Forget Peak Oil, this book review below argues that we are on the verge of Peak Chicken, Peak Tuna and Peak Prunes. Perhaps, in that state of the world you will substitute to double stuff oreos? I know that only nerds read the New Yorker but now that I've moved away from New York City --- I like this magazine. My son likes its cartoons. Bee Wilson blames fat Westerners who like to eat too much and the governments that subsidize our farmers. It will interest me if there are any good agricultural economists who will enter this public debate. what would Milton Friedman say? Would he argue in favor of getting rid of all farming subsidies? Are there any externalities here? Clearly, this article hints at tragedy of the commons problems and environmental externalities associated with production processes such as pig poop (see below).


The New Yorker Magazine Book Review
The Last Bite
Is the world’s food system collapsing?
by Bee Wilson May 19, 2008

Keywords
Food;Roberts, Paul;“The End of Food” (Houghton Mifflin; $26);Malthus, Thomas;Agriculture;Demographics;Population Growth

In his “Essay on the Principle of Population,” of 1798, the English parson Thomas Malthus insisted that human populations would always be “checked” (a polite word for mass starvation) by the failure of food supplies to keep pace with population growth. For a long time, it looked as if what Malthus called the “dark tints” of his argument were unduly, even absurdly, pessimistic. As Paul Roberts writes in “The End of Food” (Houghton Mifflin; $26), “Until late in the twentieth century, the modern food system was celebrated as a monument to humanity’s greatest triumph. We were producing more food—more grain, more meat, more fruits and vegetables—than ever before, more cheaply than ever before, and with a degree of variety, safety, quality and convenience that preceding generations would have found bewildering.” The world seemed to have been liberated from a Malthusian “long night of hunger and drudgery.”

Now the “dark tints” have returned. The World Bank recently announced that thirty-three countries are confronting food crises, as the prices of various staples have soared. From January to April of this year, the cost of rice on the international market went up a hundred and forty-one per cent. Pakistan has reintroduced ration cards. In Egypt, the Army has started baking bread for the general population. The Haitian Prime Minister was ousted after hunger riots. The current crisis could push another hundred million people deeper into poverty. Is the world’s population about to be “checked” by its failure to produce enough food?

Paul Roberts is the second author in the past couple of years to publish a book entitled “The End of Food”—the first, by Thomas F. Pawlick, appeared in 2006. Pawlick, an investigative journalist from Ontario, was concerned with such predicaments as the end of the tasty tomato and its replacement by “red tennis balls” lacking in both flavor and nutrients. (The modern tomato, he reported, contains far less calcium and Vitamin A than its 1963 counterpart.) These worries seem rather tame compared with Roberts’s; his book grapples with the possible termination of food itself, and its replacement by—what? Cormac McCarthy’s novel “The Road” contains a vision of a future in which just about the only food left is canned, from happier times; when the cans run out, the humans eat one another. Roberts lacks McCarthy’s Biblical cadences, but his narrative is intended to be no less terrifying.

Roberts’s work is part of a second wave of food-politics books, which has taken the genre to a new level of apocalyptic foreboding. The first wave was led by Eric Schlosser’s “Fast Food Nation” (2001), and focussed on the perils of junk food. “Fast Food Nation” painted an alarming picture—one learned about the additives in a strawberry milkshake, the traces of excrement in hamburger meat—but it also left some readers with a feeling of mild complacency, as they closed the book and turned to a wholesome supper of spinach and ricotta tortellini. There is no such reassurance to be had from the new wave, in which Roberts’s book is joined by “Stuffed and Starved: The Hidden Battle for the World Food System,” by Raj Patel (Melville House; $19.95); “Bottomfeeder: How to Eat Ethically in a World of Vanishing Seafood,” by Taras Grescoe (Bloomsbury; $24.99); and “In Defense of Food: An Eater’s Manifesto,” by Michael Pollan, the poet of the group (Penguin Press; $21.95).

All of these authors agree that the entire system of Western food production is in need of radical change, right down to the spinach. Roberts opens with a description of E.-coli-infected spinach from California, which killed three people in 2006 and sickened two hundred others. The E. coli was traced to the guts of a wild boar that may have tracked the bug in from a nearby cattle ranch. Industrial farming means that even those on a vegan diet may reap the nastier effects of intensive meat production. It is no longer enough for individuals to switch to “healthier” choices in the supermarket. Schlosser asked his readers to consider the chain of consequences they set in motion every time they sit down to eat in a fast-food outlet. Roberts wants us to consider the “chain of transactions and reactions” represented by each of our food purchases—“by each ripe melon or freshly baked bagel, by each box of cereal or tray of boneless skinless chicken breasts.” This time, we are all implicated.

Like Malthus, Roberts sees humanity increasingly struggling to meet its food needs. He predicts that in the next forty years, as agriculture is threatened by climate change, “demand for food will rise precipitously,” outstripping supply. The reasons for this, however, are not strictly Malthusian. For Malthus, famine was inevitable because the math of human existence did not add up: the means of subsistence grew only arithmetically (1, 2, 3), whereas population grew geometrically (2, 4, 8). By this analysis, food production could never catch up with fertility. Malthus was wrong, on both counts. In his treatise, Malthus couldn’t envisage any innovations for increasing yield beyond “dressing” the soil with cattle manure. In the decades after he wrote, farmers in England took advantage of new machinery, powerful fertilizers, and higher-yield seeds, and supply rose faster than demand. As the availability of food increased, and people became more prosperous, fertility fell.

Malthus could not have imagined that demand might increase catastrophically even where populations were static or falling. The problem is not just the number of mouths to feed; it’s the quantity of food that each mouth consumes when there are no natural constraints. As the world becomes richer, people eat too much, and too much of the wrong things—above all, meat. Since it takes on average four pounds of grain to make a single pound of meat, Roberts writes, “meatier diets also geometrically increase overall food demands” even in those parts of Europe and North America where fertility rates are low. Malthus knew that some people were more “frugal” than others, but he hugely underestimated the capacity of ordinary human beings to keep eating. Even now, there is no over-all food shortage when measured by global subsistence needs. Despite the current food crisis, last year’s worldwide grain harvest was colossal, five per cent above the previous year’s. We are not yet living on Cormac McCarthy’s scorched earth. Yet demand is increasing ever faster. As of 2006, there were eight hundred million people on the planet who were hungry, but they were outnumbered by the billion who were overweight. Our current food predicament resembles a Malthusian scenario—misery and famine—but one largely created by overproduction rather than underproduction. Our ability to produce vastly too many calories for our basic needs has skewed the concept of demand, and generated a wildly dysfunctional market.

Michael Pollan writes that the food business once lamented what it called the problem of the “fixed stomach”—it appeared that demand for food, unlike other products, was inelastic, the amount fixed by the dimensions of the stomach itself, the variety constrained by tradition and habit. In the past few decades, however, American and European stomachs have become as elastic as balloons, and, with the newly prosperous Chinese and Indians switching to Western diets, much of the rest of the world is following suit. “Today, Mexicans drink more Coca-Cola than milk,” Patel reports. Roberts tells us that in India “obesity is now growing faster than either the government or traditional culture can respond,” and the demand for gastric bypasses is soaring.

