Friday, November 16, 2012

The Venn Diagram

Ed Glaeser has argued that the whole world's population could comfortably live in a land area the size of Texas.  Presumably, their food would be grown somewhere else?   In my talks with reporters about Sandy, I have touched on the idea of the "Venn Diagram".

In the 21st century, the vast majority of us will live in cities.  We need to build these cities in places that are;

1.  pretty (amenities)
2.  safe  (climate resilient)
3.  productive    (economize on transportation costs to input suppliers and final consumers)

These are the three circles that form the venn diagram.  What is the overlap area of these three?  You should buy real estate in those places and wait!  One of the ideas in my Climatopolis is that in the absence of activist moral hazard federal government investment, economic activity will naturally gravitate to the overlap area of this Venn diagram.  This is the invisible hand at work and this is how we adapt to climate change.  Federal government investment in "climate proofing" risky areas actually slows down this neo-classical adjustment process.  We are always rebuilding our cities.  If you currently own real estate in areas not located in the Venn Diagram overlap area, you have my sympathy but the first idea of diversification and asset allocation  is to avoid putting all of your eggs in one basket.

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