Forest fires, bank bailouts and resilience

The recent massive Australian bushfires have provoked a lot of controversy, with some people claiming that this is largely driven by Man-made global warming, and others pointing to how other factors (not necessarily to the exclusion of such warming) were to blame, including changes to how forests/habitats are managed. For example, I have seen it stated that bans on “controlled burns” and clearances of woodland in the early growing seasons, are a big factor in causing this disaster.

I sense from watching reports in parts of the mainstream media that commentaries on controls on forest clearance, controlled burns and so on have tended to be few and far between. I suspect that the topic isn’t popular in those places pushing the “Man is destroying Mother Earth with C02” narrative, because it gets in the way. But surely it seems to me that such a viewpoint is counterproductive: the general public understands that firebreaks, clearances and selective thinning of woodland, etc, are part of a solution. (A firebreak is like a bulkhead in a ship.) And let’s not forget that some species of plant only germinate after a fire. Fire, in fact, is a part of agriculture. For centuries, farmers have burned certain waste vegetation, which is often good for the soil in releasing certain nutrients. A few years ago in the UK, farmers burned straw after harvest. This practice was banned in the UK in the early 90s largely because a few idiot farmers did not make wide firebreaks around their fields and in some cases, burned when there was a wind. The ash and the smoke upset people and scared a few. But one of the benefits of stubble burning was that it created a clean seed bed for crops, and farmers did not have to spend so much money and fuel cultivating the soil (which is good for the environment) or on herbicides and other chemicals (ditto).

So, controlled burns are and should be a perfectly normal part of intelligent curation of habitats and farmland, when done in a sensible way. The US-based Property and Environment Research Center, or PERC, has a good overview on this topic.

It is surely better to let things burn in a controlled way, rather than allow a whole coastal region of a continent such as Australia go up in a fireball, destroying hundreds of millions of animals and killing people. But such is the grip of this focus on the mono-causal explanation of the fires (blaming it on climate change) that little will be done, I fear. And in a way one of the things I detest most about the age in which we live is how fashionable opinion fastens itself on a simple, but often unattainable goal – eliminating all fossil fuels and hoping this achieves a result in a few thousand years – rather than taking more practical and verifiable steps to handle a situation, such as managing forests more intelligently. There is this toxic mix of virtue-signalling, State regulation bossiness and pettiness, coupled with hostility towards private sector solutions and property rights (such as allowing owners of land to cut trees and thin out brush). The result is catastrophe.

We saw the same sort of toxic brew around the financial crisis of 2008. Remember the old “too big to fail” problem? The problem of limited liability-owned banks not feeling the risk of going bust by imprudent lending? The moral hazard effects of taxpayer bailouts, deposit insurance and central bankers as lenders of last resort? State support for sub-prime lending?

There is a sort of rough analogy between a policy mix that does not allow forests to be thinned and occasionally burned in limited ways, and a banking system where a bank is never allowed to fail for the assets to be reallocated to more sensible uses. (The book Alchemists of Loss is a good summary of what went wrong inside banks and because of public policy.)

But with nature, so with finance. One needs to have “dead wood”, such as unprofitable lines of lending, to go out of business and for the distressed assets to be bought and restructured, much as an overgrown forest needs to be thinned out and for some areas to be cut back from time to time. This is about resilience or what Nicholas Taleb means by the term “anti-fragile”: without allowing things to die and be cut out and for a certain amount of disorder and turbulence, you end up creating something that will eventually go up in a firebomb, whether it be Australian landscapes or modern economies.