“Risky Business” Nonsense

The unlikely trio Michael Bloomberg, Hank Paulson, and Thomas Steyer are the co-chairs of a new study, “Risky Business.” It purports to quantify the economic risks of climate change threatening the United States, if the government fails to take action to curb greenhouse gas emissions. The choice of three titans from the financial world as chairs of the report serves rhetorically to reach out to the business community and get them on board with the climate policy intervention agenda.

As so often happens in this arena, “Risky Business” paints a terrifying portrait of American doom that is not supported by the latest IPCC report. Furthermore, even if the scary scenarios really were plausible outcomes, there is nothing that U.S. policymakers could do to avert the alleged dangers. “Risky Business” is thus doubly wrong, offering nonsensical policy “solutions” in response to greatly exaggerated threats.

The study is 56 pages long, and will take more than one post to deal with its claims. In this introductory post I will address the biggest problems with the report, and set the context for some of the more detailed criticism to come later.

Shameless: Paulson Makes Analogy With Financial Crisis

Naturally the most important flaws with the “Risky Business” study concern its exaggerated threats and non sequitur policy responses. But I can’t resist pointing out the utter shamelessness of former Goldman Sachs CEO Hank Paulson’s attempt to liken climate change to the financial crisis. As the reader will recall, Paulson was the last Treasury Secretary in George W. Bush’s administration, and was one of the key players in the U.S. government’s initial response to the financial crisis of 2008. In his recent New York Times op ed talking up “Risky Business,” Paulson tries to leverage his previous experience in order to promote the public’s interest in climate change. Here’s how Paulson opens his piece:

THERE is a time for weighing evidence and a time for acting. And if there’s one thing I’ve learned throughout my work in finance, government and conservation, it is to act before problems become too big to manage.

For too many years, we failed to rein in the excesses building up in the nation’s financial markets. When the credit bubble burst in 2008, the damage was devastating. Millions suffered. Many still do.

We’re making the same mistake today with climate change. We’re staring down a climate bubble that poses enormous risks to both our environment and economy. The warning signs are clear and growing more urgent as the risks go unchecked.

This is simply jaw-dropping chutzpah from Paulson. From reading the above, one would think the poor Treasury Secretary was a Cassandra when in office, doing his darndest to warn the public and regulators about the crisis building in the financial sector.

In reality, of course, Paulson did his best to reassure the public that everything was fine with the American economy. We’ve compiled a short clip of Paulson’s appearance on “Face the Nation,” taken from July 2008, fully eights months after the recession officially began and a mere two months before the worldwide panic. Yet look how Paulson does everything in his power to bamboozle Americans:

But wait, it gets worse. Not only was Paulson totally incompetent and/or dishonest before the financial crash, but in the immediate aftermath he was instrumental in one of the greatest bait-and-switch moves in world history. Recall that the infamous “TARP” stood for “Troubled Asset Relief Program.” The original proposal was that the federal government would spend many hundreds of billions of dollars buying up so-called “toxic” assets (tied to the collapsing real estate market) from financial institutions, so that they could shore up their balance sheets and prevent world credit markets from freezing up.

Yet in practice, the government didn’t buy assets, but instead acquired equity positions in major investment banks. Furthermore, this wasn’t a voluntary transaction: Paulson made them an offer they couldn’t refuse. He told the bank CEOs that if they didn’t accept the Treasury’s generous infusion of capital (in exchange for preferred stock), then their chief regulator—Ben Bernanke—would suddenly discover problems with their firms.

In case the reader thinks I’m exaggerating, here’s how Business Insider’s Joe Weisenthal put it after FOIA requests showed just how that meeting went down:

Remember the infamous meeting when then Treasury Secretary Hank Paulson had the heads of 9 major banks come down to Washington? It was then that he made them the offer they couldn’t refuse. Take TARP cash, or else!

Now Judicial Watch…has uncovered secret documents from that meeting via the Freedom of Information Act. A few of them are really quite stunning.

The first 1-pager is Paulson’s talking points for the bank. It basically confirms that he put a gun to all their heads. It says they must agree to take their cash, and that if they protested, then each bank’s regulator would force them to take it anyway.

In a sense, Henry Paulson actually is a great guy to be spearheading the movement to get the federal government heavily involved in the energy sector. He has a history of obfuscation and mafia tactics with which he showers his cronies with government-backed privileges.

In any event, it’s worth pointing out that the actual insurance sector—let alone the broader business community—is not embracing climate alarmism the way Paulson, Bloomberg, and Steyer are. A recent E&E article reported: Zurich Insurance Group is closing its U.S. climate change office six years after opening it to help persuade companies to press public officials for solutions to climbing disaster losses, according to several sources.”

Examples of “Risky Business” Nonsense

In future posts we’ll dig into the details, but for now let’s highlight just two examples of the misleading scare tactics and non sequitur statements in “Risky Business.”

First, consider this statement from the Executive Summary: “If we continue on our current path, by 2050 between $66 billion and $106 billion worth of existing coastal property will likely be below sea level nationwide…”

The report is full of statements in this genre. It certainly leads the reader to believe that (a) these are definitive “scientific” statements similar to predicting the phases of the moon (b) that the U.S. government has the power to affect what the global climate does between now and 2050.

Yet according to official climate models, even if the U.S. enacted an immediate and total ban on all human emissions of greenhouse gases, the difference in global temperature by the year 2050 would be a mere five one-hundredths of a degree Celsius.[1] And that’s the most that the U.S. government could possibly achieve, even if it relied on a ridiculously draconian ban on all future emissions.

This post is already getting long, so let us provide just one more example for now. Consider the following factoid from “Risky Business”:

As extreme heat spreads across the middle of the country by the end of the century, some states in the Southeast, lower Great Plains, and Midwest risk up to a 50% to 70% loss in average annual crop yields (corn, soy, cotton, and wheat), absent agricultural adaptation. [Bold added.]

Those last three words are fairly crucial, no? In order to generate such enormous losses (of 50% to 70% of crop yields), the study not only has to focus on a very unlikely climate outcome, but also has to assume that farmers stupidly ignore the changing conditions for the next 85 years.

With that benchmark, you could generate all sorts of catastrophic predictions. For example, if we assume motorists don’t apply the brakes when they see an accident in front of them, then by the end of next week we can expect 50% of Americans to be involved in a huge pileup on the highway.


The 56-page “Risky Business” document is just another sleek marketing effort to scare the American public into accepting radical government interventions into the energy sector. It is based on farfetched claims about the risks involved, and furthermore its policy “solutions” make no sense, even if those risks were accurately portrayed. The whole thing is all the more dubious when you consider the key players involved with the report.

IER Senior Economist Bob Murphy authored this post.

[1] This calculation assumes a (generous) “climate sensitivity” parameter of 3 degrees Celsius. Based on the latest research, a lower figure is more appropriate, but we hardly need to push on that front in order to make the point in the text.

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