Driven by our bottomless stomachs, Roberts argues, the modern economy has reduced food to a “commodity” like any other, which must be generated in ever greater units at an ever lower cost, year by year, like sneakers or DVDs. But food isn’t like sneakers or DVDs. If we max out our credit cards buying Nikes, we can simply push them to the back of a closet. By contrast, our insatiable demand for food must be worn on our bodies, often in the form of diabetes as well as obesity. Overeating makes us miserable, and ill, but medical advances mean that it takes a long time to kill us, so we keep on eating. Roberts, whose impulse to connect everything up is both his strength and his weakness, concludes, grandly, that “food is fundamentally not an economic phenomenon.” On the contrary, food has always been an economic phenomenon, but in its current form it is one struggling to meet our uncurbed appetites. What we are witnessing is not the end of food but a market on the brink of failure. Those bearing the brunt are, as in Malthus’s day, the people at the bottom.

Cheap food, in these books, is the enemy. Roberts complains that “the attributes of food that our economic system tends to value and to encourage”—like cheapness—“aren’t necessarily the attributes that work best for the people eating the food, or the culture in which that food is consumed, or the environment in which it is produced.” Cheap food distresses Raj Patel, too. Patel, a former U.N. consultant and a current anti-globalization activist, is an excitable fan of peasant coöperatives and Slow Food. He lacks Roberts’s cool scope but shares his ambition to connect all the dots. Patel would like us to take lessons in “culinary sensuousness” from his “dear friend” Marco Flavio Marinucci, a San Francisco-based artist and, apparently, a master of the art of “gastronomical foreplay.” Patel regrets that most of us are nothing like dear Mr. Marinucci. We are all too busy being screwed over by the giant corporations to take the time to appreciate “the deeper and subtler pleasures of food.” For Patel, it is a short step from Western consumers “engorged and intoxicated” with cheap processed food to Mexican and Indian farmers committing suicide because they can’t make a living. The “food industry’s pabulum” makes us all cogs in an evil machine.

It’s easy to see what Roberts and Patel have against cheap food. For one thing, it’s often disgusting. Roberts has a powerful passage on industrial chicken, showing how its vile flesh is a direct consequence of its status as economic commodity. In the nineteen-seventies, it took ten weeks to raise a broiler; now it takes forty days in a dark and crowded shed, because farmers are under constant pressure to cut costs and increase productivity. Every cook knows that chicken breast is no longer what it once was—it’s now remarkably flabby and yielding. Roberts reveals that poultry experts have a term for this: P.S.E., or “pale, soft, exudative” meat. Today’s birds, Roberts shows, are bred to be top-heavy, in order to satisfy consumers’ desire for “healthy” white meat at affordable prices. In these Sumo-breasted monsters, a vast volume of lactic acid is released upon death, damaging the proteins—hence the crumbly meat. Poultry firms deal with P.S.E. after the fact, pumping the flaccid breast with salts and phosphates to keep it artificially juicier. What they don’t do is try particularly hard to prevent P.S.E. They can’t afford to. The average U.S. consumer eats eighty-seven pounds of chicken a year—twice as much as in 1980—but this generates a profit of only two cents per pound for the farmer.

So, yes, cheap food can be nasty, not to mention bad for farmers and the environment. Yet it has one great advantage that neither Patel nor Roberts fully grapples with: people can afford to buy it. According to the World Bank, four hundred million fewer people were living in extreme poverty in 2004 than was the case in 1981, in large part owing to the affordability of basic foodstuffs. The current food crises are the result of food being too expensive to buy, rather than too cheap. The rioters of Haiti would kill for a plate of affordable chicken, no matter how pale, soft, and exudative. The battle against cheap food involves harder tradeoffs than Patel and Roberts allow. No one has yet discovered how to raise prices for the overfed rich without squeezing the underfed poor.

If Roberts’s overarching thesis is simplistic, he is nevertheless right in his scathing analysis of some of the market alternatives. The conventional view against which Roberts is arguing is that the food economy is “more or less self-correcting.” When the economy gets out of kilter—through rapidly increased demand or sudden shortages and price rises—the market should provide the solution in the form of new technologies that “push the Malthusian monster back into its box.” This is precisely what Malthus is thought to have missed—the capacity of a market economy to turn pressures on supply into innovations that can meet future demands. But endless innovation has now generated a series of demands that are starting to overwhelm the market.

Roberts depicts the global food market as a lumbering beast, organized on such a monolithic scale that it cannot adapt to the consequences of its own distortions. In a flexible, responsive market, producers ought to be able to react to a surplus of one thing by switching to making another thing. Industrial agriculture doesn’t work like this. Too many years—and, in the West, too many subsidies—are invested in the setup of big single-crop farms to let producers abandon them when the going gets tough. Defenders of industrial agriculture point to its efficiency, but Roberts sees instead a system full to bursting with waste, often literally. American consumers demand huge amounts of cheese and meat. One consequence is the giant “poop lagoons” of Northern California. In traditional forms of mixed agriculture, animal manure is not a waste product but a valuable fertilizer. By contrast, the mainstream food economy is now dominated by monocultures in which crops and animals are kept apart. This system of farming has little use for poop, despite churning it out in ever-increasing volumes. The San Joaquin Valley has air quality as poor as Los Angeles, the result of twenty-seven million tons of manure produced every year by California’s cows. “And cows are relatively benign crappers,” Roberts points out; hogs—mass-produced to meet the demand for bacon on everything—are more prolific. On June 21, 1995, Roberts tells us, a hog lagoon burst into a river in North Carolina, destroying aquatic life for seventeen miles.

Repulsed by the sordid details of meat production, some consumers turn to fish instead. Yet the piscine world is subject to the same market paradoxes as meat. In “Bottomfeeder,” Taras Grescoe confirms that there are still plenty of fish in the sea. Unfortunately, these are not the ones that people want to eat. Aside from pollution, the oceans would be in quite a healthy state if consumers were less reluctant to eat fish near the middle or bottom of the food chain, such as herring, sardines, and mackerel. We would be healthier, too, since these oily fish are rich in omega-3, the fatty acid in which the Western diet is markedly deficient. Instead, we clamor to eat top-of-the-food-chain fish such as cod and bluefin tuna, many of whose stocks have collapsed; they will soon disappear from the seas altogether unless demand drops. So far, as with meat, the opposite is happening. With increasing affluence, the Chinese are developing a taste for sushi, which could soon see every last piece of glistening toro disappear.

Fish “farming,” with its overtones of pastoral care, sounds like a better option, but Grescoe—who has travelled around the world in search of delicious and rare seafood—shows that it can be more damaging still. As with chicken, out-of-control demand for once premium foods has translated into grotesque and unsustainable forms of production. A taste for “popcorn shrimp in the strip malls of America” translates into the cutting down of tropical mangrove forests in Ecuador and the destruction of wild-shrimp stocks in Southeast Asia. Grescoe quotes Duong Van Ni, a hydrologist from Vietnam, where warm-water shrimp farms feed the insatiable Western appetite for all-you-can-eat seafood-shack specials and prawn curries. “Shrimp farming is so damaging to the environment and so polluting to the soil, trees, and water that it will be the last form of agriculture,” Ni says. “After it, you can do nothing.” Our thirst for cheap salmon is similarly destructive, and the results are as bad for us as they are for the fish. The nutrition expert Marion Nestle warns that you should broil or grill farmed salmon until it is well done and remove the skin, to get rid of much of the toxin-laden grease. As Grescoe remarks, if this is the only safe way to eat this fish, wouldn’t it be better to eat something else?

