00:00:02 Speaker 1: Bloomberg Audio Studios, Podcasts, Radio News. 00:00:18 Speaker 2: Hello and welcome to another episode of the aud Thoughts podcast. I'm Tracy Alloway. 00:00:22 Speaker 3: And I'm Jill. Why isn't thal Joe. 00:00:24 Speaker 2: I don't know if I've ever told you about this, but I'm a little bit of a weather. 00:00:28 Speaker 3: Nerd Okay, I know, maybe a little bit. 00:00:30 Speaker 4: I know. 00:00:31 Speaker 2: I just get really excited by weather. I love thunderstorms. 00:00:34 Speaker 3: I love a good thunderstorm so great inside. 00:00:36 Speaker 2: Well, this is the thing. I love thunderstorms, except when I'm on an airplane or something like that. I do not like economically damaging weather. I feel like I need to throw that caveat in there. 00:00:46 Speaker 3: You know what I am. I'm like a weather truther. 00:00:50 Speaker 5: So, for example, I don't believe that there's any accurate way, for example, to measure wind chill. It's like, oh, it's like twenty five degrees out and it feels like fifteen. It's like, how do you know what fifteen feels like? You know what I'm saying, Like, I don't believe in some of these numbers. Also, humidity, what, there's water in the air. Give me a break. 00:01:09 Speaker 3: There's a water in there. 00:01:10 Speaker 2: Now, tell me you've never been to Abu Dhabi this summer without telling me you've never been to Abudabi in this. 00:01:16 Speaker 5: Last week in New York, I know that one was a joke. I am a Wincheal skeptic, even though I don't think that's the topic of our conversation today. 00:01:25 Speaker 2: It is not the topic of our conversation is actually economically damaging whether yes, and specifically the upcoming El Nino, which, by the way, it's it's not that that often that you see a lot of cell side notes start to mention weather phenomenon, But just in the past, you know, a few days, I've had a Thailand economics note from City talking about interest rates and quoting the potential impact of El Nino potentially inflationary. I've had a Bank of England outlook from Morgan Stanley that mentioned El Nino, and also a Bank of America f outlook talking about the impact on em currency. So this is something that people are expecting to have an actual impact both on the global economy and the investment landscape. 00:02:11 Speaker 5: You know, I will just say, even though I'm not a weather nerd the way you are, I sort of have this thought that if you look at like the really grand sweep of history, like thousands and thousands of years, maybe even hundreds of thousands of years. I sort of think there are two things that matter in human history. One of them, as you know I'm interested in, is like basically technological evolution media technology and how it reshapes how we think. And then the other one is sort of climate change, weather and storms. And I think that when we think about history, many things are contingent either on like brief or long periods of weather change, and it can reshape society in permanent, long term, unexpected ways at the time. And have we ever even done any aninio episode in like ten years or eleven years of doing this? I don't think we have, But it sounds like this is one that we should cover if it's showing up on all these notes. 00:03:06 Speaker 2: If we're going to cover one, this should probably be the one because at the moment, well, you have different al Nino forecasts, and you know there's a range of probabilities involved here, but a lot of the forecasting models are currently forecasting that this is going to be a potentially record breaking al nino, something we haven't seen in decades. 00:03:24 Speaker 5: Do you think there are any people who are like, it's interesting you bring up the El Nino. You know, I've always thought Nino's are the more underrated one. Do you think that's the type of guy? 00:03:33 Speaker 2: No, I hope not. But are you going to become like an Al Nino truth or are going to be like, how do you know it's El Nino unless you're standing in the Pacific Ocean measuring the water yourself. 00:03:43 Speaker 5: We're going to be covering guy. He's like, you know, you really should be paying attention of coming La nin Yah. 00:03:47 Speaker 2: Oh good, that'll be a fun transformation for you. Okay, Well, we do, in fact have the perfect guest. We're going to be speaking to someone who not only follows the weather but also tries to measure its economic impact. We have Justin Mankin. He is professor of geography at Dartmouth and director of the Climate Modeling and Impacts Group. So Justin, thank you so much for coming on odd thoughts. 00:04:10 Speaker 4: Yeah, happy to be here, Thanks for having me. 00:04:12 Speaker 2: I feel like maybe the first thing we should do is can you convince Joe that El Nino is a real thing? Apparently he needs like a first person experience of it. What is El nine? 00:04:23 Speaker 4: Yeah? 00:04:23 Speaker 3: What is it? 00:04:24 Speaker 4: Yeah? Like wind chill factor is, it is in fact real and measurable, and they're both kind of actually aerodynamically related. Right, So wind chill, the feeling you get on your skin is owing to the fact that the wind is wicking away latent heat from your skin, which is the heat associated with a phase change of water from a liquid to a vapor. And so that's why when you get out of a shower, you feel cooler than before you get into it. Right, So that evaporation off your skin induced by aerodynamic resistance i e. The wind, That is the thing that's cooling you down, which is why we can measure it and why we can tell you that cold exposure is a bad thing. The Almino phenomenon is an ocean atmosphere. It's kind of part of what's called the Almino Southern oscillation, which is essentially a relationship between the tropical Pacific and the overlying tropical atmosphere, and it has a tendency to be in what we call a neutral state, which is kind of average conditions where you have these easterly trade winds. So these are winds that are blowing from east to west across the tropics. So long the equator, and what they're doing is they're dragging surface water, surface water that's been warm because it's in the tropics. The sun is just shining there all year round, and so that water heats up and then the winds kind of drag that surface water and create a literally a pile such that the sea altitude is higher in the West Pacific than in the East Pacific. And that pile of warm water is something we call the West Pacific warm Pool. And so it just sits there, parked by Indonesia and Australia, and then every once in a