The Obama Effect: Al Gore starting to make sense

Business -- and by extension the capital markets -- need to change. We are too focused on the short term: quarterly earnings, instant opinion polls, rampant consumerism and living beyond our means. As we have often said, the market is long on short and short on long. Short-termism results in poor investment and asset allocation decisions, with disastrous effects on our economy. As Abraham Lincoln said at the time of America's greatest danger, "We must disenthrall ourselves, and then we will save our country."

At this moment, we are faced with the convergence of three interrelated crises: economic recession, energy insecurity and the overarching climate crisis. Solving any one of these challenges requires addressing all three.

For example, by challenging America to generate 100% carbon-free electricity within 10 years -- with the building of a 21st century Unified National Smart Grid, and the electrification of our automobile fleet -- we can encourage investment in our economy, secure domestic energy supplies, and create millions of jobs across the country.

We also need to internalize externalities -- starting with a price on carbon. The longer we delay the internalization of this obviously material cost, the greater risk the economy faces from investing in high carbon content, "sub-prime" assets. Such investments ignore the reality of the climate crisis and its consequences for business. And as Jonathan Lash, president of the World Resources Institute recently said: "Nature does not do bailouts."

Read the rest in the WSJ. I've never heard him make such sense. He seems to have read some basic microeconomics. What's wrong with the world? It must be the Obama Effect.

Now, the next lesson is public choice. That's where we disabuse ourselves of the dream that government can somehow address these problems in a better way than the market. I have hope, sincerely, that Al and Barack will eventually learn these lessons.

Addendum: Let me illustrate. The simplest policy improvement would be an increase in gas taxes. Will it happen? Probably not, it's unpopular.