The one thing farmed salmon has going for it is that the fish are, as Roberts says, “efficient feed converters”: salmon require only a little more than a pound of feed for every pound of weight that they gain. The trouble is that the feed in this case isn’t grain but other fish, because salmon are carnivores. Fishermen are granted large quotas to catch fish like sardines and anchovies—which are delicious and could be eaten by humans—only to have them turned into fish meal and oil. Thirty million tons, or a third of the world’s wild catch, goes into the manufacture of fish meal and oil, much of which is used to raise farmed salmon. Farming salmon, Grescoe says, is “akin to nourishing tigers and lions with beef and pork,” and then butchering them to make ground beef. The farming of herbivorous fish such as carp and tilapia, by contrast, actually increases the net amount of seafood in the world.

The great mystery of the world’s insatiable appetite for farmed salmon is that it doesn’t taste good. Grescoe, a Canadian who was reared on “well-muscled” chinook, gives a lurid description of the farmed variety, with its “herring-bone-pattern flesh, barely held together by creamy, saliva-gooey fat.” A flabby farmed-salmon dinner—no matter how much you dress it up with teriyaki or ginger—cannot compare with the pleasures of canned sardines spread on hot buttered toast or a delicate white-pollock fillet, spritzed with lemon. Pollock is cheaper than salmon, too. Yet in the United States there is little demand for it, or, indeed, for the small, wild, affordable (and sustainable) Northern shrimp, which taste sweeter than the watery jumbo creatures that the market prefers.

Given that the current food economy is so strongly driven by appetite, it does seem odd that so much of the desire is for such squalid and unsatisfying things. If we are going to squander the world’s resources, shouldn’t it at least be for the sake of rare and splendid edibles? Yet much of what is now eaten in the West is not food so much as, in Michael Pollan’s terms, stuff that’s merely “foodish.” From the nineteen-eighties onward, many traditional foods were removed from the shelves and in their place came packages of quasi-edible substances whose selling point was nutritional properties (No cholesterol! Vitamin enriched!) rather than taste. Pollan writes:


There are in fact hundreds of foodish products in the supermarket that your ancestors simply wouldn’t recognize as food: breakfast cereal bars transected by bright white veins representing, but in reality having nothing to do with, milk; “protein waters” and “nondairy creamer”; cheeselike foodstuffs equally innocent of any bovine contribution; cakelike cylinders (with creamlike fillings) called Twinkies that never grow stale.

Pollan shows that much of the apparent abundance of choice available to the affluent Western consumer is an illusion. You may spend hours in the supermarket, keenly scrutinizing the labels, but, when it comes down to it, most of what you eat is derived from the high-yield, low-maintenance crops that the food industry prefers to grow, and sells to you in myriad foodish forms.

“You may not think you eat a lot of corn and soybeans,” Pollan writes, “but you do: 75 percent of the vegetable oils in your diet come from soy (representing 20 percent of your daily calories) and more than half of the sweeteners you consume come from corn (representing around 10 percent of daily calories).” You may never consciously allow soy to pass your lips. You shun soy milk and despise tofu. Yet soy will get you in the end, whether as soy-oil mayo and soy-oil fries; ice cream and chocolate emulsified with soy; or chicken fed on soy (“soy with feathers,” as one activist described it to Patel).

Our insatiable appetites are not simply our own; they have, in no small part, been created for us. This explains, to a certain degree, how the world can be “stuffed and starved” at the same time, as Patel has it. The food economy has created a system in which some have no food options at all and some have too many options, albeit of a somewhat spurious kind. In the middle is a bottleneck—a relatively small number of wholesalers and buyers who largely determine what the starving farmers produce and what the stuffed consumers eat. In the Netherlands, Germany, France, Austria, Belgium, and the United Kingdom, there are a hundred and sixty million consumers, fed by approximately 3.2 million farmers. But the farmers and the consumers are connected to one another by a mere hundred and ten wholesale “buying desks.”

It would be futile, therefore, to look to the food system for radical change. The global manufacturers and wholesalers have an interest in continuing to manipulate our desires, feeding our illusions of choice, stoking our colossal hunger. On the other hand, if desires can be manipulated in one direction, why shouldn’t they be manipulated in another, more benign direction? Pollan offers a model of how individual consumers might adjust their appetites: “Eat food. Not too much. Mostly plants.” As a solution, this is charmingly modest, but it is unlikely to be enough to meet the urgency of the situation. How do you get the whole of America—the whole of the world—to eat more like Michael Pollan?

