During their latest episode of the VALUE: After Hours Podcast, Travis, Taylor, and Carlisle discuss We’re Heading For A Financial Ice Age. Here’s an excerpt from the episode:
Jake: Yeah. Yeah, this is inspired by– I read this book called Ice Age: The Theory That Came In From The Cold! by John Gribbin. John Gribbin, I’ve done other books of his before. He’s a really interesting author. I like him a lot. This actually came from– Munger recommended this in the early 2000s at one of the annual meetings. This book is mostly about this guy named Milutin Milanković. Milanković, I guess, maybe. I’m not sure how it said. But he was this Serbian scientist, born in 1879, and he grew up in war-torn Serbia, which at that time was stuck between two decaying empires. You had the Austro-Hungarian and the Turkish-Ottoman Empire, and they were like fighting and they would like trade Serbia back and forth, and basically in the fighting, which an awful situation in a lot of ways. But he was trained as a civil engineer, and he’s actually well recognized expert in designing very large concrete structures at that time. Foreign governments would contract him to come and be a consultant on these giant infrastructure projects.
But he had this side hobby that was nearly all consuming for him. What he wanted to understand was how did the sun drive long-term climate? Actually, not just for Earth, but for other planets in the solar system as well. It took him literally 30 years of these hand calculations, because back then there wasn’t a computer to crunch all this stuff. He’s with a paper and a pen, literally, like, working the math out for the sun and hitting the Earth at different points and how much energy is transferred from the sun to the Earth, and how does that impact climate?
Part of the reason that it took 30 years for him to do it is, because he had to go off to war a few times. During World War I, he was captured and imprisoned. And luckily, he had all his, what he called, his cosmic papers with him. And so, he was sitting in a cell working interrupted on all of this math. You think about scientists today conducting research. You don’t think about them doing it from a prison cell– So, anyway–[crosstalk]
Tobias: With pencil and paper.
Jake: Yeah, with a pencil and paper. So, anyway, Milanković, he created this comprehensive mathematical model that calculates the differences in solar radiation at various Earth latitudes and along with the corresponding surface temperatures. The model is like a climate time machine in a lot of ways. You can look forward and backward using it. And so, he hypothesized that long-term elective effects of changes in Earth’s position relative to where the sun is is a strong driver of Earth’s long-term climate. Those changes were responsible for triggering glacial periods, AKA, ice ages. So, he looked at the Earth’s orbital movements, and there are really, like, three things that go towards that. I’ll try to move through these quickly, since it’s esoteric science stuff.
The first is the shape of Earth’s orbit, which is not perfectly circular. It’s called eccentricity. To that is due actually to the gravitational pull of Jupiter and Saturn. Even though the sun makes up a huge part of the mass of our solar system, Jupiter and Saturn are such that they’re big enough that they actually impact the circle that Earth makes around the sun. Anyway. So, currently, Earth’s eccentricity is near its least elliptical. It’s most circular. It’s actually slowly decreasing in the cycle. That takes about 100,000 years, just based on where Jupiter and Saturn are.
The next thing that impacts it is the angle of Earth’s axis tilted with respect to its orbital plane, which is called obliquity. And so, that is actually the reason that we have seasons. So, the greater the axial tilt, the more extreme the season due to being tilted toward or away from the sun. And so, Earth’s axis today is currently at 23 degrees, which is about halfway in between the two extremes that it moves around in. That happens on about 41,000-year cycles, like, how much does it tilt.
Then, the third thing is the direction of Earth’s axis of rotation. It’s pointed. And so, that’s called precession. P-R-E-C-E-S-S-I-O-N. As the Earth rotates, it wobbles a little bit around its axis. This is actually due to tidal forces caused by the gravitational influence of the sun and the moon. So, the Earth bulges at the equator because of this gravitational pull, and so there’s like a little bit of a wobble to it. And so, that actually changes somewhat the effects of the sun hitting the Earth. That has about a 25,000-year cycle.
So, you have this like 100,000, 400,000, and then like 25,000, and all of those are moving on different cycles. And so, they line up, and then they move away from each other over different time periods, and you sketch all that math out and you end up with these climates that happen over periods of time. They’re actually measurable. And so, what ended up happening was that he had this theory– He actually died in 1958, and his model at that point was largely discredited because there was no way to really prove it. But they started doing these drillings into the sentiment in the ocean, like, deep sea, where it’s actually very little amount of silt is laid down, but it’s a very consistent amount and so, they can then date it.
Using carbon dating, they could figure out how deep is the sediment, like, what does it look like? Then there are indicators within there of actually microbial DNA that they capture from what died at that time and then fell down to land on the bottom. They can tell what was the temperature actually, based on putting all these pieces of the puzzle together. It turns out that he was pretty right about all this stuff.
NASA’s website says that this Milanković cycle only explains about 25% of our current climate and the other part they’re leaving open for more of manmade stuff. I don’t want to get into a bunch of political, which is what climate has turned into. So, let’s zoom out and get to our tortured analogy of all this.
Tobias: This is the best part, when you got to bring it back.
Jake: Yeah, let’s try to land it. Shit.
Jake: So, it was a very counterintuitive finding for Milanković’s work, because it’s not the colder winters that actually lead to ice ages, which you might think. It’s actually the build-up of these huge glaciers that overtook most of northern Europe, and Canada, and the northern US roughly 20,000 years ago. They came from actually mild summers. So, the summer didn’t get hot enough to melt the ice off and then the winter just kept laying more and more of it down. And so, it’s actually mild summers that call it the problem of creating an ice age.
Similarly, I think, when we have cheap debt for a very long time, accommodative monetary policy and fiscal policy bailouts, which, by the way, I wrote all this piece before anything was happening in the last week. We shield the economy from bankruptcies, which, if you look at the bankruptcy numbers over the last 10 years, it’s been record low bankruptcies happening, which happens when you have cheap money. You can always just borrow, and extend, and keep the game going, right? But what I think you end up with is very mild financial summers and therefore, you don’t get the burning off of the ice and it builds up.
Then when it actually does get cold, you end up with potentially like a financial ice age, where it becomes a much more devastating consequence, because actually, the life is not adapted to that level of ice and coldness. So, it’s sort of setting yourself up for bigger problems by not actually having a little bit warmer summers that burn off the ice in a financial sense. So, I don’t know, if I landed that one or not, but– [crosstalk]
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