Alarms over global warming are making strange bedfellows. Greenies are snuggling up with the bond traders while those free marketers plead with governments to set a starting price for carbon emissions.
A prized wit and leader of the Chicago School, the late George Stigler, once observed that we cannot know the price of cheese on the moon until someone bids for it. What makes carbon emissions any different?
Once the trading starts, the carbon traders won’t differ one iota from their counterparts in cocoa futures or speculations on the exchange rate for this time next year. Out of carbon trades will sprout carbon futures that will bloom into carbon derivatives.
This is the era of ‘financialisation’. Zillions tumble through Wall Street with an insatiable appetite for your super, pensions and savings. As William Burroughs remarked: they don’t want your money; they want all your money.
Since these dealers play with fictitious capital, it is no surprise that one of the keenest analyses of what they do comes in a work of fiction. Tom Wolfe set his 1988 novel, Bonfire of the Vanities, in an earlier and far smaller wave of Wall Street frenzy.
Its protagonist is cross-examined by his six-year-old daughter. Her playmate has just boasted that her father employs 80 people publishing books. Not to be outdone, the trader’s cherub races to demand: “Daddy … what do you do?”
“Well, I deal in bonds, sweetheart.” That is no answer for a child: “What are bonds? What are deal?” He makes it simple. He raises the money to build roads and hospitals.
“You build roads and hospitals, Daddy? That’s what you do?” He has to admit that that is not exactly what he does. He just helps to build them. “Which ones?” Again, he must disappoint her. He just raises the bonds for other people to build them.
Her mother intervenes, inviting the child to imagine that a bond is like a piece of cake that daddy keeps handing around until he has gathered “enough crumbs to make a gigantic cake” of his own. When he snaps back, their honey-bun begins to cry.
In 2000, the greenies knew better than to applaud a trade in water licences. Their sale increased usage while the traders made it rain money.
Carbon traders promise to offset emissions. But the less carbon, the fewer trades become possible, and the fewer golden crumbs to accumulate. Carbon trading threatens to end in tears among environmentalists — though not at MacBank.