose

    for taylor’s latest on the great deviation google
    The Rules-Discretion Cycle in Monetary and Fiscal Policy, Finnish Economics Papers, Vol. 24, No. 2, 2011, pp. 1-9. and

    Monetary Policy Rules Work and Discretion Doesn’t: A Tale of Two Eras, Journal of Money Credit and Banking, forthcoming 2012

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  97. Justin Ert

    I enjoyed the article, and agree with the premise that climate policy and all things costed under the agw flagship must invariably have been one of the factors that led to the GFC.
    However, I would have preferred a much longer and in-depth piece that actually had some figures attached, along with details on exactly how carbon financial tools have torqued not only the energy but also the entire financial/reinsurance industry.
    State organs have even invested in “hot air” products as potential nest-eggs for their employees pensions. Fail.

  98. Alan

    Is Samuel J a plant? Has his password been hacked? Is this an attempt to discredit the Catallaxy Files by posting arrant nonsense?

  99. Jim Rose

    see HOW MOVIES CREATED THE FINANCIAL CRISIS by Larry E. Ribstein

    Abstract
    Narrative makes sense out of reality and can forcefully persuade listeners to a particular point of view.

    Artists in general have a narrative of business which springs from their belief that at least some aspects of busi-ness are antithetical to art. Filmmakers add to this a resentment of the constraints capital places on their art.

    Film is particularly persuasive because of its vivid images and because of the consistency of filmmakers’ anti-capitalist perspective on business.

    Filmmakers’ negative portrayal of capitalists has helped to prepare the public to believe that capitalists – and not government, economic cycles, greedy people or business generally – caused the financial crisis.

    This will help the public accept a regulatory agenda built on this premise, specifically including the regulation of hedge funds.

  100. Jim Rose

    see http://lanekenworthy.net/2012/06/10/is-rising-obesity-a-product-of-income-inequality-and-economic-insecurity/

    In the past several years some researchers have advanced an alternative hypothesis that blames rising income inequality and/or economic insecurity (see here, here, here, here).

    These are said to increase stress, which in turn prompts overeating. How well does this square with the evidence?

    the twinkie defence reloaded!

    To fair to Lane, he concluded:

    Some scholars have come to believe that reducing income inequality and/or economic insecurity is a key part of the cure.

    I’m not persuaded that the evidence supports this view. Though there’s a lot of uncertainty due to data limitations, my best guess is that inequality and insecurity have played a minor role, if any, in obesity’s rise.

  101. Jim Rose

    see http://economistsview.typepad.com/economistsview/2012/06/inequality-and-the-crisis.html that links to Inequality, the crash and the crisis: Part 1 “The defining issue of our times” at OECDinsights

    mark toma is on the money:

    I’ll be interested to see the evidence in part 2.

    There does seem to be an association between inequality and crises, but causality has been much harder to establish.

    It’s easy to think of stories where this could happen, e.g. inequality leads to political power which spurs deregulation and causes a crisis.

    But it’s just as easy to think of stories where a third factor causes both inequality and instability, and the evidence has not been sharp enough to allow us to choose one particular story over the others.

  102. .

    Daniel Barnes ignores the mockery of the childish idea that inequality leads to recessions. He is too busy blowing the NZ ALP.

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  104. Jim Rose

    A standard Socratic question is to ask that the issue be expressed in another way.

    An example is did attempts earlier in the 2000s to reduce inequality increase macroeconomic instability?

    There is a rich history of how regulations has destabilised the business cycle.

    An example of such is the U.S. state and federal laws against branch banking contributed to the thousands of bank failures in the great depression. These laws benefited small banks and their local constituencies.

    Deposit insurance is another example of regulation that benefited small banks and their local constituencies but was opposed by the larger, more diversified big banks.

    In the Kareken and Wallace model of banking, deposit insurance and lender-of-last-resorts are purely a bad because moral hazard encourages risk taking unless there is regulation or there is proper surveillance and pricing of the insurance.

    The deviations from the Taylor rule in the earlier 2000s in the USA and EU promoted home ownership among marginal borrowers and drove up the home prices for existing middle home owners.

    Sub-prime credit varies inversely with home prices. The home price boom contributed both to unusually robust sub-prime credit performance, and threw the sub-prime underwriting programmes off track. This produced loose underwriting policies that became much too lax as the housing boom progressed.

    The unusually low interest rate policy certainly was a factor in the housing boom.

    For a long period, there was considerable pressure by Congress on Fannie and Freddie Mae to support the objective of low-cost housing. The only way to satisfy that was for Fannie and Freddie to lower their standards.

    It is easier to say that attempts to reduce inequality increase macroeconomic stability, too big to fail and Kareken and Wallace moral hazard in banking. most of the case already has been made by many writers on the role of sub-prime credit and moral hazard in the global financial crisis.

    Government actions and interventions caused, prolonged, and worsened the financial crisis. Many of these actions were driven by concerns with inequality.

  105. Jim Rose

    typo alert – should be

    There is easier to say that attempts to reduce inequality increased macroeconomic INstability, too big to fail risks and Kareken and Wallace moral hazard in banking industry.

  106. .

    A point well made Jim.

    We don’t have those equity schemes here and we are fine.

    NSW tried it in the 1980s (HomeFund) and it was a disaster.

  107. Jim Rose

    thanks dot, I did not expect a ‘leftists for more inequality’ to form in of the ashes of the GFC.

  108. socialists can no more stem inequality in a free country than they can stop the sun from rising.

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