A number of people responded to my posts on Stimulus, Climate and Apple. I will try to respond to a sample. Feel free to comment again if you think your point wasn’t covered.

On Stimulus

Stimulus: Giving money to everyone would be great. Unfortunately, it is a non starter. People are afraid someone else will get more than them. People are afraid it devalues their effort and money. People with money look upon it as an opportunity to prosper at the expense of others and blame them for their situation. When people are threatened in their own situation, they are not amenable to remedying that of others.

My thought is that this why framing it as a tax cut helps. Then you can say, no people just get to keep their money.

On Apple

AAPL is worth its future earnings, plus its cash hoard. Suppose AAPL were to become unprofitable. At that point shareholders could pressure for its dissolution, and, its cash hoard would be distributed– it has no debt, so its assets must be paid to equity holders. Now suppose AAPL remains profitable. Then there is no reason to liquidate, and the company continues to exist, the hoard continues to grow, and shareholders get paid from new shareholders, who in turn have a claim on the hoard. In each case, you have a claim on the cash hoard. Where I think you go wrong is your assumption is that an unprofitable AAPL would maintain a no-dividend policy while losing money, burning through the cash even until debt and liquidation. The current no-dividend policy is maintained by a very profitable company such that investors maintain confidence in management of their cash assets. Were investors to lose that confidence they could always use their votes to change the policy.

I think this is the exact right way to go about the problem. So, the question we would want to ask is how much success will the shareholders have at forcing dissolution. The history of US companies seem to suggest, not much.

Indeed, I am not aware of a major company that went into voluntary liquidation.

More likely it seems to me, is that AAPL would be bought-out and dissolved. However, management can fight this in part by moving their cash hoard into difficult to liquidate assets.

So if we ask, when AAPL is dissolved what is the modal estimate that shareholders will receive, I am guessing the answer is zero. Now, of course the expected value is not zero, but discounting back from the point of dissolution and considering an appropriate amount of uncertainty is likely to give us quite a small number. This should be a source of concern for investors.

Moreover, the larger point is that APPL’s management and staff is opposed to dissolution. At a minimum I think folks should recognize that.

On Climate

Moving to cooler places would likely not work due to difficulties in migration. The world does not currently have an equal population distribution of people over land largely due to constraints by nation-states on immigration. Typically those restrictions have been by the favored restricting the unfavored. There is little reason to expect this would change in the climate change case. Even if it did, as shown in the EU, language knowledge can be a huge barrier to moving even among highly-developed societies without any legal restrictions. While this might not be an issue in large polities such as the United States it’s far from clear to me that many people in the developing nations would have anywhere they could feasible move to in the “too cold” parts of the world.

I think this is good as well. One thing we might be interested in asking, however, is what policy would we advocate if we knew that leaders would adopt our policy. This is by no means the end of the question, but it could help anchor our goals.

Simply based on what we are discussing here it seems like agreement to reduce migration restrictions would be preferable to an agreement to reduce carbon emissions. For one, the immediate effect of the former is to expand global GDP while the immediate effect of the other is to reduce global GDP.

Clearly there are more considerations, but I think the “maybe opening immigration is preferable” argument is a serious one.

I think you are misunderstanding the problem with climate change, because you are focusing on the word “climate” rather than the word “change.” The problem isn’t that hot places will get hotter; it’s that all places will get different. The costs of adapting to change are roughly quadratic in the rate at which the change happens. As climate change accelerates, the costs of adapting to that change will become very high. Under some scenarios, they will become so high that they exceed all our available resources, and our species will become extinct. Under more plausible scenarios, the species won’t become extinct, but the world will just suck, because we’ve spent thousands of years (and more intensively the last couple of hundred years) adapting to a world that was a certain way, and all the benefit of that adaptation will be lost when the world ends up being a different way.

I think this gets to the heart of the matter and helps explain why my position is so weird.

When I read literature on climate change authors make suggestions like: under a worst case scenario our entire civilization could be destroyed within 50 to 100 years.

As some who thinks about capital structure my response is, oh well that’s not so bad. Our entire civilization will have to be rebuilt in 70 years anyway.

The expected useful life on most long lived structures is around 75 years or so to begin with. Expected macro-economic depreciation, however, is significantly faster than that for several reasons.

Maintenance Costs: Over the lifetime of a structure routine maintenance costs will typically exceed building costs by as much as a factor of 3. Thus most of the cost of the structure is not in building it, but keeping it functional. And, even with regular maintenance most structures will no longer be operational or will need major renovations after 75 years.

Population Growth: As the population expands the capital stock is spread over a larger number of people. This means more structures will have to be built anyway to support new people. Indeed, the world population has more than tripled over the last 75 years, meaning that most structures were built for a population size that did not even exist 75 years ago.

Tastes and Technology: As time moves along fashions change and technology changes. People wind up wanting different structures. Often larger and more elaborate than the ones they had before. This implies two things. One, that our built environment is expanding faster than population and so an even greater portion of it is new. Two, that many structures are abandoned, demolished or renovated even before their useful life is up.

Putting all those factors together an effective macro-economic depreciation rate of 10% is not unreasonable. That suggests a half-life of roughly 7 years. Which means that in 70 years we will have gone through 10 half-lives which implies a 99.9% deterioration.

Or to put it another way, within 70 years 99.9% of the value of all of our structures will have come from new construction, repairs, renovations or remodeling that have occurred between now and then.

This is why I suggest that it is not a matter of whether or not we will rebuild our civilization but where.

Add to that the fact that one of our major goals as humanity is to foster growth in the tropics. Which is in large part to say that the current set of structures in the tropics are woefully deficient. Rather than attempt a big build there, why not attempt a big build somewhere else and move the folks to the new place.

Lastly, and most importantly, we have no idea what the end state of global climate change is going to look like. We can only guess and some of those guesses are pretty frightening. There’s a real chance that the CO2 we’re pumping into the atmosphere will eventually cause runaway global warming, an extinction level event for we poor, misguided homo sapiens.

Is this really true though?

During the Paleocene–Eocene Thermal Maximum temperatures were roughly 15C –20C hotter than they are today. Yet, as best we can tell the conditions prevalent at the time were not consistent with a human extinction level event.

Now perhaps things will be different this time. Perhaps it will get even hotter. Perhaps some other dramatic effect will cause the climate to be much harsher. Still, we would want to have some reason for supposing that this is true.

There are many unfortunate things in the world. And, of course, this will all end very badly. There is nothing we can do about that. All that we have is to do the best we can with what we’ve got.

The question before us is: is dramatically curtailing our use of fossil fuels the best we can do?

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