The good news is that one developing country has, in the past two decades, conducted a national experiment in a more sustainable food system, proving that it is possible to feed a population less destructively. Farmers gave up synthetic fertilizers and pesticides and replaced them with old-fashioned crop rotations and mixed livestock-crop operations. Big industrial farms were split into smaller coöperatives. The bad news is that the country is Cuba, which was forced to make the switch after the fall of the Soviet Union left it without supplies of agrochemicals. Cuba’s experiment depended on its authoritarian state, which commanded the “reallocation” of labor from cities to farms. Even on Cuba’s own terms, the experiment hasn’t been perfect. On May Day, Raúl Castro announced further radical changes to the farm system in order to reduce reliance on imports. Paul Roberts notes that there is no chance that Americans and Europeans will voluntarily adopt a Cuban model of food production. (You don’t say.) He adds, however, that “the real question is no longer what a rich country would do voluntarily but what it might do if its other options were worse.” ♦
  1. Dear Readers, In recent months, I have posted my public writing to my free Substack. I have such fond memories of Google Blogspot, thus it deeply surprises me that Google's search engine does a terrible job in helping those who search to find past blog posts. This deeply surprises me. As I age, I'm trying to post more dignified material to my Substack. I am sticking to what I know based on my ongoing research in microeconomics. Thanks very much for reading my posts. Best Regards, Matthew E. Kahn
  2. I have moved my blog over to Substack (and I've lost many readers). Please join me there. Here is a recent column. The Wall Street Journal has published an important piece about how the high heat is reducing economic activity in Houston. The piece has a pessimistic tone that the heat melts the city’s infrastructure and shaves off economic activity as people don’t want to go outside. When microeconomists study consumer expenditure dynamics as people buy cars, go out to dinner and buy groceries. During hot spells, people are less likely to go out for dinner or to play multiple rounds of golf. A microeconomist would say that this evidence indicates that people have “state dependent preferences”. In English, this means that how much we enjoy a steak dinner at an outdoor restaurant depends on whether it is 75 degrees outside or 95 degrees outside (this is the “state of the world”). I certainly believe that hot and humid Houston is in a type of “macroeconomic Siesta” right now and this reduces economic activity. But, permit me to make some counter-points. #1 The money people in Houston do not spend on the hot July 28th 2023 is still in their bank account and they can spend it on a cooler November 5th 2023 day. Note this intertemporal substitution. The media focuses on the direct effect of the heat (that high heat is reducing economic activity today) but my counter-hypothesis is that it displaces expenditure to the future when it will be cooler later this year in Houston. So, will the New York Times write a piece saying that high summer heat causes a fall boom in Houston? I don’t think so. This type of cross-elasticity is ignored by the “climate crisis” focused media. #2 The WSJ interviewed a few people who want to leave Houston. As always, they are free to choose. As more workers can engage in WFH, those who hate the high heat will leave the city in summer. If they own a home, they can AirBNB it. WFH is a climate adaptation strategy as it makes people more geographically footloose. I discuss this in my 2022 book. #3 We have to live somewhere. Is Houston becoming more miserable to live in summer than other cities? If the answer is “yes”, then its home prices will fall. Here are some data from Zillow.
    Even with higher interest rates, I don’t see a collapse here in the Zillow index. Are you going to sell short Houston homes as your strategy to get rich? Incumbent home owners form a strong interest group to invest in adaptation strategies to protect their asset’s value. WHAT are possible adaptation strategies? #1 Road construction materials can be re-evaluated to reduce the urban heat island effect. Read this report. The City has strong incentives to embrace the cost-effective strategies discussed here. #2 Golf courses can open up part of the area and charge people to enter on hot days to use them as private parks. #3 Here are personal cooling strategies. On a personal level, of course the city needs access to strong air conditioning. Firms that make them and repair them will enjoy a boom. The Electricity GRID must remain reliable. The Climatopolis logic is that Houston competes with other cities to attract successful people and firms. The system of cities and the fear of brain drain gives Houston’s leaders and land owners strong incentives to be pro-active in adapting to climate change. Such efforts will be messy as there will be fights over who pays for such local public goods but the end result will be a more resilient Houston where the high heat causes less economic damage in the short term and medium term. This is the climate change adaptation hypothesis.
  3. The New Economic Geography of WFH Matthew E. Kahn Over the last three years, companies from all over the world have learned valuable information about how their firm’s productivity and worker satisfaction is affected when workers can engage in Work from Home (WFH) on at least a part-time basis. Each firm faces fundamental tradeoffs in not requiring workers to return full time to the office. On the one hand, WFH accommodates worker lifestyles and responsibilities at home. WFH workers gain from commuting less often and some may choose to live further from their place of work because they commute in on fewer days. Firms with happier workers are less likely to face retention challenges and will pay less retraining workers. Given that WFH is a non-taxed perk, firms that offer this job amenity can be less generous in giving workers pay raises. Firms located in expensive areas can economize on expensive commercial real estate. If a firm requires that workers be in the office just half the week, then a firm can reduce its space requirements by 50%! On the other hand, firms benefit from face to face communication. Younger workers gain more from such mentoring. Building up the firm’s culture and monitoring worker effort is easier to do if workers are on site. Each company has a strong incentive to experiment with different workplace practices to learn what works best for their organization. The pursuit of profit actually accelerates this learning process. Economists are always looking for new ways to study firm dynamics. The rise of the WFH economy opens up many questions related to what types of firms will encourage their workers to engage in WFH. Famous executives such as Elon Musk at Tesla and Jamie Dimon at JP Morgan have been encouraging workers to return to the office. Why? Up until now, a lack of data has hindered the systematic analysis of what types of firms prioritize allowing workers to engage in WFH on at least a part-time basis. The newly released Flex Index provides a unique opportunity for researchers. As an urban economist, I am especially interested in the geographic determinants of why different firms engage in hybrid-WFH. The Flex Index provides data on each firm’s headquarters’ location. I focus on those that are based in the United States. I use data for 2528 of them. For this set of firms, I merged in three geographic variables. The first variable is the Zillow Median Home Price Index. Zillow uses a repeat home price index methodology to create a standardized “apples to apples” measure of home prices that can be compared across cities at a point in time or within a given city over time. In the analysis I present below I use Zillow data from December 2022. The second variable I merge in to the Flex Index is the percent of voters in the Headquarters State that voted for Joe Biden in the 2020 Presidential Election. The third variable I merge in from the Zillow data base is the city’s size. So, New York City is the first ranked city in the nation because it is the largest city. I use these data to test two hypotheses; Hypothesis #1: All else equal, firms are more likely to engage in WFH work if home prices are higher in the HQ City. Hypothesis #2: All else equal, firms are more likely to engage in WFH in more Progressive states. To test these hypotheses, I use a linear multivariate regression framework. To standardize the firms, I include industry fixed effects (this variable is in the Flex Index database). The dependent variable is a dummy variable that equals one if the firm’s workers all work on site. In the database, 39% of the firms report having the workers work fully on site. Table One reports four regressions with each column reporting a separate regression. I use the regression output to test the hypotheses presented above. Main Results All else equal, firms are more likely to engage WFH work if home prices are higher in the Headquarter (HQ) City. Based on the results in columns (1) and (3), I find that for the full set of industries and for the Healthcare and Biotechnology industry that workers are more likely to be engaging in WFH if home prices are higher in the HQ’s city. Based on the results in column (2), a doubling of home prices is associated with a log(2)*-.088 = -.06 or a six percentage point reduction in workers working solely on site. This effect is even larger for the Health Care industry. For this subset of firms, a doubling of local home prices is associated with a 12.7 percentage point increase in WFH. For the other two industries, I fail to reject the hypothesis that firms are not more likely to allow workers to engage in WFH as a function of local home prices. All else equal, firms are more likely to engage in WFH in more Progressive states. The test of this hypothesis is based on the coefficient on the 2020 Joe Biden vote share. Across all four specifications presented in Table One, I find consistent evidence that firms are more likely to allow their workers to engage in WFH when the HQ is located in a more liberal state. A ten percentage point increase in Joe Biden’s vote share is associated with a 3 percentage point increase in the probability that a firm allows its workers to engage in WFH on at least a part-time basis. Conclusion The Flex Index is a terrific new data source that allows empirical researchers to study how different firms are incorporating WFH into their work routines. In my 2022 Going Remote book, I hypothesized that the rise of WFH would benefit workers in high home price areas. The evidence presented here supports this hypothesis. Here, I also find a Red State/Blue State divide such that firms located in Blue States are more likely to allow their workers to engage in WFH. Future research should explain why we observe this fact. Are such firms in progressive states more concerned about work/life balance and gender equality issues? There are many open questions that improved data access will allow for us to provide credible answers.
  4. A majority of American adults live in owner occupied housing. As an economist, I celebrate the logic of revealed preference. While many poor people are renters, many non-poor people reveal that the benefits of ownership exceed the costs. In this entry, I would like to delve into the details here. Up front, let me say that I don’t want to discuss the tax code and the nitty gritty of mortgage interest deductions, the GSEs, etc. Instead, I want to talk about why people gain life satisfaction from ownership and what are some of the hidden costs of ownership under our current “rules of the game”. As an urban economist, I want to contrast the private benefits to an adult of owning a home and the local social benefits conveyed to a community when it consists of home owners. Portfolio Risk from Home Ownership Let’s start with a personal example. Back in 2000, We purchased a home in Belmont, MA (a Boston suburb), we paid 1/2 in cash and got a loan for the rest. The cash we invested in the home had a next best alternative. We could have invested in a diversified portfolio of assets rather than making a place based bet. By buying this home, we were raising our migration costs for moving away from Boston and thus were losing some option value if the local economy performed worse than the rest of the nation. A strange feature of the housing market is that owners hold an undiversified portfolio. Imagine an alternative world where I could own 36% of my Belmont home and own 2% of 32 other homes scattered around the United States. This would be a more diversified portfolio. Of course there would be contracting issues in designing this contract. My friend and co-author Joe Tracy co-authored a MIT Press book on implementing these contracts. The Past Rate of Return on Housing for African-Americans In 2021, I released an NBER Working Paper where I use several data sets to make a simple point. Here is my paper’ abstract: “The racial and ethnic composition of home buyers varies across geographic locations. For example, Asians and Hispanics are much more likely to buy homes in California than Blacks and Blacks are more likely to buy homes in Georgia than other demographic groups. Home prices grow at different rates across geographic units such as counties or zip codes. Hedonic bundling inhibits buyers from purchasing shares of different homes and forming a spatially diversified housing portfolio. Spatial variation in purchases suggests that the average rate of return to housing varies across racial and ethnic groups. To test this claim, I construct a geographic shift-share index by combining Zillow geographic specific home price index data with HMDA