while, those trade winds weaken and break down, and that pile of warm water that actually penetrates quite deep into the western Tropical Pacific. That pile of warm water just spreads itself out over the vast expanse that is the Tropical Pacific. And so that's actually how we measure ELMOS. We're measuring it as a function of sea surface temperature anomaly. So how much warmer than average our ocean temperatures at the surface, you know, at this time in this location. And you know, there are different ways to kind of calculate what the regional averages, and we can get into that technical nitty gritty, but essentially, all this water slashes back eastward, and in doing so reconfigures all of weather, which is just energybution from the Sun on our fluid planet. Right. It redistributes all of that energy differently than would have been the case if all that water were piled up in the Western Pacific. I guess like a really simple analogy a listener could maybe grab onto is they've walked into a cold room where there's a little space heater plugged into the corner, right, And that little space heater, yeah, it is maybe generating some heat that's warming up the room, but it's really only warming up that corner of the room. Yeah, that is akin to neutral or what are called La Nina like conditions, which is an amplification of the neutral pattern, meaning that those winds are stronger than normal and the eastern Tropical Pacific is cooler than normal. When you slosh all of that water back across the entire expanse of the Tropical Pacific, it's a kin to walking into a room that has wall to wall radiators instead the thermodynamics of that room. That's a totally differ for an experience for you than would have been the case if it was just that space heater in the corner. And so when an alnino occurs, what it is doing it is essentially the tropics are the heat engine of global weather and climate, and it's a complete reconfiguration such that so much more of our global atmosphere is exposed to that heat energy from the ocean that would have otherwise been buried in the western tropical Pacific. Does that make sense? 00:08:26 Speaker 3: That was an amazing answer. 00:08:27 Speaker 5: Yea, and I totally I understand something that I went forty five years without having any idea of and now I get it. And as someone who used to live in a drafting New England home, I have a lot of experience with space heaters that only heat up that corner of the room. What are the conditions or what are the drivers such that these aninos are semi regular? Why do they seem to come every few years? Why are they not a permanent pattern? Why is one year or al nino year and another year isn't. 00:08:58 Speaker 4: Yeah, there's a lot of work on kind of the drivers of the breakdown of the winds in the eastern tropical Pacific. I think a simple answer is that we live on a sphere that's rotating and has stratified and unstratified fluids in the form of the ocean and the atmosphere, and that essentially means that energy is propagated as wave phenomena, right with peaks and troughs, and El Nino is akin to a wave phenomena, right. It is kind of a pattern what we call a mode of variability. George Filander, who's this Princeton geophysicist and major scholar of el Nino, called el Nino the trunk of the variability tree when it comes to climate variation in terms of kind of regulating these pulses of energy redistribution around our planet. And so, you know, a phenomena like Elmino being modial, meaning it has a canonical path learn temporally and spatially and then induces physical responses that we can characterize and use as a means of prediction. Right Like we know what we should expect for Peru, we know what we should expect for Australia. And we're able to do that because we've diagnosed this mode of variability and given it a name and characterized its length scales and characterized what we call its teleconnections, meaning that kind of physical bridge between Elmino as a phenomenon and what it implies for the Indian monsoon or for the southwestern United States temperature and precipitation regime for that season. And we've given these things and names, and they've come instead of being purely a source of kind of stochastic uncertainty, just kind of random variation in weather and climate, they become a means of predictability. And that's what's really powerful about investigating these type of phenomena and giving them names. Right, we have of el Amino or Almino Southern oscillation, which is the kind of teleconnection with the overlying atmosphere. We have the North Atlantic oscillation, we have the Indian Ocean dipole, we have the Matt and Julian oscillation. So we've like identified these patterns and their kind of manifestation and that in terms of like their underlying drivers, which is I think the question you're asking. I think it's just a function mostly of living on a complex planet with geophysical fluid dynamics and such that these wave phenomena just kind of emerge on these characteristic time scales. The precise mechanism of action that kind of leads the breakdown of these easterly trade winds, which like triggers what's called the Birkness feedback, which is this positive feedback loops, so an amplifying feedback that tends to reinforce itself. Can come from myriad different places, from changes in ice cover to you know, a weakening of the equator to pole temperature gradient. All kinds of different things have some culpability and potentially causing a breakdown of these winds that allow the sea surface temperatures to slosh eastward again and reconfigure all severe weather on our planet. 