Was DEI a product of zero percent interest rates?

From Samizdata quote of the day – the demise of ESG/DEI edition by Joanathan Pearce.

“In the UK, the Financial Reporting Council has just opted against including ESG requirements in the UK Corporate Governance Code — these were to have increased the role of audit committees in overseeing ESG and expanding diversity and inclusion. BlackRock Inc. Chief Executive Officer Larry Fink rarely mentions ESG any more. Elon Musk reckons that “DEI must DIE.” Bill Ackman (whose money matters) has called DEI the “root cause” of the sharp rise in anti-semitism at US universities. Donald Trump has promised to cancel all DEI initiatives across the federal government. The courts have already called a halt to race-based affirmative action at US universities, and last year the Attorney Generals of 13 US states wrote to Fortune 100 CEOs to let them know they would face serious legal consequences if they were to treat people `differently because of the color of their skin.'”

– Merryn Somerset Webb. She argues that much of the driving force is not just the absurdities of much environmental and “diversity” policies, but the brute fact of rising interest rates. Companies’ balance sheets and cost control issues are taking more urgency. ESG/DEI or whatever other piece of fashionable stuff is a lot harder to justify when capital is no longer “free”.

I trust and hope that interest rates remain around current levels for many more months to come, so as to force firms to compete harder for capital, to put it to genuinely profitable uses, reward long-term saving and habits of thrift and competence, and other generally good things.

As an aside, I can recommend The Price of Time, by Edward Chancellor, which demonstrated the great harms caused by artificially low interest rates over the centuries.

With arrival of zero percent interest rates from the Fed in 2008 and the decade and a half indulgence of near zero interest rates after then, we have had nearly a generation of economic mismanagement with politicians having their hand permanently in the candy jar to try and compensate for the absence of effective policy that actually increase national productivity, the actual foundation for prosperity.

All through the Obama administration we used near zero interest rates to bury the evidence of bad national policies.  And once started, everyone had a stake in keeping rates low.

From a management consulting side, I was dealing with it primarily from an asset allocation side of things.  When you have zero (or even negative) interest rates, you have created an incentive structure for misallocating capital on a massive scale.  Projects that would never normally pass muster get greenlighted.  It is a disaster in the making and the Gods of the Copybook Headings always have the last laugh.

Interest free capital is simply not a real thing, regardless of what politicians want.  And when the winds of reality come blowing, watch out and bundle up.  

One destination for much of that "free" capital was in to ESG type activities.  The entire Clean Energy agenda was justified under the AGW myth but it could only be made a reality when capital was nearly free.  With real interest rates in positive territory for the first time in a long while, a lot of ESG and Clean Energy investments are going to get reexamined and many cancelled.  As is already happening with wind.

I have never especially considered zero interest rates in the context of the DEI side of the DEI/ESG ideology.  I basically lumped it all together as ideological fanaticism with a side dish of luxury beliefs.

But Webb is correct.  Free capital is equally applicable, though differently manifested on both sides of the DEI/ESG slash.  

DEI is smaller than the ESG sums but just as dependent on free money.  Ideally, it is tempting to look at the backlash of citizens against the tyranny and hatred of DEI/ESG as a signal of reemergent philosophical health.  And I hope it is.

But Webb's observation opens up another alternative.  Institutional support for DEI may be in part eroding simply because it is no longer affordable.  I hope that in fact institutions are reengaging with Classical Liberalism and Age of Enlightenment values but their actions may just be driven by the pocketbook.

I guess it suggest being mindful and continuing to maintain singular focus on bringing the focus back around to Classical Liberalism and Age of Enlightenment values and not take easy wins for granted.