micro data. The shift share calculations yield the average rate of return to home ownership by purchase year, and sale year for different demographic groups. Over the years 2007 to 2020, Blacks earned a lower rate of return on home purchases than Asians and Hispanics and the sample average. Within geographic areas, average loan differences across racial and ethnic groups are very small.” Let’s unpack this. Over the last 25 years, cities such as San Francisco, Boston, Portland, Seattle, San Jose, Malibu, and Santa Monica have boomed. None of these cities is known to be an African-American city. African-Americans tend to buy in other cities such as Baltimore, Cleveland and Detroit. What is going on here? (and of course I am telling an Average story —- LeBron James lives close to me in Los Angeles’s Brentwood). African-Americans on average have lower wealth than Whites and are less likely to be able to afford the down payment to buy housing in Superstar Cities. African-Americans are less likely to work in Tech than Whites and Asians and this reduces the likelihood that they are living in the major tech hubs. In the areas where African-Americans have ties, house prices have not appreciated much and this means that the AVERAGE African-American homeowner has earned a lower rate of return on housing over the last 25 years. Going forward (from 2023 to 2040) will Baltimore’s housing market outperform San Jose’s? This is possible. In my recent WFH Going Remote book, I present microeconomic arguments for why this is possible if Baltimore improves its quality of life. In closing this section, I want my readers thinking about opportunity cost. If an African-American family owns housing in Baltimore then that money is not invested in the SP500 stock market index. Opportunity cost for asset investments always exist. What About the Consumption Value of Home Ownership? When we teach Econ 101, we introduce our students to the utility function. This is the economist’s “thermometer” measuring how much pleasure we gain from different consumption bundles such as consuming beer or pizza. The consumer knows herself and knows her budget constraint and makes the right (affordable) consumption choice. Assuming people are consistent over time, we learn about their priorities from the choices they make as market prices and their income changes. With this preamble, why does home ownership raise one’s utility? One hypothesis is “pride of ownership”. But what do these words mean? Economists have struggled with modeling the demand for “status”. Economists have taken Veblen seriously and have sought tests of which subgroups of people seek to own and display luxury goods to signal that they are special. Here is a paper about cars and jewelry ownership. Of course, I understand the desire for status. I continue to submit papers to Top 5 journals and to track my Twitter Follower count! But, the point of this 1/2 joke is that there is an ever increasing number of strategies for producing “status”. As I age, I gain pride by reaching my Google Fit target of 10,000 steps a day. During my life time, I have lived in fancy rental housing in Manhattan, Singapore, and Baltimore. Given the changing demographics of our population, real estate suppliers will offer rental properties if there is demand. Don’t Renters Face Displacement Risk and Gentrification Risk? Yes, but if this is a serious concern then renters can sign longer term contracts up front. Scottie Pippen signed a 10 year contract with the Chicago Bulls at the start of his career because of his fear of injury. In a renter economy, there would be less support for local NIMBYism and real estate developers would build more housing and this would reduce rent rise risk. The ongoing conversion of commercial urban real estate into residential housing also reduces the likelihood of medium term rent spikes. I claim that it is time to visit this important paper by Todd and Nick. Sinai, Todd, and Nicholas S. Souleles. "Owner-occupied housing as a hedge against rent risk." The Quarterly Journal of Economics 120, no. 2 (2005): 763-789. Neighborhood Social Capital Boosts Due to Home Ownership? Ed Glaeser and Denise DiPasquale have posited a positive spillover that when real estate is owner occupied that the owner has the right incentives to maintain the property (to maintain the resale value) and to not free-ride in terms of neighborhood attributes such as safety and neighborhood greenness. Their empirical strategy in their applied research was to use panel data at the individual level and observe how the same person behaves before and after she becomes a home owner. A field experiment researcher would want to go a step further and randomly assign similar people at the baseline to renting versus owning and then observe how their home is treated and how their neighborhood’s quality of life changes over time. I greatly admire their work here but I want to be provocative and argue that their work is out of date due to technological change. I want to return to a paper by Baker, George P., and Thomas N. Hubbard. "Contractibility and asset ownership: On-board computers and governance in US trucking." The Quarterly Journal of Economics 119, no. 4 (2004): 1443-1479. These authors tell the following story. Back in the 1970s, truck drivers bringing stuff from California to Baltimore markets had private information about their routes and effort. The food company gave the truck driver a share of the profits to incentivize them to not shirk with respect to effort. The advent of cheap GPS computers meant that the food company could easily monitor the trucker and could now pay him a fixed wage. The same idea holds in 2023 for rental housing. The big data monitor era allows the property manager to have a very good sense of how the tenant is using the property and what is going on in the local neighborhood. If crime rises, the property manager can hire private guards. If litter increases, a crew can be hired to pick up the trash. Markets substitute for social capital and volunteering! Conclusion The modern Economy’s Big Data revolution and climate change risk both create incentives for more of us to be renters. Going forward if more of us are renters in the year 2040; then we gain the following adaptation benefits; #1; Our assets are less exposed to place based shocks (i.e Hurricane Ian), #2 we hold a real option to move away from areas that turn out to be at greater risk from shocks, #3 There is less lobbying for place based subsidies using national subsidies because “victims” have fewer place based assets at risk (i.e we are each holding a more diversified portfolio). If government steps back from insurance markets, the private sector will step up its game and insurance innovation will further spur the pace of climate change adaptation. If these ideas interest you, read my 2021 Yale Press book Adapting to Climate Change.
  5. Climate change adaptation refers to our individual and collective ability to cope with Mother Nature’s more intense weather punches in terms of extreme heat, drought, fire, flood and many other place based risks. My microeconomics research, as sketched out in my 2010 Climatopolis book and my 2021 Adapting to Climate Change books, argues that capitalism accelerates our ability to adapt as market price signals encourage substitution and innovation. Whether government policy complements the private sector muffles the private sector’s efforts continues to be a major research topic. In my 2010 Climatopolis book, I asked; “If Milton Friedman ran the U.S FEMA (and thus committed to no generous ex-post bailouts to shocked places) how much faster would adaptation occur?” In my ongoing empirical work, I continue to study how extreme weather affects our economy. I see evidence of adaptation progress as the “climate damage function” flattens and this means that the same punches thrown by Mother Nature cause less damage over time. My students are studying this hypothesis in the developing world and investigating what frictions (such as government policy) inhibit adaptation from taking place. An example would be government price supports for agriculture that create a moral hazard effect. See this 2015 paper set in the United States. My Thoughts About the Work by Two Talented New York Times Journalists The New York Times continues to be the paper of record. Two of the leading authors for the Times are Christopher Flavelle and David Wallace-Wells. I link to their work so you can read it on your own. David recently published a huge New York Times Magazine piece that you can read here. I want to keep this entry short but I plan to expand upon the themes I present below. I must acknowledge upfront that I have not interviewed either of them about their climate change adaptation pessimism. My points I present here are based on my reading of their work. How Does a “Climate “Crisis” Emerge? Global greenhouse gas emissions will continue to rise. Read our 2022 NBER paper. We do not know how much global average temperatures will rise due to rising emissions and we do not know what “crazy” weather will emerge because of what we have collectively unleashed. In a series of case studies, Flavelle argues that we have built up billions of dollars of place based capital in increasingly risky areas such as Florida that face more severe disaster risk. He emphasizes the moral hazard effect that the expectation that there will be Federal Bailouts of struck areas encourages more rebuilding in these areas. So, he is telling a story that we do not learn from our mistakes. He does not explain who is the “adult in the room”? Why don’t city urban planners, the mortgage lending industry, the real estate development industry, the insurance industry adopt new “rules of the game” so that new real estate development is nudged to “higher ground” or if we build in risky places that private actors are incentivized to invest in pre-cautions that reduce the damage caused by the next storm. Starting with my Climatopolis book, I have argued that if people make place based bets (such as investing in Miami real estate), then they should flip two sided coins. They get to keep the upside appreciation if local prices rise but they also must “eat” the downside loss if local prices decline because of rising risk and better opportunities in other real estate markets such as Boston or Houston or Buffalo. I do respect his point that the public sector activism in insurance markets is causing an important free market distortion. As the social cost of this distortion rises, economic theory predicts that political reform will take place. Why should tax payers on “higher ground” bail out risk takers over and over again? Why reward “bad behavior”? As we saw with the economy’s reorganization during the COVID crisis of 2020, markets adapt and change when new news occurs if government does not distort price signals. The rise of the Zoom WFH experiment was an amazing example of adaptation. David Wallace-Wells argues that adaptation is costly and will exacerbate existing inequality. A quote “Talk enough about adaptation, and you drift into technical-seeming matters: Can new dikes be built, or the most vulnerable communities resettled? Can crop lands be moved, and new drought-resistant seeds developed? Can cooling infrastructure offset the risks of new heat extremes, and early warning systems protect human life from natural disaster? How much help can innovation be expected to provide in dealing with environmental challenges never seen before in human history? But perhaps the more profound questions are about distribution: Who gets those seeds? Who manages to build those dikes? Who is exposed when they fail or go unbuilt? And what is the fate of those most frontally assaulted by warming? The political discourse orbiting these issues is known loosely as “climate justice”: To what extent will climate change harden and deepen already unconscionable levels of global inequality, and to what degree can the countries of the global south engineer and exit from the already oppressive condition that the scholar Farhana Sultana has called “climate coloniality”?” These are great questions but note that these are economics questions. What is the quality adjusted price of the goods we need to continue to be safe, comfortable and healthy? David Wallace-Wells owns a computer and a cell phone. These products didn’t exist in 1940. Every day they grow cheaper and become of higher quality. This is what market competition does. More poor people in the developing world can afford these products as quality adjusted prices decline. Note that Wallace-Wells is rightly concerned with poverty and the challenges that poor people will face going forward. An economist would reply to his pessimism; “okay, you are not worried about Elon Musk’s ability to adapt to new risks. Let’s rank all of the world’s population with respect to their income. Who are the people who currently do not have the capacity to adapt to the serious challenges that wacky weather is posing? What income growth would give them the opportunity to adapt? Why isn’t this income growth occurring? “ Note that David Wallace-Wells is saying that economic growth in the developing world is the key to adapting to climate change. We need poverty alleviation to help everyone to be able to adapt. Here we agree. Economic growth is the key tool for adapting to climate change. Such economic growth reduces poverty. Here is a study of global poverty alleviation by a leading macro-economist. I recognize that I am positing that national economic growth reduces poverty. Is this a controversial claim?
  6. This has been a very hot summer.  For every person on the planet, what is her willingness to pay to avoid this hot summer?  So, on a day when it s 93 degrees on average --- how much is Sally in Seattle willing to pay for this day to have been 78 degrees instead?

