Sage Words on Climate: Buffett and the Butterfly Effect

In an NYT op-ed column this past week titled "The Greenback Effect," Warren Buffett voiced his concern that unchecked government spending by Congress is "spewing a potentially damaging substance into our economy" known as "greenback emissions". According to Mr. Buffett these so-called "greenback emissions", which presumably rise out of the smokestack of the US Treasury, are dangerous to the financial integrity of the economy as they can create "butterfly effects" similiar in their unpredictabiilty to carbon emissions. Butterfly effects that could one day "melt" the value of our currency in the same way that "unchecked carbon emissions are likely to melt the icebergs".   

While Mr. Buffett was clearly talking about carbon emissions as a way to illustrate how rising budget deficits can carry unintended, unpredictable consequences, the parallels he draws between our fiscal deficit and our carbon deficit are worthy of a more detailed discussion.

Like our national deficit, our carbon deficit is rising at a pace that is unsustainable over even the short run. As Mr. Buffett notes, our budget deficit is currently rising at a pace of 185% of tax receipts. A level of increase that must be reigned as soon as possible before it creates an undue burden on future generations.

This same case can also be made for our carbon deficit, which is growing at an even more alarming rate. At the current pace of emissions, we are expected to be committing the planet to a 2 degree Celsius rise in surface temperatures as early as the year 2035*. Such a rapid temperature increase is expected to create profound financial as well as strategic challenges for the US. From food and water shortages to rising seas levels to a sharp increase in the number of "failed" states around the world, climate change carries both economic and military security risks that are extemely hard to quantify, even for the Pentagon.

Another parallel between these twin deficits is that they both can be addressed by following progressively tighter targets over time. In the case of our budget deficit, Mr. Buffett recommends that Congress rein in spending and increase tax revenues as a way to tighten our belts. In terms of our carbon deficit, Congress is looking to set a declining cap on the cumulative amount carbon we can emit into the atmosphere from now until the year 2050. This declining carbon budget is expected to drive down our carbon deficit, and would also make Mr. Buffett happy by reducing our balance of payments deficit through enhanced energy independence.

A final parallel is the role the Chinese play in both these debates. If we wish China to become more active in our debt markets, Mr. Buffett insists that we need to avoid the temptation of the printing press and begin to demonstrate that we are committed to taking responsibility for our budget deficit. This same approach also applies to our carbon deficit.  If we wish China to become more active in solving global warming, we need to demonstrate that we are committed to passing climate legislation sooner rather than later.

In sum, Mr. Buffett's article draws an interesting parallel between the uncertain costs or "butterfly effects" of climate change and that of our rising national debt. While Mr. Buffett has argued that Congress must show the political will to cut our "greenback emissions" in order to save the dollar, it seems the same arguments can be made to get Congress to cut our carbon emissions through climate legislation in order to save the planet.

* Assuming a 1.5% average annual increase in global emissions, concentrations of greenhouse gases are expected to reach 550 ppm CO2e by the year 2035 and commit us to a minimum rise in surface temperatures of 2 degrees Celsius (Stern Report pages 193-202).

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