When Forests Fall on Banks

By Lance Olsen, Unfiltered 8-10-07

As controversies over logging sweep through the forests of the West, and anxieties sweep through the global finance industry, many can be forgiven for treating the crises of forest and finance as separate stories. They are not.

Throughout the quarter-century since 1980, news stories from America, Japan, the Asian tiger economies, and China reported that these nations were enjoying construction booms. Many assumed that these were separate stories.
But they were not, and they are not.

Instead, they were and are well-woven enough by the circulation of logs, money, and political communications to make them a single transPacific boom.

Although this widespread boom is huge in scale, it is largely structured around a simple four-step sequence : F → RE → C → L. This sequence is a blueprint, framework, or script that can be expressed in a simple and memorable acronym, FRECL (pronounced “freckle”). This script, often rowdy, often slapstick, sometimes grimly bloody, is basic to understanding what drives the planet’s most aggressive logging schemes. It’s also a reasonably good foundation for understanding the planet’s most explosive calamities in the giddy world of allegedly high finance.

Any freckle kicks into gear when the finance (F) industry, including not only banks but also pension funds and insurance companies, lends money to the real estate (RE) industry. With its hands full of borrowed money, the real estate industry then turns to the construction (C) industry with orders to start building gated communities, apartment complexes, office towers, shopping malls, time-shares at ski resorts, and occasionally even some affordable single-family housing.

Orders in hand, the construction industry then turns to the logging (L) industry for raw materials. At this stage of a FRECL’s sequential script, the logging industry starts another kind of borrowing from another kind of bank; it borrows trees from the forests. When these withdrawals begin, scientists and conservationists can actually begin to record the predictable trouble for wildlife. A little later, anyone worried about sprawl will see the fallen forest showing up in the form of 2x4s and plywood -- even the paper covering on sheetrock.

But most of us only see piecemeal reports, making it difficult for the public at large to connect the dots of any ongoing FRECL; newspapers typically put stories of logging, housing sprawl, and the finance industry under separate headlines, separate pages, and even in separate publications. It seems very difficult for journalists to do otherwise, and that difficulty is likely to persist for the simplest of all possible reasons. Like anyone else, journalists’ perception is often wrapped in immediacy, captured in what some psychologists have called “stimulus bound” thinking.

Stimulus-bound thinking is a nuanced thing, and psychologists apply the term in quite specific ways. But the classic parable of blind men groping an elephant illustrates it well enough for normal discourse. In that parable, the blind man who happens to find the elephant’s tail reports that an elephant is built like a rope. The blind man who puts his arms around the elephant’s leg believes that an elephant resembles the trunk of a tree. The one who holds the elephant’s ear reports that elephants are shaped the same as an oversized leaf. And so on.

This parable was not intended to make a point about the literally blind. It was intended to warn us about the blindness of the sighted. We acknowledge this blindness in colloquial phrases such as “Outa sight, outa mind,” or “Seeing is believing.” It also shows up in the joke about the drunk searching for lost keys under a streetlight, not because that’s where she lost them, but because that’s where the light is. Often as not, we find ourselves expressing the consequences of our near-universal blindness by saying, “He never knew what hit him.”

Our perception of freckles operates under these same utterly normal constraints, as a New York Times editorial proved in a late 2003 editorial on President George W. Bush’s “Healthy Forests Initiative.” In that editorial, the Times’ editors said that Bush was justifying his logging schemes by saying that logging would save forests and houses from dangerous forest fires. But, the editors added, Bush was actually motivated by pressure to please the logging industry.

Newspapers across the nation made the same diagnosis. So did the nation’s environmentalists. Bush, they said, was not looking out for the health of the nation’s forests, and that his plan was only a half-hearted defense of homes built in the woods. Instead, environmentalists warned, Bush was looking out for his pals in the logging industry.

Thanks to these widely repeated diagnoses of Bush’s motivations, millions of Americans can be forgiven for thinking that America’s conservationists had been defeated single-handedly by the logging industry. But if the FRECL model makes any sense at all, the logging industry is just one of four industries organized along a common stream of money and, crucial though it be, it is certainly not the most powerful one in the bunch.

In real-world economics, the logging industry is the servant of F, RE, and C. Let the finance industry stop lending, the real estate industry stop developing, and the construction industry stop building, and the logging industry will be cutting far fewer trees. And where reckless lending, reckless logging, and reckless building go hand in hand, the consequences can be calamitous at many levels.

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