The True Cost of Extreme Weather…Or is it Climate Change?
The weather has become the go-to excuse for economists and businessmen who want to explain poor performance. “Unusually, disruptive weather across large stretches of the country kept people indoors,” explained Lawrence Yun, the chief economist of the National Association of Realtors, in accounting for a slowdown in home sales in December. Speaking on CNBC, Diane Swonk, the chief economist of Mesirow Financial, used the January chill that gripped much of the nation to explain disappointing numbers on U.S. auto sales. “It literally freezes the economic activity,” she noted. Similar explanations were offered for the very weak ISM manufacturing numbers released in early February. Economists blamed the huge miss on Non-Farm Payroll numbers in Dec. —74,000 instead of the consensus expectation of 197,000—on bad weather. The same excuse was trotted out when the January ADP number came in weak. The Bureau of Labor Statistics did not blame the weak NFP number of 113,000 on the weather, but pundits were quick to point out that the January employment survey was taken during the one mild week during the month. To top it off the weather has been trotted out as an excuse for a possibly weak GDP number for the first quarter of 2014—which really jumps the gun because the quarter is not yet half over. As many financial bloggers have noted, the weather excuse has become the economic equivalent of “the dog ate my homework.”
Change the word “weather” to the phrase “climate change,” however, and be prepared for howls of protest. Though this is another dismaying example of the how toxic the phrase has become, the universal acceptance that extreme weather has economic consequences points to a path towards awakening the public to the risks we all face. This is simply because we will experience climate change as weather, and the more businesses and municipalities find themselves suffering economically because of extreme weather events, the more they will realize that even more frequent extreme storms, temperatures, floods, and droughts are a risk factor (to use the language of corporate reports) going forward.
No one would claim that all extreme weather events are the result of global warming, but one of the most widely agreed-upon consequences of warming is an increase in extreme weather events. Climate is what you expect, and weather is what you get. If the weather we experience ever more frequently diverges from expectations, then it is natural to wonder whether climate is changing.
One of the biggest impediments to any public awakening is that the phrase “global warming” implies that the extremes will only be in the form of heat and everywhere at once. Hence the blizzard of smugness—“where’s your warming?”—that was an insufferable fellow-traveler with the arrival of the Polar Vortex in January (an easy answer, by the way, is “Alaska” where unseasonable warmth led to a massive avalanche that isolated the town of Valdez for two weeks). When climate changes, however, the scientific consensus is that the transition is not smooth. The term favored by climate scientists is “flicker” where climate jumps back and forth between hot and cold and wet and dry until it finally settles in a new state. In this context, rather than putting aside concerns about global warming when the temperature plunges, we might well wonder whether or not the extreme is yet another data point in an accelerating pattern of extreme events.
There have been numerous studies of the potential economic impact of climate change (I helped edit one published by the UNDP and World Bank in 2005), the most recent being “The Weather Business” published by the German financial colossus Allianz. Many of the earlier studies speculated about future events, while now, a businessman, economist, a mayor, governor, or President doesn’t need a study to envision the costs of weather catastrophes. All they have to do is look at their corporate results, or busted budgets. The increasing pace of extreme weather events is telling us that climate is changing and it is costing us money now (the Allianz report estimated the cost of worldwide weather disasters in 2012 to be $170 billion).
Which brings us back to the question of the difference between thinking about the costs of extreme events as “weather” related losses or as costs related to “climate change.” Attributing poor performance to the weather contains an implicit assumption that this was a one-time event, not likely to be repeated as things revert to normal. Recognizing that an event might—might—be related to changing climate means that a CEO or political leader recognizes that he or she should be prepared for things not returning to normal.Which corporate leader or politician would you prefer to have making decisions about budgets and strategy?