Asness Should Manage Money, Not the Planet
Hedge-fund manager Cliff Asness, co-founder of AQR Capital Management, has waded into the climate-change debate by circulating a draft paper suggesting that the phenomenon might not be as serious as scientists say. His reasoning makes sense only if you ignore how physics actually works.
The strength of Asness's paper, written with colleague Aaron Brown, is its honesty. The authors claim no scientific expertise. They make it very clear that they're looking only at global temperature data, with no consideration for the way carbon emissions interact with the environment. Using simple mathematical formulas to project the historical trend forward, they find that it could take a couple centuries for Earth to get even 2 degrees Celsius warmer -- not nearly as alarming as the forecasts from the Intergovernmental Panel on Climate Change.
Problem is, such extrapolation can be very misleading. Imagine, for example, that you were trying to predict sales of Android smart phones by looking at data from the year and a half from late 2008 through spring 2010. Using the ideas of the Asness-Brown paper – with simple linear and quadratic polynomial equations -- you would expect sales to maybe double over the next year. This would be an epic fail: Android phones actually became roughly six times as popular.
Why the sudden boom? Products such as the Android operating system depend heavily on building a network of users: Until they do, they aren't very attractive for developers of applications, which in turn are needed to attract more users. In 2010, Android crossed the threshold beyond which this negative feedback turned positive, driving explosive growth in market share that no simple mathematical formula could have foreseen.
The Asness-Brown projections suffer from a similar lack of insight, only worse. In this case, the ignored catalyst is carbon dioxide, a powerful greenhouse gas that causes enhanced retention of heat energy from sunlight. We know that global warming has gained momentum along with the concentration of carbon dioxide in the atmosphere, which has gone from only 280 parts per million in the pre-industrial era to about 400 ppm today. We also know that the concentration will accelerate, given the rate at which we're producing carbon dioxide. As a result, we should expect accelerating temperature change.
Needless to say, climate scientists don’t ignore atmospheric and planetary physics. Rather, they’ve honed the science to the best of their ability, testing it against the observed temperature changes over the past century. Using this knowledge, they’ve made much more troubling projections of climate change than a simple extrapolation would suggest -- projections like those of the IPCC.
To be sure, Asness and Brown acknowledge pretty much everything I've said in their paper. In doing so, they make the very useful point that concerns over climate change don't come from simple extrapolations of past temperature trends. Those concerns come from serious efforts to understand how past temperature changes reflect the real physics of how the climate works.
Anyone who wants to ignore that knowledge is of course free to do so. But what's the point?
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