Tuesday, August 05, 2014

Some Foreshadowing Regarding How We Will Adapt to "6 Hideous Realities We Must Face"

Larry Schwartz offers a teachable moment.   In his Salon piece, he lists six challenges that climate change will pose for us and he is pessimistic about our ability to continue to thrive in the face of these challenges.  Here is list of his big six;

1.  Summer heat
2. drought
3. coastal flooding
4. specie extinction
5. storm intensity
6.  famine

 1.  Go to Singapore and you will see a rich, well functioning city that demonstrates that people can be productive and happy in the heat and humidity once air conditioning is provided.  This city really comes to life at night after the sun has set.  In a safe city,  people go out at night and have  great time.  For those who find it too hot, there will be Northern latitudes to move to.  Perhaps Canada's population will grow to 2 billion by the year 2050?    Canada's land area is 3.9 million square miles. If 2 billion people live there, this would yield an average population density of 512 people per square mile.   Given that Hong Kong's density is 65,000 people per square mile, this suggests that space won't be a limiting factor.

2. Drought?  California is in drought right now and the way to solve this problem is to raise water prices. We are incredibly inefficient in our use of water and with the rise of smart meters and Big Data we have no excuse to not introduce 21st century technology and real time pricing.   Gary Becker argued that as the inefficiency of public policies increase that this raises the likelihood of efficient reform.  Climate change and the drought challenge offers a nice test of this hypothesis.  

3. Coastal flooding --- if we anticipate this problem, are the people who live in these areas truly victims?   As I argue in Climatopolis if insurance companies can raise premiums in increasingly risky areas then this will direct economic activity to higher ground.  Place based policies that implicitly subsidize coastal living are the real problem that creates "humans shields" and places coastal people at risk. Coastal people want to have their cake and eat it to. They want to live a beautiful place at increased risk of disaster and if such disaster occurs they want to use "other people's money" to rebuild for them.  If we remove this spatial moral hazard effect then at risk coastal areas will depopulate.  No buildings live forever.  Rational investors will not invest in upkeep if they anticipate that these structures will be underwater in the near future. Read my paper with Devin Bunten where we talk about the future of Miami in the face of climate change.

4. Specie extinction --- ecologists are hard at work on this topic.  Why is Dr. Schwartz so pessimistic about creatures' ability to adapt?  He should read some of the work of Dov Sax.  The difference between people and creatures is our brain capacity and our ability to form expectations of the future and our access to markets.  These dimensions give us a huge advantage in adapting to the new threat of climate change.

5. Storm Intensity --- See #3 above.  In addition, if we anticipate more intense storms in the future then we build a real estate capital stock that can take a punch.  As I showed in my 2005 RESTAT paper, richer nations suffer fewer death from natural disasters.

6.  Famine?   Mr. Schwartz will continue to have plenty to eat because of world free markets in agriculture.   Trade occurs when there are mutual gains to buyers and sellers from trading with each other.  In a world of free trade, where food can be stored and futures contracts can be purchased, there will be many ways to hedge risk of bad crop output. GMO crops will be used.   Farming's spatial location will be diversified so that we grow wheat in many different locations.   He ignores that the world's population will soon stabilize because we are moving to cities and women have greater labor market opportunities in cities and thus work more rather than staying home with multiple kids (think of Hilary Clinton and Chelsea).

Salon magazine should not be confused with Slate.  I prefer the quality of the articles in Slate.