00:12:13 Speaker 2: So talk to us about what the forecast actually is for this particular al nino, because I read these things like apparently the Australian Bureau of Meteorology, which would be interested in this because Australia is particularly affected by El Nino. Apparently the relative Oceanic Nino index for Ronnie for short, apparently has never reached the three point three threshold that they currently project before, so that seems extreme. Are what exactly are we expecting here? 00:12:41 Speaker 4: So there's a bunch of different ways to forecast almino. All of them kind of stem from some of the original innovative work in the late seventies and early eighties by Mark Cain and Steve Zediac who built the first kind of physical model of el amino to explain it as a phenomenon and then actually make predictions of its occurrence, which is pretty remarkable. But all of these are kind of based on Some of them are statistical in nature, so kind of taking temperatures at time T and making a prediction, given kind of autocorrelation in that time series, what it should look like at time T plus one. There are others that are physical models that are actually stimulating the relationship between oceanic temperatures, wins, the overlying atmosphere and what it does to the kind of pressure and circulation that actually gets air moving in the first place. And so those ones are called process based models, and those are distinct from these statistical models. But all of them, regardless of how it's being modeled, are kind of converging on a record al nino at least since nineteen fifty, but arguably since much earlier, right the eighteen seventy seven eighteen seventy eight El Nino, which was associated with the Great famines, and Mike Davis has this amazing book from two thousand and two about that al Nino event. That one, I think is, you know, kind of indistinguishable in strength from almino as we've already had, such as the ones in nineteen eighty two and eighty three, the ninety seven and ninety eight Elmino, which listeners may remember as it being associated with Chris Farley's snl skit of I am the al Nino right, and you know the twenty fifteen and twenty sixteen almino, which I believe is the one on record depending on your indices. So we've had really strong alminos, but this one is looking like it's much bigger. Potentially every forecast right now I believe puts the fourth company the unfolding l NEU, because we are in an advisory and we have been since June according to the National Oceanic and Atmospheric Administration's Climate Prediction Center. Essentially you're looking at every forecast being having a warmer Almino than the twenty sixteen el Nino. 00:15:14 Speaker 2: How did we actually discover el nino as a weather phenomenon? Because it happens with some regularity, but it's not like it happens every three to four years, like right on time, at the same intensity as the previous you know round. So how did people identify this as an actual measurable phenomenon. 00:15:35 Speaker 4: You know, in terms of kind of like the modern instrumental and climate science era. I don't actually know the answer to that, but I do know something that's actually, i'd argue even more interesting. So the person who first modeled Alminho from a physics perfective Marcaine, It's amazing geophysicist at Lamondhorty Yors Observatory at Columbia University, and as colleagues John Cheng and other climate scientists there at the time, and then an anthropologist by the name of ben Orloff who's an anthropologist at Columbia, they wrote this incredible paper I believe in Nature back in the nineties or early aughts where they essentially showed that there was really good archaeological evidence that Peruvian potato farmers as long as five hundred years ago were forecasting El Nino, and they were doing it based on the visibility of the Pleatees, which is a star system you can see from the Andes, and essentially as El Nino occurs. What it's doing is it's reconfiguring the distribution of high versus low clouds in the eastern tropical Pacific. It's essentially taking convection that was happening near Australasia and moving it eastward, and in doing so, you're creating all these kind of high serious cloud shields over the Andes and that reduces the visibility of this star pattern. They were and they would alter their their their planting dates based on that. So there it is just kind of this remarkable cultural knowledge of being able to grab onto something and be able to make a forecast and inform forecast. And so I'd argue there's a lot of cultural knowledge about these innight climate phenomena around the world that we have yet to kind of appreciate and diagnosed in the in the highly industrialized world where we're so relying on instrumentation. 00:17:28 Speaker 5: Yeah, folk meteorology or folk whether it is like extraordinary and like how much they were able to anticipate. I was sort of I was, you know, I imagined that there were probably various civilizations that interpret and known Nina is like the king has lost the mandate of Heaven and now you know, there's a drought. Now we have to have a new political order. Also, this Mike Davis book that you mentioned looks fascinating and sort of speaks to the point of like late Victorian holocausts, el Nino famines, and the making of the Third World talk about squent famines in India, northern China, and northeastern Brazil. Definitely going to have to read that book. When we talk about a quote record el Nina, what is the measure? Is it the heat variation? Is it the expected change in rainfall or drought? 00:18:16 Speaker 2: Like? 00:18:17 Speaker 5: What are the sort of the gauges that we use to say this is a record on Nina or not or measuring that? What what are the parameters of an el Nina? 00:18:26 Speaker 4: My understanding is it's all benchmarked to the magnitude of the sea surface temperature and agay. An anomaly, you know, is a departure from expectation or a departure from normal, and so what constitutes normal becomes really important there for kind of setting the magnitude of how anomalous something is. Right, And that's why you know, when Tracy was talking about the relative Neino index right, the rony right, that's kind of shifting kind of a rolling baseline because we have secular warming in the tropical Pacific owing to global warming that's occurring right as you heat up the planet. The largest reservoir of heat storage just happens to be the seventy percent volume of water that constitutes our planet's surface, and it takes a lot of energy to heat up a volume of water. It's much much more energy intensive to heat up a volume of water than it is an equivalent volume of air, so that specific heat is just much higher. So it's just a great energy reservoir. And the ocean has been doing humanity and incredible solid by absorbing all this excess heat, which is the problem of global warming right that we're not allowing our atmosphere to shed heat as efficiently as it otherwise would have been if greenhouse gases were lower in our atmosphere, and in doing so, we're having to heat up to reattain equilibrium such that the energy coming in from the sun is balanced by earthlight leaving out to space that is not in balance at the moment, and a lot of that excess heat is going into the ocean, and that's how planetary temperatures increase such that in can equal out again. That's essentially a very simple global warming one oh one. But the way we're measuring al Nino as a phenomenon