Warmflation

Thomas Friedman's piece in the New York Times yesterday was nothing special. In fact it amazes me how often such dribble is placed on the Op-Ed pages of major newspapers. Vague references to anecdotal experiences of climate change backed with murky statistics and little fact. Even if you're an ardent environmentalist, the cliched, opaque writing is tough to swallow.

That being said, he manages to produce one interesting thought (not original, but an opinion of Minik Thorleif Rosing, an accompanying Danish geologist).

" 'Most people will actually feel climate change delivered to them by the postman,' he explains. It will come in the form of higher water bills, because of increased droughts in some areas; higher energy bills, because the use of fossil fuels becomes prohibitive; and higher insurance and mortgage rates, because of much more violently unpredictable weather. "

Not only does this strike me as incredibly insightful and true (regardless of how much we may improve energy efficiency), but it raises an interesting question given the existing economic worries. Could the effects of climate change collude with rising commodity prices to increase, and even entrench, inflation? Some economists are already preaching the danger of entrenching inflationary expectations. And they are right to do so. Expectations of continuing inflation affects consumer behavior and could do much to offset recent actions aimed at promoting, or at least, maintaining growth.

Ben Bernanke's job is hard enough. You better believe financial organizaitons will start pricing inflation into their lending and investing practices but central bankers should not be forced to consider such subtle (and even tenuous) connections in shaping monetary policy. But if politicians do not start seriously confronting the dangers climate change poses across the board then the men at the Fed may soon find themselves with NO room left between the rock and the hard place. Whether funded with carbon or windfall taxes (let's hope not), while credit remains tight, "green subsidies" may not only save the planet, but perhaps even our dollar.