GUEST BLOG: . . . and I Feel Fine by Aegis Frumento Esq

May 16, 2019

 . . . and I Feel Fine

by Aegis J. Frumento, Partner, Stern Tannenbaum & Bell

Longer ago than I like to remember, I enrolled in Harvard's introductory economics course, known then (and still) as EC 10. I don't remember why -- I knew absolutely nothing about economics -- but it convinced me to become an economics major.

Economics had always been a pseudo-mathematical subject. It assumed that economic functions like supply and demand followed predictable mathematical relationships, but without really knowing why. For me, pseudo-math just meant knowing how to draw curves on a graph and explain why those curves got steeper or flatter, or moved left, right, up and down. But I arrived on the field at a tipping point. Computers were starting to be used as primary tools and economics evolved into econometrics.

The lead professor of EC 10 my year was John Kenneth Galbraith, and he had a somewhat jaundiced view of the whole economics endeavor. He thought Karl Marx was right at least that economics professors were a deadweight on society. In the same vein, he was skeptical that economics would be more "precise" using mathematical apparatus. He would welcome today's behavioral economics' kicking the legs out from under most of the discipline's old assumptions -- especially that people are rational economic actors. It's not clear why we ever thought they were.

Professor Galbraith assigned us a little book that had just been published, The Limits to Growth. The Club of Rome was a group of independent thinkers who in 1968 got together in Italy (because, well, where else) to ponder the "predicament of mankind." It sponsored a research team at MIT to produce The Limits to Growth as its report. It's so old that the text in now on the internet, just as I remember it. Note the $2.75 price tag.

To read The Limits to Growth in the early 1970s was to convince yourself that the world was doomed. The report projected that Earth's population would grow to about 6 billion by 2000. And it did -- actual world population in 2000 was 6.09 billion. Then the researchers created a wildly complex computer model, with multiple feedback loops and all, of what that population would do to food supplies, energy resources, pollution, per capita GDP, and so on. Armed with those models, MIT's mainframe spit out conclusions to the effect that by about now the world would run out of resources.

But Professor Galbraith didn't buy it. He told us, as I remember, that the guys at MIT knew a lot of things, but not much economics. He reminded us that Thomas Malthus had said much the same thing in 1798. Malthus, probably the world's first dystopian, predicted that famine and war would inevitably cause a new dark age as a rising population out-paced the food supply. The flaw in both Malthus and the Club of Rome, Galbraith noted, is that they forgot that people adapt to their environments. Scarcity is reflected in price. As certain resources become more expensive, other resources become relatively cheaper and are substituted. The creation of substitutes is, broadly speaking, what technology does. The Limits to Growth, he pointed out, assumed an unrealistically static world.

The Limits to Growth didn't talk about climate change; that hadn't been invented yet. They did project that by 2000 carbon dioxide concentration in the atmosphere would reach 380 parts per million, and they were pretty close (actual readings showed 369 ppm), but a warming planet was not in their apocalyptic sights.

Now it's in everyone's. Last month's issue of the MIT Technology Review was dedicated to global warming, and in reading it I couldn't help but remember Professor Galbraith admonishing us to take mathematical projections of economic consequences with plenty of salt. It predicts the usual mess -- less food, less habitable land, fewer resources, leading to famine, mass migrations, war and pestilence. The mechanics are different, but the dire consequences are Malthus and the Club of Rome all over again.

Just to be clear, I am not a climate change denier. I know the climate has changed over my own lifetime. I also support transitioning to renewable energy sources and developing the infrastructure to support them (a/k/a the "Green New Deal"), because there's no good reason not to. But I'm not ready to raise the barricades over it, nor do I want to debate whether man-made carbon emissions are really to blame.

Not because it doesn't matter, but because there's not much we can do about it in our own time. Even if we were sure that man-made carbon emissions are causing our current climate turmoil, most of those emissions now come from India, China and other developing nations. We have no political power to stop it, and no moral authority to tell them they can't develop their economies after we ourselves choked the skies to develop ours. We need to accept reality. Whatever we advocate today to curb man-made global warming will take decades or centuries to bear fruit. We don't have that long an attention span.

Fortunately, our task at hand is simpler. We can and will, in the short term, adapt to more violent and frequent storms, changing food supplies, drier acres and wetter coastlines. There won't be much political debate about doing any of those, because reality and economic necessity will force us to act.

We are already seeing the beginnings of it. I'm not talking about solar panels, windmills or the electric car, important as those are. I'm talking beef. By all indications, we may eventually have to give up beef, not from vegan sensibilities, but simply because it will become too expensive. The grain now fed to livestock could feed almost a billion people, and those people may soon need it. Not to worry. The hottest IPO of the month was not Uber, which went from bang to whimper with little wait time. It was Beyond Meat, which was priced at $25, scooted up to $80 in its first trading day, and has stayed there despite tariffs and other scares to date. On its heels is competitor Impossible Foods, which raised $300 million in private financing and will itself go public soon. Both those companies are developing foods from plant-stuff that taste sort of like beef. It's not quite the real thing yet, but I'm confident that in a quarter century we won't be able to tell the difference. 

Or we won't know the difference, which is much the same thing. Our descendants will adapt to their own environment, and it doesn't help them or us to spend too much time debating how they got there. Their lives will be as different from ours as ours are from those of our pre-industrial ancestors. The UN recently reported that a million species are in danger of extinction. But 99% of all species that have inhabited the planet are extinct. It's sad that my great-grandchildren might never see a particular bird or butterfly, but it's also sad that I neither got to see a triceratops, nor will ever see what new creatures evolve to live in their changed climate. It is the height of hubris for us to declare that our descendants' lives will be worse than ours because their ecosystem will be different from ours. Their lives won't be better or worse -- just different.

Earth will remain habitable for a few hundred million years yet. There will be time enough for our descendants to figure out how to pull carbon out of the atmosphere and engineer the planet to resemble our own again, if that is what they really want. Indeed, there will be time enough to fix the planet, and to fuck it up again, many times over. Even if this is the end of the world as we know it, it's still not the end of the world.


Aegis J. Frumento
Stern Tannenbaum & Bell
Co-Head, Financial Markets Practice

380 Lexington Avenue
New York, NY 10168

Aegis Frumento is a partner of Stern Tannenbaum & Bell, and co-heads the firm's Financial Markets Practice. Mr. Frumento represents persons and businesses in all aspects of commercial, corporate and securities matters and dispute resolution (including trials and arbitrations); SEC and FINRA regulated firms and persons on regulatory compliance issues and in SEC and FINRA enforcement investigations and proceedings; and senior executives of public corporations personal securities law and corporate governance matters.  Mr. Frumento also represents clients in forming and registering broker-dealers and registered investment advisers, in developing compliance policies, procedures and controls, and in adopting proper disclosure documents. Those now include industry professionals looking to adapt blockchain technologies to finance and financial market enterprises.

Prior to joining the firm, Mr. Frumento was a managing director of Citigroup and Morgan Stanley, a partner and the head of the financial markets group of Duane Morris LLP, and the managing partner of Singer Frumento LLP.

He graduated from Harvard College in 1976 and New York University School of Law in 1979. Mr. Frumento is a frequent author and speaker on securities law issues, and is often quoted in the media on current securities law developments.

NOTE: The views expressed in this Guest Blog are those of the author and do not necessarily reflect those of Blog.