The Divestment Movement’s Heart of Darkness

In Real Clear Markets today, economist Ben Zycher of the American Enterprise Institute calls out the hypocrisy of the divestment movement.

The movement urges colleges, foundations, local governments, and other large investors to sell their stock in 200 coal, oil, and gas companies with the highest reported “carbon” reserves. Supposedly, this will depress the capitalization and asset value of the fossil-energy sector, hastening its demise.

Zycher skewers the hypocrisy of those pledging to divest their holdings but only over a 3-5 year period so they can sell energy stocks at the highest price, and of pledge takers whose families made their fortunes in oil or whose incomes derive from companies with fossil-fuel investments.

More importantly, Zycher exposes the misanthropic logic of the movement’s preening moralism.

Fossil energy companies exist only because other industries — manufacturing, agriculture, telecommunications, etc. — require energy to create products and services. Governments, too, are large energy consumers. So if investors have a moral imperative to bankrupt carbon-energy production, they should dump all their stocks and bonds.

Nor is that all. Companies that consume energy exist only because ordinary people want their products and services and are wealthy enough to buy them. So if bankrupting Big Carbon is a moral imperative, governments should adopt policies to make people poorer. Choking off access to affordable energy would, of course, do just that.

What’s more, since human capital formation leads to wealth creation and, thus, to carbon-fueled products and services, divestment logic demands that investors cancel their “investments in people, in particular in a third world desperate to emerge from grinding poverty.”

If I might embellish a bit, the irony cuts pretty close to home. Higher education is all about human capital formation, yet many college presidents, teachers, and students are in the divestment movement vanguard. Logically, they should demand that donors stop supporting college and university endowment funds.

Zycher’s reductio ad absurdum is worth reproducing in full:

For now let us consider the implications of the divestment stance. The fossil-fuel sector is huge — about $5 trillion in market capitalization — because other sectors demand energy, and fossil fuels overwhelmingly are the most efficient forms with which to provide it. So if investment in fossil-fuel sectors engenders some sort of moral quandary, does the same principle apply to investment in industries that use energy? After all, they are responsible for the very existence of the energy producers; will the divestment campaign expand to agriculture, manufacturing, transportation, retailing, the household sector, and all the rest? Is investment in government bonds the only moral course? Well, no: Government too uses vast amounts of energy.

And let us not stop there: Precisely why do all sectors demand energy? Obviously, it is because people demand the goods and services made affordable by fossil fuels. Notice that the correlation between energy consumption and household income is high, and rises as income increases; for the bottom three U.S. income quintiles, the respective correlations are 0.75, 0.85, and 0.91. If fossil fuels are evil, so are rising incomes, as the latter drive up the demand for the former. So let us be very clear that one central implication of the divestment campaign — remember, it is a moral imperative — is the desirability of poverty as a tool with which to dampen energy demands and thus incentives to invest in fossil-fuel sectors. This is separate from the impoverishing effect of a substitution of expensive energy in place of conventional energy produced with fossil fuels.

Accordingly, the divestment campaign, perhaps realizing it and perhaps not, has slipped into the anti-human trap that is the hidden but essential core of modern environmentalism: Far from being a resource, ordinary people are a scourge on the planet. They prefer cheap energy, strongly, but the moral imperative of divestment is diametrically opposed, and investments in people — education, health, etc. — make matters worse by increasing human capital and wealth, and thus the demand for energy. Accordingly, the “moral imperative” of the divestment campaign — its very logic — leads not only to disinvestment in virtually all economic activities, it does the same for investments in people, in particular in a third world desperate to emerge from grinding poverty.