    In a "make versus buy" economy, one can either pay God to not face the 93 degree day in Seattle or one can use a suite of adaptation strategies to cope with the high heat.  Basic economic logic teaches us that one's willingness to pay to avoid the heat is bounded by what it would cost you to adapt to the heat.   This blog post focuses on the microeconomic determinants of adapting to the heat.

    I will argue that at any point in time, this adaptation strategy set is almost infinite dimensional and that the dimensions of the adaptation strategy set grow over time so that it gets ever easier for us to adapt to the high heat.  This means that our willingness to pay to avoid facing the extreme heat actually declines over time because it is getting cheaper for us to adapt on our own to the heat.   In my 2021 Adapting to Climate Change book, I expand on this point that the Social Cost of Carbon can actually decline over time for many people as their adaptation choice set grows.

    Let's start with the marginal cost curve that is familiar to anyone who has taken Econ 101.

    Case #1:   A firm produces pizza using a linear production function such that pizza=10*Labor and the price of Labor = 2 each.

    Given the linear production function, the firm can always make one more pizza if it hires .1 workers. It costs $2 per worker so the marginal cost to the firm of producing an extra pizza =2*.1 = 20 cents and this is a constant function.

    Case #2:   A firm produces pizza using a concave production function such that pizza=10*square root of Labor and the price of labor is .4 each.

    In this case the amount of labor needed to make a pizza can be expressed as =  Pizza*Pizza/100  and the $ expenditure to purchase this labor equals Pizza*Pizza/25  .   This mechanical marginal cost function is convex.

    Given this definition of marginal cost, now let's turn to the marginal cost of avoiding heat.  Consider a person in Spain today confronted with high heat where she currently lives and works.  Here is her strategy set for adapting;

    #1   Move to a cooler place (either outdoors or inside such as below ground).  Such migration can be permanent or temporary in an economy featuring cross-city transportation services and AirBNB short term housing.  

    #2   seek out a shady place with a breeze 

    #3  turn on air conditioning or go to a public place with air conditioning,   A theme in my 2010 Climatopolis book was that if an area is known to face rising summer heat then people will change their durables and their home and work place architecture to be better prepared for the heat. We are not passive victims!!

    #4 wear lighter clothing

    #5  use a damp towel

    #6  drink water

    #7  take a Siesta and stop working during the hottest hours

    #8   Eat lightly

    Each of these adaptation strategies has a financial cost and a time cost.  As Gary Becker taught us the full price equals the financial cost + your wage*time cost.   For example, migrating will require more time and for high value of time people, this will mean incurring a larger cost.  

    I will stop here but note the following.  Taking permutations of these various options yields an almost infinite dimensional adaptation choice set.  Modern climate economics assumes that this choice set is stationary. In truth, it expands on a daily basis as we make progress building higher quality durables such as housing and air conditioning units and as we retire older capital and install newer capital.  Modern economics is weak on capital updating problem.  John Rust wrote a famous bus engine replacement paper but climate economists haven't incorporated this logic into the updating of the spatial capital stock.  My paper with Devin Bunten is one attempt to address this issue.

    Once we acknowledge that we have an ever growing set of adaptation strategies that are becoming cheaper and cheaper to use then one becomes more optimistic about the ability of the rich and the poor to adapt to the new serious challenges we face.

