By Mark Gongloff
Economist Paul Samuelson's famous joke that stock markets have predicted nine of the last five recessions applies to strategists, economists and traders as well as to the market itself. Few economic phenomena are as closely watched and as fear-mongering as recessions.
That is why it is remarkable that the world is experiencing an economic turmoil comparable to the Great Depression, without many realizing it.
In fact, the prevailing view today is that it is best not to talk about the source of this turmoil—which has silently transferred trillions of dollars to less productive uses—because doing so is not considered politically wise. However, this is a bit like having your salary reduced at work and trying to hide it from your spouse: The more you try to avoid the truth, the more painful the outcome will be.
The roots of this economic "calamity" lie in natural disasters, the number and intensity of which have increased with global warming. Over the past 12 years, $13.5 trillion of global wealth has been channelled into repairing disaster damage, preparing for new natural disasters and paying higher premiums, according to estimates in a recent report by Bloomberg Intelligence (BI) analyst Andrew John Stevenson. This amount roughly corresponds to the cumulative economic losses caused by the Great Recession over a period of 12 years. It is also more than four times the amount lost during the Great Depression if adjusted for inflation. Since 2000, these expenditures have totalled $20 trillion, according to Stevenson's calculations.
The U.S. has allocated more than 50 percent of the total 12-year amount, or $7.2 trillion, to the "Disaster-Industrial Complex" — twice the cost of the Great Depression. China has spent $2.4 trillion on preparation and rehabilitation, despite not having a private insurance market, while the European Union and the United Kingdom have spent a total of $1.6 trillion.
These costs are of course positive for companies involved in repairing the damage caused by nature. BI's "Repair Group," which consists of 65 companies including Home Depot Inc., infrastructure company Core & Main Inc. and Copart Inc. (specializing in vehicle recovery), outperformed the S&P 1200 index by 23% last year and by about 9.3% annually over the past five years, according to BI data.
Meanwhile, BI's "Prepare Group," made up of 64 companies that help customers prepare for disasters—including reinsurance giants Aon PLC and Swiss Re AG, technology, defense, and infrastructure company Parsons Corp., and generator maker Generac Holdings Inc.—outperformed the S&P 1200 by 31% in the last year and by 15%. on average, over the last five years.
In other words, Wall Street has sensed this transfer of wealth and reacted accordingly in favour of investors. However, this does not contribute much to future economic growth. The capital that could have been spent on the development of the flying cars that we had been promised is directed instead to the reconstruction of homes and the strengthening of protection against fires and floods.
And these damages will increase as the environment becomes more and more chaotic. Any one degree Celsius increase in global temperature over pre-industrial times would take 20% of global GDP, according to estimates by the National Bureau of Economic Research.
Unlike the current U.S. government, the market also seems to understand that climate change is fuelling the "Disaster-Industrial Complex." BI's "No-Impact Group," which includes companies that help customers increase their energy efficiency, such as Carrier Global Corp. and Siemens Energy AG, has outperformed the S&P 1200 index by 53% in the last year and by 20% over the past five. The increase in energy efficiency saved 11.5 exajoules of energy last year, Stevenson notes — more than double the energy generated by solar and wind power combined. All of this helps to limit the carbon dioxide emissions that are warming the planet.
Of course, past performance is no guarantee for the future. This column is not investment advice. Its purpose is simply to draw attention to the fact that investors are betting strongly on climate change — both its effects and efforts to combat it — at a time when the very concept of "climate change" seems to be in political and cultural "exile."
And I don't just mean President Donald Trump's administration, which has banned any formal recognition of the existence of climate change, deleted environmental data from government websites, attacked relevant science, and blocked both clean energy investment and adaptation measures. Nor do I mean just big tech companies moving away from previous environmental commitments, as the temptation to build energy-intensive data centers proves too strong to resist.
Even ostensible allies of the climate fight have recently argued that we should simply abandon it. Last week, Syracuse geology professor Matt Humer published an opinion piece in the New York Times titled: "Forget Climate Change. The Democrats need to talk about other issues." Of course, the sketch that accompanied the article showed a planet reacting in shock as it slipped through two careless human hands.
The article sparked a heated debate on social media, which was also contributed by Huber's statement to Bluesky that climate change is an issue of primary concern to the party's "educated/well-off base." In fact, at least half of Americans in every U.S. state—even the "red"—are concerned about climate change, according to Yale's recent "Climate Public Opinion Maps."
The Times later changed the headline to a less controversial one: "Democrats no longer need to campaign on climate change," but the damage had already been done. This added to the general trend of "greenhushing," which former climate advocate Bill Gates "legitimized" last year, arguing that obsession with rising temperatures was "so much 2015" and telling progressives to focus instead on improving global living standards.
Huber, Gates, and others may have a valid political argument: If you're a Democratic politician trying to win over mostly conservative undecided voters in close elections, then you probably want to address their main concern, which these days is that big number on the board above the gas station. Talking too much about "climate change" as a vague concept probably won't bring the desired effect.
On the other hand, the cost of living and climate change are increasingly intertwined. The energy crisis caused by the war in Iran might not have been so painful, and the huge numbers above the gas station might not have been so high if Americans had more of the alternative energy sources that Trump and others insist on blocking. Home insurance costs might not have skyrocketed across the country, making housing unaffordable for many, if we had taken global warming and its effects more seriously from the start.
Solving these problems will ultimately require addressing their source. The stock market, at least, already gives us permission to do so.
BloombergOpinion