is by taking a regional average to choosing an area in the tropical Pacific that is canonically associated with the manifestation of Almino, and you can choose different regions and then benchmarking those average temperatures in this month to expectation what a average has been over the time over time, and so you can choose different regions. So there's a Ninio three region which is kind of shifted towards the central Pacific. There's a Nino four region which is shifted a bit more eastward. There's a Ninio three four region, which is kind of the typical region that's now used, which characterizes al Nino over something in between those two regions. Then there's the E index, which is taking a dimension reduction technique on a spatial field and collapsing it to say these are kind of the dominant directions of variability in that field, and that E index would kind of represent something differently in the sense that al Nino, while we think of it as a singular phenomenon, it has a geography associated with it, and that geography means that it has flavors associated with it, and so these flavors mean that different parts of the tropical Pacific warm differently and look anomalously different. And so not every al nino is the same, and so it's consequences in terms of the hazard it brings for the United States or for hurricane occurrence in the Atlantic basin or whatever. It's not the same for every al nino event. This spatial pattern of those sea surface temperature anomalies also seems to matter, and so there's been a lot of work and kind of diagnosing these different flavors of almino, and the E index is intended to try to capture some of that. So there are lots of different ways for measuring it, but it's always a sea surface temperature, normally in degree celsius benchmark to some expectation or average or normal. 00:22:08 Speaker 2: So one of the things that Joe and I have learned in doing various agricultural episodes over the years is that when you have a supply shock, the timing matters right, So you generally don't want to declare war in the spring planting season when all your soldiers might be off planting stuff instead. Does the timing of this particular all Nino matter. I keep reading that the peak of this el Nino is expected to be in the fall in the Northern hemisphere. Is that particularly unfortunate timing? 00:22:39 Speaker 4: You know, there's been a lot of work that looks you know, the planting and harvest of crops tends to be something that is highly calendar dependent, and there's a bit of flexibility that I think farmers have to be responsive to their expectations for weather variability, and certainly ad forecasts have become important, and agriculture where large has become really dependent on al nino forecasts. The thing about al Ninho is that it does typically peak in December, January and February. So this is kind of the boreal meaning the Northern Hemisphere winter, and that is implications for the austral summer right for the Southern Hemisphere summer, which is in the opposite season. It also there's also kind of a time dependency associated with the impact. So let me just comcatize this with an example. We've been in an al nino advisory since June that's also coincident with the typical onset of the South Asian monsoon, which is a determinant of feast or famine for billions of people. Right, you can link monsoon onset to you know, farmer well being in farmer suicides. You can link the timing of monsoon onset to diesel prices within India and the political fates of people around diesel sung cities, because if the monsoon onset is delayed, you have a bunch of farmers suddenly needing to irrigate crops where they otherwise wouldn't have had to, and that irrigation is dependent on the generators that rely on diesel fuel, and so you can see price spikes around those types of things, and the political fortunes of like municipal and the kind of local politicians kind of surviving or not surviving in elections based on those kinds of things. So there's like lots of cascading ways in which an el nino, even at this early stage and its life cycle, which tends to kind of start after what we call the spring prediction barrier, which is kind of this period in time where it's difficult to make a prediction about whether or not an El Nino is going to occur to next February, so we're looking at kind of a wind down of this event in February March of twenty twenty seven. What's interesting about it is that it's going to lock in all sorts of phenomena. You know, twenty twenty six has a non trivial chance of being the warmest year on record, not simply because of global warming, but because of this emergent al nino. So it is already kind of just increasing global temperatures over what they would have been an absence of this event, and it's nearly locked in a virtually guaranteed record temperature for twenty twenty seven, even though we haven't actually had that year unfold yet. It's no coincidence that the hottest years on record have almost always been El Nino years. Right when you take a warming trend and then you impose an anomaly on top of that, you're just going to get these outliers. And so these impacts are arguably already manifesting. So the South Asian monsoon was delayed, that onset was delayed by this al nino, and so while the kind of major tel connections and the peak strength associated with this event is anticipated to be in the winter, which is typically the case associated with alminus, and just kind of the life cycle associated with them. It's impacts are manifesting now and we'll continue to manifest into twenty twenty seven. 00:26:23 Speaker 5: Let's talk a little bit about the economic costs that we associate with an el nino. Like I said, up until your first answer in this interview, I didn't know what an el nino really was. But that certainly doesn't mean I've never said it or read it before. You know, I used to be on TV you have a guest, it was like, oh, the upcoming al nino, ptificating about the al nino. Yes, but it always seems like a sort of cyclical thing. It's like, Okay, it hits every few years and there's some costs, and then it goes back to normal. But if their whole books about the long term consequence of any given hel ninho, it sounds like, at least in some serious ones, there can be quite a tale, quite a you know, ripple effects. 