    One example of the rising permutations.  More and more educated people now have the opportunity to engage in Work from Home.  These individuals can now more easily take a Siesta on a hot day.  This is an example of the permutations of the strategy set listed above.  

    My critique of modern climate economics is that so many researchers are content to estimate reduced form empirical regressions of the form;

    Person i's suffering on day j in location q =  constant +  b*Extreme heat on day j in location q +   U

    and take "b" as a physics constant.   Assume that "suffering" is measured by lost income and that this can be measured by the statistician.  

    "b" is an interesting reduced form parameter. It represents a slope that measures at a point in time how much suffering extreme heat has caused to the average person who lives at location q at day j.

    My Point  is that "b" is determined by all of the factors I discussed above.   As society's innovation and urban planning continues;  "b" converges to zero over time and this pace of "b" shrinking from a positive number towards zero over time is a measure of our adaptation progress.

    I want to see more climate economists exploring the microeconomic determinants of when does "b" change over time and when does it remain constant.   Government policies that distort adaptation decisions such as subsidies will likely turn out to be a major determinant of slowing down adaptation.

    As the marginal costs of climate adaptation decline, simple economics predicts that more individuals and firms will engage in adaptation (as they compare the benefits to the costs of adaptation) and as they engage in such self protection, the empirical reduced form researcher will estimate climate damage functions showing an ever declining amount of damage caused by climate change.

    The Climate Change adaptation literature needs to take basic microeconomic logic about rational choice more seriously and then we will make more progress understanding the pace of adaptation and the frictions that slow down adaptation.











  7. Is face to face interaction over-rated?   I am not talking about participating in the service economy (i.e getting a haircut), romance, friends and family interaction. I am talking about workplace face to face interactions and the vaunted "Water Cooler" (WC).  

    The cliche WC story has focused on serendipity and spontaneity that occurs when people casually chat about this and that.   This is not "directed search".  

    POINT #1;   Pessimists claim that the rise of WFH-HYBRID work will tax the Water Cooler such that organizations will become less productive.

    Counter-Point:    The pessimists forget what they learned about self-selection.  Workers know themselves, they know when they want to be social and when they want to be left alone.  Such workers also respond to incentives.  If the boss says; "hey , let's get our creative juices flowing".  Workers will respond and be charming and engage on those days.

    I claim that there is quantity and quality of F2F interactions.  The lazy urban economics productivity literature implicitly assumed that F2F interactions are homogeneous and are just a question of their count. So, if you meet with me 1000 times; the probability we have a breakthrough is 10 times higher than if we only meet 100 times face to face. I reject this.  Anyone who has met me knows that sharp diminishing returns kick in -- -in speaking with me!

    POINT #2;   The Water Cooler is a pre-AI, pre-UBER entity.   I am interested in directed search.  UBER matches drivers and riders to achieve efficiency criteria.  Why can't successful firms introduce a type of UBER AI matching to bring different workers together?  Why can't a boss make some recommendations about such matching?

    Point #3  Given successful within firm AI matching of Water Cooler Workers, why do they have to meet at work? Is the firm afraid of romance?   That would be a funny reason for the persistence of the office!

    Point #4;  Pessimists claim that we will get into a bad Nash Equilibrium such that social workers will go to the office and discover nobody to chat with as everyone else will be engaging in WFH on that day. In this age of AI Matching, can this misallocation really persist?


    So, to summarize this blog post;  The Quality versus Quantity tradeoff always exists.    Organizations have strong incentives to experiment here to see how to maintain their productivity under different organizational rules.  How firms adapt to the new opportunity created by WFH is fascinating.

    FINAL POINT:  Note that I set up this blog post such that the spontaneous face to face interactions occur by workers who work at the same firm. In this case, there is a residual claimant who has an incentive to get the rules of engagement right.

    What happens when workers work at different firms but work in the same city?  I doubt that spontaneous F2F is that important for these folks.  There isn't that much time in the day.   You might say that a Harvard economist and a MIT economist can have coffee and make research magic happen if they both go to work. I accept this example but this is a special example. Do Elon Musk's Tesla engineers hang out at the local bar looking to chat with engineers from other firms?   

    Since urban and labor economists do not have a real understanding of the production function of knowledge firms , we don't understand how the time allocation equilibrium induced by WFH will evolve over time.

    Of course, I do think that small firms will want to agglomerate close to each other for Labor pooling reasons but this is distinct from the gains from F2F interaction.  







  8. Millions of American workers engaged in Work from Home (WFH) during the pandemic.   WFH helped us to adapt to the risk of disease contagion.  Going forward, WFH will also helps us to adapt to the rising climate risks we now face.   Given that global greenhouse gas emissions are likely to continue to rise as the world’s population and per-capita income grows faster than the decarbonization of the world economy (declining GHG emissions per dollar of GNP), the climate change challenge will grow more severe over time. 

    New climate risk modelling firms such as First Street Foundation and Jupiter are mapping the risks of flooding and fire risk that every land parcel may face over the next decades. Of course, these science based models cannot offer certainty about emerging risks but they do play a “Paul Revere” role in educating both firms and workers about new place based climate risks.  You can type in any residential address here and First Street Foundation reports the property's expected fire risk and flood risk for free! Going forward, more and more property buyers will "do their climate risk homework" before making a large $ investment in a property.

    Before 2020, only the super rich and senior citizens were “footloose” and able to move to an area solely based on its amenities (or on its absence of risk).   The rise of WFH allows more and more American workers to live where they want to live as their daily commute to work is no longer looming over where they choose to live.  In our recent past,  the expectation that one would commute to work 5 days a week for 48 weeks a year pinned down a worker and her family to specific locations near the corporate headquarters. 

    Perceptions and concerns about emerging climate risks will influence where workers choose to live. Those who are risk lovers will actually be attracted to risky areas because property prices will be lower there! For those WFH eligible workers who are risk averse, their menu of locational choices will expand as they can live further from where they work. 
    While no two WFH workers are identical,  climate change will influence their locational choices.  For those WFH workers who are especially sensitive to air pollution, they will anticipate that elevated fire risk in the American West will create PM2.5 spikes during summer months.  They will figure out how to avoid these areas at those times.   For those WFH workers who are especially risk averse, they will be willing to pay more for housing in places where climate risk modelers predict that they face less risk.   Those WFH workers with niche preferences for leisure and exercise will have increased opportunity to live where they can engage in their hobby and meet like minded people. 

    As different workers choose their own best “climate niche”, this will improve their mental and physical health and raise their workplace productivity.  Surveys of young people have documented extreme ecological anxiety.  The ability to choose one’s own favorite location that will be likely to attract like minded people will help them to better cope in the face of the new risks we face. 

