Forget Global Warming 'Deniers,' What About Market Deniers?

These days, writing about the global warming debate from any perspective other than the climatologist's can get you into serious trouble. Deviate from a purely scientific discussion of global warming and the legion of True Believers will pounce. Take John Tamny's recent series of articles at Forbes. Tamny dared to examine the debate from a (gasp!) market perspective, noting that coastal property the world over remains in high demand, despite all of the available science.

For far too many, "the market" means only one thing-blind, profit-seeking. Markets, these folks continue, are interested solely in short-term profits, and are largely ignorant of the long-term. Long-term decision making, particularly of the large-scale variety, it is said, is best left to the all-knowing, all-seeing hand of central planners who are equipped with the most thorough and accurate information available. Moreover, central planners are allegedly unmotivated by the greed that compels markets. Markets may be fine for the day trader looking to take advantage of a newly discovered nugget of information in order to make a quick buck, but anything beyond a quarterly earnings statement is supposedly outside the purview of markets.

This pervasive fallacy about markets' inability to account for the long-term is so riddled with error that it's difficult to know where to begin. But once one truly understands what markets are, and the multitude of valuable functions markets perform, it becomes clear that markets serve as an extremely valuable check on the still evolving science about global warming. Rather than restating the market perspective Tamny offered on the global warming debate, let us consider some basic truths about markets.

Let's first discuss what markets aren't. Markets are not, as their detractors like to imagine, some competing cabal of central planners, or elite investor class, who are at odds with government's wise and benevolent team of planners. Nor are markets some living, breathing entity that acts independently of people themselves. Markets, or more specifically, the prices reflected in markets, are just indicators of everyone's collective actions, preferences, beliefs, etc. Market prices reflect not just the beliefs of ardent global warming "deniers," but also the views of those who think unchecked global warming amounts to global catastrophe. So when you hear that markets are incapable of dealing with the long-term, what you're really hearing is that people, in general, are unequipped to think and plan for themselves over any period of time longer than the very near term.

Every aspect of our daily lives contradicts this faulty notion. Human beings are incredibly adept at planning for the long-term, particularly their own, as evidenced by the existence of houses, food consumption, retirement accounts, child rearing and insurance markets. All of these things show human beings' incredibly skilled ability to contemplate and plan for the future. So in divorcing markets from the people that compose them, market deniers delude themselves by making them into something akin to an evil "man behind the curtain".

Some market deniers will persist that yes, markets may be people, but people are fallible. And not only fallible, but often incredibly wrong about very important events. Are not occasions like market "crashes" perfect indicators that markets are ill-equipped to deal with certain large-scale problems such as global warming? According to market deniers, prices can be hugely inflated or greatly depressed, depending on the level of irrationality among market participants. It takes the wise hand of government, they say, to correctly interpret all of the available information and weed out the noise. Never do the market deniers consider the possibility that their carefully selected central planners are equally as fallible as the rest of humanity, or that some of their own actions may be incorporating irrationality into prices. They also presume in their denial of markets that the latter exist without a buyer and a seller. Yet they do not. Markets once again incorporate the views of both sides of any debate, by definition.

As Nobel Prize winning economist Eugene Fama frequently explains, the fact that prices constantly fluctuate, up and down, sometimes inexplicably so, is not an indication that markets are not working, but that, in fact, they are. Fluctuating prices echo the constantly changing nature of the world, and the enormous amount of knowledge that we have about it. Changing prices merely reflect people's interpretation of newly available information and the weeding out of old, incorrect or irrelevant information. In essence, a new price equals a new set of beliefs and understandings of the good or service being priced.

For market deniers, prices are just a number suitable for tinkering and adjustment in whatever fashion allows them to further their latest ambition. It is very telling that market deniers and central planners often list "stable prices" as one of the primary goals. What this amounts to is an acknowledgement on the part of market deniers and central planners that they believe the world is not fluid or dynamic. By attempting to lock in prices, the market denier damns new information, refusing to allow ordinary people to receive the appropriate signals that they so desperately need to make informed decisions. In essence, what the market denier and his team of central planners seek is a false sense of certainty.

And like their resistance to freely changing prices, market deniers will resist any change of course on global warming until the issuance of a new research report by the most favored scientists. While market deniers persist in their narrow-minded and stubborn outlook, market participants will continue to adapt as new events and new information presents itself through evolving prices as determined by billions of other market participants, despite the deniers' efforts to suppress new information.

So before the market perspective on global warming is shunned, market deniers would be well-served to educate themselves on what markets really are. They might learn something that the scientific community hasn't yet discovered.