00:27:11 Speaker 3: When you go back and look. 00:27:12 Speaker 5: At maybe some of the more recent big el nino's that we had, I think you mentioned there was one in the early eighties. How do you think about like tallying up. I don't know what the the what the global economy, the price the global economy paid for it. 00:27:28 Speaker 4: Yeah, such a good question. I want to call out a key collaborator that I've had in this work, Chris Callahan, who's a professor at Indiana University and just a stellar, stellar, stellar. I couldn't have asked for a better PhD student to get to think about these hard things with. So Chris had been thinking about al Ninho and it's kind of projection uncertainty and other contact, meaning what does the future of al nino look like in a world with global warming? And how to understand that just be given that it's such an important and part of year to year variation, whether in climate globally, and it's essentially unknowable, right, It's very hard to know what al nino is going to look like in twenty fifty, what it's going to look like in twenty one hundred, and how that picture changes as a function of what your background warming happens to be. One of the things we've been investigating is just well, we kind of had pivoted from thinking about future to saying, well, we live in a world where global warming has already occurred, we can simply document what has happened. And so much of what my lab group does here at Dartmouth is investigate retrospectively kind of build that documentary evidence of here are the cost of climate change to date. And in thinking about the cost of climate change to date, one of the things you have to do is isolate those costs from the costs that would have happened anyway, such as the cost from al Nino, which is an innate form of climate variability, right. Almino occurs in absence of people and their greenhouse gas emissions. So isolating that cost and kind of partitioning it from the cost accounting of global warming to date became a pretty important exercise. So we're always in kind of detection and attribution science trying to say, well, what is consistent with the world as it has been versus the world as it would have been absent global warming, And that means having a really clear picture of what we call internal climate variabilities, such as the variability from Elmina. And so we were interested in this cost accounting of Almino just to clarify the cost of global warming to date. And when we went back and did this exercise using these causal inference techniques. So this is all observationally built. Right. We can take data of variation in almina, which is essentially a random treatment, right, it is stochastically generated while it has a life cycle against it. Our global economies aren't necessary shaping sea surface temperature anomaly patterns in places like the tropical Pacific, right, So it's effectively exogenous tour from our economy, right, And so that's really crucial in this empirical setting of trying to identify, well, what's the effective in al Nino on an economy and how does that upward aggregate to a macroeconomic toll. What you can do is just take a bunch of data of something like gross domestic product, which is summarizing all economic productivity, goods and services produced by an economy. We have pretty good data on that at the country scale for a pretty long amount of time, and you can look at differences in that economic growth. So how did economic growth vary from year to year? So you're not looking at absolute levels of GDP, You're looking at changes in economic growth as embedded in changes in GDP. And then you can look at something like al nino as a treatment. And then you have another source of variation, which is that not every country is equally linked to al Nino physically. Al Nino is kind of remarkable in that it generates many different kinds of physical hazards, from heat waves to droughts, to floods, to landslideses to wildfires. Right, and so in that sense, like its impacts interestingly look a lot like the wider impacts from global warming, which is a worthy discussion and of itself, but we'll put that to the side for a second. And what you can do is you can exploit the kind of random variation we've observed in the real world of al nino occurrence and alninio magnitude, how that relates to the teleconnection, how tightly coupled locations weather and climate is to al nino as a phenomenon, and then see what accounts for the variation in economic productivity as measured in changes in GDP. And so that's what we did back in twenty twenty three and published in a paper in Science where we showed that actually we can detect very sizable deviations in economic growth from Elmino as a phenomena and that scales in teleconnection strength, meaning countries that are most influenced climatically and from a meteorological standpoint by the phenomenon of El Amino are most impacted and negatively still so Peru with road washouts disrupting commodities from mind sights in the mountains to port induces a shock, and that shock doesn't seem to be what an economist might call a level effect, meaning a simple deviation that you then recover from in a subsequent year. What we find in this empirical research is that observationally, Almino seems to systematically depress growth, meaning your country is growing at a race and then an al Nino occurs, and then you are growing on a different trajectory, and so those losses just accrue add infinitum in time. And that is a distinct finding that what was previously understood about al nino. 00:33:16 Speaker 2: Right, So this is really important. I think most people are used to thinking about whether related shocks as this sort of short term thing that, as Justin just said, impacts the price level. But what the paper actually found was that there's this longer term impact on essentially output like growth in the longer term. Why is that, like, what exactly is happening here, Because again you would expect, like, Okay, a road gets washed out, it's probably inconvenient, it's probably expensive to replace, but it does get You would think it does get replaced relatively quickly, and a lot of these negative effects would subside relatively fast. 00:33:54 Speaker 4: I think a one off shock might look that way, Right, You loss owing to a heat wave or drought in one part of the Upper Midwest says nothing about major grain producing regions in Russia or cotton prices given growth in the Furghana Valley in Uzbekistan, Right, Like, these things are are disparate enough in space that maybe they're not experiencing simultaneous shock. What I think is kind of interesting about Alminho and why Almino is an interesting analog for the impacts of wider global warming, which is a kind of