    If WFH workers choose to cluster in relatively safer parts of the U.S that feature less extreme heat, less drought risk, less flood and fire risk then firms will have an incentive to locate their future HQ2s and HQ3s closer to these areas.  Firms will benefit from lower turnover from less burnout and greater worker satisfaction.  Firms that expect that workers will stay with the firm longer have a greater incentive to mentor and invest in such workers.    Firms will use their corporate data on the location of their workforce and can use this information to decide where to open up HQ2s and HQ3s.    An old idea in urban economics focuses on the “chicken and egg” issue of whether people go where the jobs are or whether jobs move to where the people are.   In our emerging economy where more WFH are footloose, they will increasingly take into account the emerging climate risks and move to relatively higher quality of life areas.  As firms see these spatial clusters, the leadership can open up HQ2s closer to these worker hubs to increase face to face interaction and to buildup the company’s corporate culture. 
    Some worry that the rise of WFH is elitist.   As new WFH clusters form in climate resilient places, there will be an increased local service sector demand. This creates a local multiplier effect.  Well paid WFH workers will need local teachers living nearby, dentists, repair people, and there will be jobs in construction.  This increased local labor demand in a relatively high quality of life area featuring lower rents than in the Superstar Cities offers new opportunities for non-WFH eligible workers.
    Today, more educated people are more likely to work in industries and occupations that are WFH “friendly”.   If WFH facilitates adapting to climate change and facing less climate risk, then this creates an extra imperative for improving American education so that more young people can have the option to engage in WFH when they are older. 
    Before 2020, America’s most productive places were located in areas that face emerging risks.  There are worries about flooding in New York City and wildfire risk affecting the American West.  WFH accommodates our diversity.   Millions of workers will have the personal freedom to live where they want to live and this will reduce their stress during a time of rising risk. 

    Matthew E. Kahn is the Provost Professor of Economics at USC and the author of the New Book Going Remote.  This piece presents some ideas from his new book.  

    A Postscript:  Back in 2016, a prominent University of Chicago economist (who does not have a PHD from Chicago!) told me that snowstorms disrupt Chicago's productivity. I countered that I bet that he is even more productive on those days because he didn't go to work and nobody bugged him on such a day.  He just looked at me.  Flash forward to 2022 and I am even more confident about my 2016 comment.  The WFH option is now available to more and more highly educated people and they can "reoptimize" when a day turns out to be nasty to still be able to "seize the day" and get work done.   Of course a snowstorm can disrupt a dentist appointment but for more and more of the key tasks in the modern economy, these can be done "anywhere" and a footloose population will each make decentralized decisions for how to make the best of that day before the weather goes back to normal.   The reduced form empirical researcher then observes that the same Chicago snowstorm causes less economic damage and this is the empirical benchmark test that adaptation is taking place!  Mother Nature's punches cause less damage over time in an economy enjoying adaptation progress.   



  9.  I joined the USC Economics faculty in 2015 and Romain Ranciere also joined that year.  Permit me to list the impressive scholars who have subsequently joined our faculty.

    Marianne Andries 

    Tim Armstrong

    Vittorio Bassi

    Augustin Bergeron

    Fanny Camara 

    Thomas Chaney

    Pablo Kurlat

    Jonathan Libgober

    Robert Metcalfe

    Monica Morlacco

    Afshin Nikzad 

    Paulina Oliva

    Simon Quah 

    Jeffrey Weaver 

    David Zeke

    In July 2022, a star theorist will join our department as our newest hire.

    USC fascinates many people.  This list highlights that the hype about us is earned.  Note that we continue to build up strength in micro theory, macro, econometrics and applied micro.  A balanced, optimistic department.  

    The next piece of the jigsaw puzzle is to build up a PHD program that trains and places students to achieve their career goals.   

  10. The Los Angeles Times rejected my piece that I present below.  Of course, I'm trying to sell my new 2022 Going Remote book!!

     

    The New New Geography of Jobs


    LeBron James joined the Los Angeles Lakers in 2018.  He wanted to live and work in Los Angeles.   How many of us have compromised as we live in a place because our work is nearby? 

    Going forward, a silver lining of the pandemic is that more and more of us will have the option to live where we want to live as we engage in WFH on either a part-time or full time basis.  How will this new freedom affect our quality of life?

    More educated workers are more likely to be working in occupations and industries that are WFH “friendly”.  While a surgeon cannot work from home, a book author can.  More and more people have learned due to our experience we gained from the COVID lockdown that we can be quite productive while working at home.

    WFH workers reduce their weekly commute time.  The rise of WFH allows for staggered work hours removing many peak commuters off the roads.  The typical WFH worker saves perhaps 5 hours a week in commute time.   Will traffic speeds increase for everyone else?  This depends on whether more drivers take non-work related trips when road speeds increase. 

    WFH workers will have increased freedom in their lives to exercise more, to spend more time with children, to participate in family chores and to co-ordinate their leisure time with their nearby neighbors and friends.   This opens up the possibility of new civic engagement.   On days when a child is sick or bad weather days, the WFH worker can be productive and caring while at home.  This opportunity reduces one’s stress and improves one’s mental health.

    In 2021 and 2022, economists have used U.S Postal Service change of address data to study migration patterns.  We are already spreading out.  People have been moving to the exurbs and bidding up home prices there.   People will move to areas where they want to be now that they are “untethered” and can live where they want to live.  People who love to ski will move to such areas.  Those with an aging mother may move closer to her without facing the same labor market penalty as before the rise of WFH.  The ability to seek out cheaper housing will allow families to achieve their goals.  One economic study argued that when people live in larger housing that this causes them to have more children!

    During this time of deep concern about inequality,  will WFH be elitist such that those who are not WFH eligible will be left behind and housing will become unaffordable in areas far from the cities?   While these are open questions, economic logic offers several insights.  First, with the rise of new WFH communities, there will be a local demand for the service economy as construction workers, teachers and restaurants will be in demand. For those non-WFH workers with a taste for the area’s lifestyle, new opportunities will emerge.  Second, home prices do not have to soar in the medium term if real estate developers are allowed to build new housing in these places that have plenty of land. American’s NIMBYism could be a key constraint on how the rise of WFH affects our nations’ geography.

    Consider California.  Our state is suffering from drought right now and features extremely high home prices.  Farmers consume over 75% of the state’s water.  If some farmland could be rezoned as suburban housing, then water consumption would decrease and the supply of affordable housing would increase as that land is converted into housing.  The rise of WFH helps our state to adapt to climate change and to increase the supply of affordable housing!

    Third, our cities feature many durable buildings. If many WFH workers “head for the hills”, this opens up new possibilities for those who want to live in a San Francisco or a Boston to find housing there. This possibility only grows if commercial real estate in these areas is converted into residential buildings.

    In the medium term, the rise of WFH opens new opportunities for parents of young children. In the past, many women opted out of the workforce to raise children.  WFH opens up the possibility of working part-time for one’s firm while the kids are young.  A firm that anticipates this dynamic will continue to mentor such young female workers and this will close the gender earnings gap.  In the past, women disproportionately entered fields such as being a pharmacist because of the job’s flexibility. WFH opens up the possibility of more flexibility and thus accommodates our diversity.  

    In the past, African Americans were under-represented in the Tech Sector.  Relatively few African-Americans live in tech cities such as San Francisco and Seattle.  Few tech companies have headquarters in Baltimore or Detroit.  The rise of WFH raises the possibility of the “best of both worlds”.  One can live in Baltimore and work and physically appear from time to time at Amazon HQ2 or a future HQ3.  Such tech firms will be able to attract a more diverse workforce and depressed cities such as Baltimore will attract role models who boost the local tax base. 

    A “New” New Geography of Jobs is now emerging.  Those firms that recognize this point will build a stronger, more diverse and more loyal workforce. Those places that compete to attract such workers will enjoy growth and an influx of new blood.’. A stronger America emerges as people can live where they want to live and change their schedules to meet their goals and responsibilities. 

My Research and My Books
My Research and My Books
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