The Confidence Game
This emperor, his minions and his consultants do not like his lack of clothing to be pointed out.
Capital Thinking • Issue #1107 • View online
To tell the truth, I lean hard toward the position that the tale of "The Emperor's Clothes" fairly demonstrates human nature at its finest. Well, that is until you get to the part where everyone makes fun of the now very visible Emperor.
But that's not what really happened.
Instead, the unscrupulous conniving tailor-wannabe's who had managed to convince the elites that the latest fashions did indeed include transparent garments promptly whisked the boys away from the crowd and tortured them into recanting their earlier observations.
Now, that part really is true to human nature. It's how the Common Knowledge Game works.
And you know, we are never very far - as a species - from "monkey see, monkey do". How else can you explain the many stupid things people do in large groups?
For all our sophistication, our tools may change, but our behaviors do not. And so I have to say - I really enjoyed this one:
http://www.salientpartners.com/epsilontheory/notes/American_Bandstand.html
(the link is long gone, but available on the Wayback Archive here.)
Best Lines:
"As much as anyone over the past 50 years, from the Beatles to Elvis Presley to any performer you want to name … Dick Clark was responsible for the modern landscape of how the languages of music and dance are communicated in a commercially lucrative fashion. His secret (other than a bizarrely youthful face)? Clark understood the Common Knowledge Game.
Clark didn’t poll America to determine their taste in music.
He told them their taste in music … not directly, but by creating common knowledge – ideas that a crowd believes that the crowd believes.
With the American Bandstand group dance staging and scripted questions, Clark allowed the TV audience to see a crowd of attractive young people act as if the music were popular. This is all it takes.
Clark didn’t have to force his preferred choice of popular culture on his audience like some centrally-planned Ministry of Culture. The TV audience chose it all on their own, thinking all along it was their choice!
This is the power of the Emperor’s New Clothes. This is the power of the sitcom laugh track and the live studio audience. This is the power of public coronations and executions. This is the power of Tahrir Square and Tiananmen Square. This is the power of the crowd seeing the crowd, and it is the most potent force in the social world."
And that brings us to the wacky world of Greta Thunberg. Stuart Kirk punches more than a few holes in Greta's pet theories, but in the end, like the two boys in the fable, he is quickly crushed (forced to resign).
You should listen to him anyway. He certainly makes a lot more sense than the crowd at Davos.
The climate finance emperor's clothes
John H. Cochrane | The Grumpy Economist:
Stuart Kirk of HSBC (head of worldwide responsible investing!) gave an eloquent short speech on climate financial risk. Youtube link in case the above embed doesn't work.
Most of the points are familiar to readers of this blog, but they are so artfully put and in such a high visibility place, that you should watch anyway.
Why the catastrophism?
"I completely get that at the end of your central bank career there are many many years to fill in. You've got to say something, you've got to fly around the world to conferences. You've got to out-hyperbolae the next guy [or gal]"
A fun bit of hypocrisy:
"Sharon said, `we are not going to survive'..[ but] no-one ran from the room. In fact most of you barely looked up from your mobile phones at the prospect of non-survival."
Regulatory bother
"what bothers me about this one is the amount of work these people make me do"
A good point: Markets are not pricing in end of the world.
"Markets agree with me. Despite the hyperbolae, the more people say the world is going to end... the more the word "climate catastrophe" is used around the world, the higher and higher risk assets go. "
Even the worst-case scenarios of 5% of GDP in 2100 are a flyspeck compared to economic growth. Just think back to 1922. "The world is going to be between 500 and 1000 percent richer" Nobody will notice 5% less. "Europe has a GDP per capita 40% less than the US. It's ok" [Well, it's not, but it's a good comparison. The climate "catastrophe" is one eighth the eurosclerosis catastrophe.]
Floods and fires?
"Anything where you put a denominator on those statistics tend to look like that. Human beings have been fantastic at adapting to change.. and we will continue to do so. Who cares if Miami is 6 meters [actually 1 meter] under water in 100 years. Amsterdam has been 6 meters [ actually 6 feet, 2 meters] underwater for ages and that's a really nice place."
California's fire budget is 1% of their state budget and 0.1% of their GDP.
"One of the tragedies of this whole debate, and one we obsess about at HSBC is, we spend way too much on mitigation financing [high speed train to save carbon] and not enough on adaption financing [fire prevention] and I'm sure most of you agree [I'm sure most of the audience did not agree!] "
A good point: Declining size of fossil fuels does not mean loss of profits or financial losses to investors.
"The confusion between volume and value. Anyone who has run money or anyone who has been an analyst knows this very well, but the climate community doesn't. There is a big difference between falling volumes and a falling price.... what happens to prices at the end of this process is completely divorced from the transition winners and losers"
John H. Cochrane
What was his reward for pointing out the emperor has no clothes, and that everyone who can't look up from their cellphone when someone says the world is about to end secretly agrees?
Does his employer reward the brave analyst who thinks for himself and can avoid the herd into overpriced securities?
No. He was instantly suspended, though having cleared his presentation ahead of time. FT coverage, Daily Mail or just google it.
This emperor and his minions and his consultants does not like his lack of clothing to be pointed out.
*For anyone who might be unfamiliar with the tale of the Emperor's Clothes, you can find it here.