a universally experienced You know, there's a high degree of correlation in the impacts of global warming. Right, It's not simply a heat wave here. It's a heat wave here, here, here, and here all at the same time, all experiencing loss at the same time, Which is one of the reasons why I think it's this simultaneity of disparate regions experiencing hazards and experiencing losses that then can lead to these up aggregating market forces that systematically depressed growth and alter where capital investment can go. You know, the efficiency with which you're able to take labor and capital and mobilize it into productive parts of the economy. It is hard to do that when there are lots of hazards being experienced around the world, right, so it's not one thing disrupting your supply chain, it's maybe a dozen things. And I think that's the distinction. Why. You know, the ninety seven ninety eight Almino was about thirty six billion in economic losses asked as estimated at the time as a level effect, a shock and then a recovery. What we actually found is that there was empirical evidence for a systematic depression of economic growth and over a five year period that amounts to about five point seven trillion dollars in global economic losses instead by the year two thousand and three, right five years after the ninety seven ninety eight event. What's really fascinating is we played this game where we use what's called a perfect model framework, where we simply ask the question, if we know that the impact of El Nino is permanent and of this magnitude, given the observational data we have, could we prove that it's permanent. So these kinds of statistics rely on the ability to pull a signal from noise, which requires a certain amount of data, and that amount of data affects the claims you can make robustly. And so what we were trying to do there is say, even if we had a known effect, can we recover that known effect perfectly given our data record? And what we found is that we couldn't, which means that we cannot rule out the possibility that the economic impacts of al Nino at the global scale are permanent, meaning that every time in al Nino occurs, we're just knocked off our growth trajectory that would have been absent that event, which is kind of remarkable, which implies that these costs kind of a crue ad infinitum in time. In our paper, we only went out to five and eight and ten years of growth accounting, but it just says that the economic losses associated with these events are much higher than we understood before, which means, you know, is just another kind of piece of evidence that shows that weather and climate matter for our economy, and our climate system is indogenous to that economic growth, right. It is greenhouse gas emissions induced by economic growth that is altering our trajectory of climate, and our climate also has a finger on the scale of what constitutes our economy. And so that indogen eighty, I think is something really important to understand and represent, particularly around policies related to climate variability and climate change. 00:37:57 Speaker 3: That was a fantastic answer. When you think about the. 00:38:01 Speaker 5: Impacts of this Elenino or theo in the year twenty fifty, or the Elnino in the year twenty one hundred, you know, so obviously like one, you know, presumably take a country like Peru. It's probably going to be richer in the year twenty fifty, so it'll probably have more economic activity. It may also have better infrastructure in the year twenty fifty, such that road washouts are less likely. Countries after you know, you experience I presume even since eighty two or ninety seven, there's been you know, hardening against weather related shocks and so forth. As countries learn about these patterns, how do you model that aspect? Both the fact that, okay, there is more economic activity in this sort of temporarily connected areas, and also presumably governments and companies get better about anticipating the al ninos and strengthening their infrastructure such that they're not as vulnerable. 00:39:06 Speaker 4: It turns out it's really hard, right. The predictions of future are not falsifiable scientifically, and so. 00:39:14 Speaker 5: I hope perused wealthare in twenty fifty and twenty one hundred. 00:39:17 Speaker 4: But yeah, I mean, yeah, we didn't even talk about the fisheries implications. 00:39:22 Speaker 3: Yeah. 00:39:23 Speaker 4: One thing that's really I think what you're kind of raising is this question of adaptation and resiliency, and the way I've been thinking about that is evolving. Right, there's a story we can tell that says, Okay, if there are market and efficiencies, or we're shown to be vulnerable societally in these particular ways, we're going to develop strategies to ensure resilience. Right. Those Peruvian potato farmers noticed they were losing crops, you know, and they altered their sewing dates based on the visibility of the ple eighties overhead. Like that is an adaptation. And you can imagine autonomous atatotations, meaning individual level adaptations. You can also imagine society wide or planned adaptations such as shoring up kind of resilience, and these things are linked to alnino forecasts, right like one of the things you're seeing, you know, you said at the outset tracy of all these financial planners thinking about the implications of al Nino for markets around the world and supply chains. That is a form of kind of resilience strategy building that's occurring that is indelibly linked to the science of enso forecasting, and why al nino forecasts are so important, Right that nineteen eighty two eighty three al Nino, we didn't have the benefit of a tremendous amount of lead time in planning for its impacts. Right a tropical cyclone often the ocean, right, being able to track it and have sufficient time to get resources injected into the places you need and people lot of harm's weigh right Like, that requires lead time, which is why these types of forecasts are so essential, because they allow us to pursue resilience strategies that we otherwise wouldn't have been able to. But this wider question of like are we well adapted to climate variability? We have and shouldn't we expect that will be even better adapted to climate variability in the future. I would say the evidence is pretty mixed. There isn't a whole lot of evidence that we're well adapted to the climate we have. We are finding documenting observationally that the costs of almino are astounding, despite the fact that we've been exposed to it for hundreds