07 Nov A Whole New World (Order)
The following commentary/analysis is one I wrote in my capacity as a senior fellow at “the nation’s oldest consumer protection agency,” Consumers Research, where, among other things, I compile a weekly letter for public pension-fund managers. I am sharing it here today because I thought it might be useful to some of you.
Donald Trump, Larry Fink, and ESG
I am not an economist. I don’t even play one on TV. Nevertheless, I believe there is ample evidence that the American economy will continue to be the envy of the world and will, over the next few years at least, continue to outperform its colleagues and competitors in the developed world rather pronouncedly.
The evidence I’m talking about here comes not from GDP numbers or employment rates or central bank calculations – although, to be sure, all of these matter. Rather, the proof comes from the behavior of some of the more significant players in business and finance. Consider, for example, a recent op-ed penned for The Wall Street Journal by Larry Fink, the CEO of BlackRock, the largest asset manager in the world. Ostensibly a critique of excessive government spending and growing fiscal debt, Fink’s essay provides hints about the economic path he (and others, presumably) intends to chart over the next several years:
Achieving consistent 3% growth would be a pipe dream for most other high-debt nations. Growth, after all, requires investment, and debt-strapped nations don’t have money to invest. But the U.S. has something no other nation does—the world’s deepest capital markets. These markets act as an additional pool of investment, helping the country grow even when public coffers are tapped out.
Today, U.S. markets have more cash ready to invest than I’ve seen in decades. Roughly $23 trillion is sitting in U.S. deposits and money markets. Investors have been happy to let this money rest and earn interest, but as the Federal Reserve continues to cut rates, trillions will flow into growth-generating assets, especially infrastructure….
Infrastructure investment can do the same today, especially investment in the defining piece of infrastructure in the 21st century, data centers, which are becoming far larger and more powerful with the rise of artificial intelligence.
The newest data centers can require a full gigawatt of electricity all day, every day, equivalent to the energy consumption of a midsize city. The buildings and power supply alone can cost $11 billion to $13 billion. The chips and semiconductor fabs to make them cost even more. Semiconductor-lithography machines require a level of precision comparable to firing a laser at the sky and hitting a golf-ball-size object on the moon, according to Chris Miller’s “Chip War: The Fight for the World’s Most Critical Technology.” It’s as expensive as it sounds.
If these were the musings of your average asset manager, provided on your average day, to an average audience, they might be interesting, albeit not earth-shattering. But none of that applies here. This is Larry “Sustainability First” Fink, writing on Election Day 2024, in the pages of the most conservative major financial newspaper in the world. In other words, this is a confession, a prediction, and a rebranding effort, all rolled into one. And it is earth-shattering.
Although Fink is careful to hedge his commentary by noting that it applies “whoever wins” the election, it is nonetheless clear that this is his attempt to make pre-emptive amends with the Trump campaign and, eventual, Trump administration. Notably, Fink has a long and friendly relationship with Donald Trump himself. That said, his standing among Trump’s political allies is significantly less friendly. The second Trump administration will be staffed by people who loathe ESG, who believe that ESG is economy-killing snake oil, and who blame Fink personally for much of the investment strategy’s growth and prominence over the last several years. Indeed, two of Trump’s most prominent campaign surrogates – Elon Musk and Vivek Ramaswamy – have also been two of the highest profile, most aggressive, and most effective critics of ESG. Vice President-elect JD Vance – Ramaswamy’s law school classmate – is also a noted opponent of ESG and was among the first federal lawmakers to recognize its downsides.
Larry Fink knows that large-scale ESG-promotion projects in the Labor Department and Securities and Exchange Commission are as good as dead now, thanks to the electorate’s decision, and he also knows that that is just the beginning of the new administration’s pushback against what it sees as an egregious affront to shareholders and capital markets. He knows that ESG is tied both to slower economic growth (through the strangulation of energy production) and to higher inflation (through the implementation of countless energy-strangling regulations). In response, therefore, Fink is not merely downplaying his involvement in the strangulatory effects of ESG, but he is also consciously choosing to stake out the opposite position. “Me? I’m not for ESG and degrowth. Heavens, no. I’m for energy-guzzling, economy-charging, debt-crushing high tech. Climate change, you say? Never heard of her!”
Meanwhile, in the rest of the developed world, the reaction to Donald Trump’s election and the consequent inevitability of a federal government about-face on ESG, has been, more or less, to “resist,” to say, “You guys are free to do what you want (planet killers!), but we’re going to go on deindustrializing just to prove…well…something!”
Jennifer Morgan, Germany’s state secretary for international climate action, said it will be up to Germany and the European Union to maintain leadership in the climate finance discussions to ensure an acceptable result….
Any weakening in the U.S. stance on tackling climate change, however, would make it vital for Europe and China to hold firm. The U.S., China, and the 27-country European Union are the world’s biggest historical polluters.
“If one of the three-legged pillars is wobbling or uncertain, the other two need to hold fast,” a European diplomat told Reuters.
Good luck, guys. I don’t want to tell you that it’s not going to work, but…well…you’re relying on China – freaking CHINA – to pick up the American slack. That’s…delusional. The CCP, for all its countless and deadly faults, agrees with Donald Trump and, belatedly, Larry Fink that driving economic growth is the primary communal function of business and capital markets. If the rest of the European ruling class agrees that they must now take up a larger share of the climate change burden to compensate for Trump’s rejection of it, then Europe will simply fall further and further behind both the United States and China. As I have noted previously in these pages, even European businesses recognize how profoundly misguided the EU’s energy and ESG policies are and how effectively they are destroying business and investments and crippling the continent economically.
The Europeans can ignore it if they wish, but Tuesday’s vote heralded a realignment in American government priorities not just on energy and climate change but also on economic growth more generally. Perhaps, they’ll be able to sleep better; knowing that they’re picking up the Americans’ environmental slack, but they’ll do so in colder homes, paying more for what little energy they use, fighting to stay relevant in the global economy.