and hundreds of years. Right, this is not something that is novel. Right, while the coming al nino is like seems to be out of sample and the costs associated with it are really hard to anticipate because it is so out of sample. Right, Like, when I think about the cost of this forthcoming al nino, I estimate somewhere around ten trillion dollars of global economic losses conservatively over the next five years, right up to fourteen trillion dollars of economic losses if you take some of these tailed But I could only seventy percent of that only you know about ten trillion dollars. So that is in sample, meaning supported by existing data we have on alminios and economic responses. Our global economy is larger, and so these losses are associated not just with the magnitude of the Alnino, but the size of our global economy, there's just more stuff to be impacted, right. But what that tells me is that we are not optimally adapted to the climate we have, and so there isn't much evidence that we have that we are taking on board the feedback we're getting from the climate system about how things are going and pursuing strategies that really offset or mitigate losses in a coherent way. I think that's, you know, pretty pretty telling, just given the documentary exercise. That's not to say that we couldn't be better adapted. I just think that we are not well adapted, and there isn't widespread evidence of adaptation to either El Nino as a form of climate variability or wider global warming. Since the impacts of global warming look a lot like the impacts of Almino, and so I think there's like a bunch to kind of disentangle there. But when we're thinking about these future growth impacts on fromenso we need a counterfactual world of what economic growth trajectory would have been absent Almino, but given global warming, and that is a picture of future that I think is really hard to envision, but there are economic tools that people use to create those counterfactual worlds, and then you can measure deviations as could be the case given what we know to be observationally true about the relationship between Al Nino and an economy. 00:43:56 Speaker 2: I know you just said there aren't a lot of examples of successful adaptation for El Nino, other than perhaps Peruvian potato farmers sowing their crops early. But give us some hope here, or some idea of what a successful adaptation could look like in an ideal scenario where this is an endogenous phenomenon as you just described, where you have it basically happening all around the world simultaneously, what could we do to try to offset some of the economic impact. 00:44:23 Speaker 4: Gosh, that's you know, it's such a great question. One of the ways I think about this is there's improving resiliency in global markets such that these weather and climate shocks don't alter prices and interest rates and all these things that are huge determinants of human well being. Then there is also, like the direct hazards themselves, right, a stronger than average atmospheric river event that triggers a landslide along route one in California creating a road wash out that is a massive disruption to communities. They're a wildfire, you know that rages through the bush in Australia, killing trillions of animals and raising insurance premiums on kind of wildfire protection for homes there right, There are all these kind of ways you can process trace how Elmino hurts an individual or a community, And so I think that protection of human well being from approximate sense of like are you okay given these hazards, that to me is a different question than how do you shore up international markets such that they are resilient to the impacts of almino? And I think just separating them is really really valuable. I think the fact that people are aware of almino as a phenomenon and that it can induce these cascading shocks through agriculture or through mining, or through the transport sector, and that all those things all around the world can up aggregate to a macroeconomic toll I think is important to know. And I don't know enough about how people think about these portfolios, but I know that risk diversification is a strategy to ensure returns, and I imagine that's something that people are embracing given modern portfolio theory or whatever. But I think this question of like how do you protect people from hazard that is a different question and requires different sets of warnings about the local manifestation of the hazards associated with Almino. And to me, that means early morning systems. That means emergency management and response teams that are well placed and understand these consequences. That means we have insurance markets that recognize the hazards, the unique geophyscal hazards associated with something like El Nino and its regional dependencies, and what it should imply for the types of products those people need to protect the most capital intensive asset they have, which is their home. It's many different kinds of things, and so none of this is out of the realm of possibility. There are a lot of these things we do anyway, right we build reservoirs to mitigate drought risk already. Never mind the fact that Lake Powell the central bank of the American West Water. 00:47:19 Speaker 2: He knows his audience anyway. 00:47:21 Speaker 4: I guess the point is is that you know, I think there are lots of there's lots of evidence that we these adaptations are within the realm of possibility, but the constellation and configuration they take is kind of regionally dependent. And so I think kind of a coherent global strategy about managing the impacts of El Nino is an interesting test bed for adaptation strategies that would lend itself to wider global warming. And that's something that I'm really intrigued by. 00:47:48 Speaker 5: So you talk about this idea that what you've discovered through your research is that al Nino's are not these sort of cycles that you bounce back from and then you're resumed to trend growth, right, that they change their trajectory. But if al Nino's are something that are very consistent and predictable throughout history, such that we've been you know, there's evidence of farmers having tried to anticipate them going back over five hundred years, why should we not assume that, you know, it's seasonal, Like you could say, for example, that cold winter months depress economic growth, which they probably do. People don't go out as much and shop and travel as much in the middle of December, and so we could say, oh, if there were no Decembers, if it never got cold, then in the counterfactual. You know, we would have had much higher growth, which is true but also absurd because the premise of not having a winter is absurd. If al Nino is something that will always and has always been with us, why do we even imagine that they are being a counter factual trend rate of growth in a world without aninos. 00:49:05 Speaker 4: Yeah, I think you know that comes back to the kind of empirical identification strategy. Okay, like we don't have the benefit of resimulating the world as it has been and kind of the emergence of global society and the global economy absent Alnino, and so we rely on models to create those counterfactuals. We know that al nino, while being cyclic in nature, it is not perfectly so it is as good as a random treatment, and so we can separate the experience of the world into those associated with almino and those not, and we can examine the differences in economic productivity under those two regimes. So that's essentially what we're doing. Empirically. It's akin to a medical control trial, right where you randomize a population into a treatment group that gets drug and control group that doesn't write or receives a placebo and you compare medical outcomes. Right, there are a year, there are people that may look the same in the treatment and control group, and there are people that may look different in the treatment and control group. But if you randomize effectively, those differences among individuals cancel out, and the kind of efficacy of the drug itself is just the difference between those two groups. El nino is as good as randomly assigned despite the fact that it is cyclic in nature, and so you can treat it as this natural experiment, this treatment and compare it to the control of non al nino years. And that's effectively what we're doing here when we're kind of talking about this counterfactual. We know what economic productivity looks like, and so you're right to say that, you know, economic productivity looks different in winter than in summer or in spring, right, And it looks different in the face of a tropical cyclone than it does in the face of you know, a civil conflict or something else. Right, Like, these these things have impacts. But what we're doing here is kind of exploiting natural stochastic variation in it despite its cyclic nature. And what I think is remarkable and what I what I'm kind of suggesting here is that despite the fact that al nino is not a novel phenomenon, right, it is not something that we have never experienced before, which global warming is right. Global warming is something humanity has never experienced, and it is out of sample, and it is arguably making this El Nino that's unfolding given the background warming, truly out of sample, truly out of sample event, right, something humanity has never experienced before. And I'm saying, despite the fact that we should be inured to experiencing almino, we have limited evidence of widespread adaptation and resilience too. 00:51:57 Speaker 2: All Right, Justin Mann can thank you so much for coming on having. 00:52:14 Speaker 5: Joe. 00:52:14 Speaker 2: I found that conversation fascinating. Love talking about the weather in always. But I think the point about this idea that like, okay, el nino is something that we have experienced, it does come with some regularity, and yet there seems to be some proof that it has this lasting impact not just on like the immediate economy, but on economic growth itself. Is a very important one when you can consider that, like again, we're about to experience a potentially record breaking in a nino and with the wider backdrop of climate change. 00:52:46 Speaker 5: Right, super interesting. I learned so much in that conversation that I didn't know this term that I just heard throughout my life that I really gets warmer or something like that. I didn't really know what it was, or why it was or what direction. I thought it was really interesting. Okay, what makes an El Nino different from another random weather event. The global simultaneity of it is being key, Like, Okay, other events you just bounce back from. I mean everything must have some effect. You never like bounce back from anything that perfectly back to trend. But this simultaneity, of course, we saw that during COVID and the ripple effects from that. And so when you have this weather pattern that is truly global in nature and sort of very I guess, predictable in the sense that you know what regions they're all going to get hit, it sort of makes sense to think about it in these terms of like, oh, there are real long term costs, especially if they're intensifying during a trend of global warming. 00:53:45 Speaker 2: Yeah, nowhere to run, nowhere to hide kind of idea. The other thing I was thinking, of course, back to some of our early agricultural episodes, from this year. All of this is happening against a backdrop of higher fertilizer prices and lower supply. You still, I think I can't remember the exact numbers of global fertilizer supply, stuck in the strait of horror moves, and that can't be helpful either, when you're talking about the biggest El Nino on record. 00:54:14 Speaker 3: Yeah, no, it's gonna be a Well. Now, we are well armed. 00:54:17 Speaker 5: Maybe we're not well adapted for the nino, but at least you're a least well armed to understand news stories that will be emerging over the weeks and months side analysts and the sell side analyst notes in the in the months ahead. 00:54:31 Speaker 2: All right, shall we leave it there. 00:54:32 Speaker 3: Let's leave it there. 00:54:33 Speaker 2: This has been another episode of the Odd Thoughts podcast. I'm Tracy Alloway. You can follow me at Tracy Alloway. 00:54:38 Speaker 5: And I'm Joe Wisenthal. You can follow me at the Stalwart. Follow our producers Carmen Rodriguez at Carman Arman, dash Ol Bennett at Dashbot, kel Brooks at Keil Brooks and Kevin Lozano at Kevin Lloyd Lozano. And for more Odd Lots content, go to Bloomberg dot com, slash odd Lots or the daily newsletter and all of our episodes, and you can shed about all of these topics twenty four to seven in our discord discord dot ggashlines. 00:55:03 Speaker 2: And if you enjoy odd Lots, if you like it when we talk about the weather, then please leave us a positive review on your favorite podcast platform. And remember, if you are a Bloomberg subscriber, you can listen to all of our episodes absolutely ad free. All you need to do is find the Bloomberg channel on Apple Podcasts and then follow the instructions there. Thanks for listening.