Mark Thoma and Paul Krugman ask a great question.   In this post, I will sketch an answer.  You won't be shocked that the answer relates to public goods versus private goods.  Republicans are not "anti-environment".   They breathe air and many play golf on pretty courses.  They boat and they vacation in very nice places.  Their homes tend to feature tidy pretty yards.   They seek out safe food.

I conjecture that many Republicans seek to maximize their own income and to then spend it on the goods (including environmental services) that they want to buy. They prefer this outcome to giving government a larger % of their income and then delegating a purchase decision to government officials who they do not trust to do their job efficiently.  So, in a nutshell --- Republicans understand the concept of opportunity cost and anticipate that if government is smaller that they will have greater after tax income to spend on private goods that they seek to consume.  This group recognizes that public goods are not "free" to purchase and instead are actually expensive because the public sector inefficiently supplies them (i.e monopoly power for public transit and high public sector pay and clumsy command and control regulations).  Rather than purchasing such inefficiently supplied public goods that are not likely to be targeted to their needs, Republicans tend to support a smaller government that gives the $ back to the earners who can then spend it on the private goods they want.  Several of these goods will be related to environmental protection but will be privately provided.

Back in 1997, John Matsusaka and I studied voting on California's environmental initiatives. California engages in direct democracy and this allows researchers to learn something about the preferences of different groups.  A challenge arises because the unit of analysis is not an individual voter so there are legitimate questions about what to learn from such ecological regressions.

By including an income quadratic in our regressions, we found that richer people were more likely to vote against public goods focused on the environment than middle class people.  We conjectured that the rich use private markets (Club Med) rather than relying on public goods to meet their desires for environmental goods.  We also found that Republicans consistently voted against the environmental public goods initiatives.  This doesn't mean that they are anti-environment. We interpreted these results as saying that Republicans support the private provision of environmental services.  In such a setting, you get what you pay for.

This old work of ours relates to what Paul Krugman says at the end of his piece in the NY Times.  

"And environmental protection is, in part, a class issue, even if we don’t usually think of it that way. Everyone breathes the same air, so the benefits of pollution control are more or less evenly spread across the population. But ownership of, say, stock in coal companies is concentrated in a few, wealthy hands. Even if the costs of pollution control are passed on in the form of higher prices, the rich are different from you and me. They spend a lot more money, and, therefore, bear a higher share of the costs.

In the case of the new ozone plan, the E.P.A.’s analysis suggests that, for the average American, the benefits would be more than twice the costs. But that doesn’t necessarily matter to the nonaverage American driving one party’s priorities. On ozone, as with almost everything these days, it’s all about inequality."

Krugman gets a B+ for this discussion.   He is making the cliche statement that "fat cat Republicans" own shares in the fossil fuel economy and would lose capital gains if they face new environmental taxes.

This is an incomplete answer.  He is forgetting Tiebout sorting.   Yes, every regulation has "aggregate costs" and "aggregate benefits" but individual voters will compare their costs and their benefits from a specific piece of regulation.   Even in Beijing residential areas differ with respect to their air pollution level on the same day.  Within Los Angeles, there is huge variation in air pollution levels with the wealthy living in areas with much lower PM2.5 than the poor who live closer to freeways and further from the beach.   This separation means that the rich know that they have good air and that enforcing Clean Air Act regulations is a type of redistribution to land owners whose real estate is located in areas (such as homes close to highways) where pollution will decline if new regulations are enforced.  Such land owners will be able to charge more their apartments near highways if highway pollution declines due to the regulation.

In the case of climate change adaptation, richer people have access to more self protection strategies and this provides implicit insurance. I recognize that not all rich people are Republican but a correlation exists.  If one anticipates that one can adapt to environmental challenges, then this diminishes the "all for one and one for all" spirit of tackling a challenge using government.

The answer to this blog post's title is that the Republican party is a mixture of libertarian, who foresee that government policy often has unintended consequences and creates dangerous precedent concerning the growth of the state, and individuals who can use markets to protect themselves from environmental hazards.

Supporters of environmental regulation would be more likely to attract Republican support if they pursue cost-effective aims such as using pollution permit markets rather than command and control.

Paul Krugman (who won the Nobel Prize in part for his work on economic geography) needs to think about the residential geography of where different people live and how they are affected by different environmental threats.  How much of suburban home value is due to its nice environmental conditions that are in relatively low supply?  Dr. Krugman can't forget general equilibrium.  If successful environmental regulation reduces pollution then the scarcity value of such suburbs would decline and they may actually lose some value! So, there is an element of redistribution taking place as local environmental policy is enacted.

Matt Holian and I discuss some of these issues in this 2014 NBER paper but we focused on carbon emissions not local pollution issues.

I must admit that Republican opposition to carbon pricing slightly surprises me but I believe that the answer is that Republicans tend to live in the suburbs (and thus Holian and Kahn 2014 argument matters) and that Republicans tend to have greater access to income and thus to private adaptation strategies for coping with changing conditions.   Al Gore's embrace of climate change also didn't help as this became a partisan issue rather than a national security issue.

A UC Berkeley Ph.D. student named Liz Carlisle has written a smart  NY Times piece providing some examples of how farmers in rural places such as Conrad, Montana and Valier, Montana are making "greener" choices in production in order to cope with the new conditions they face.  These guys are not Berkeley hippies . Instead, they are profit maximizing business people who need to adapt.  They have the right incentives to experiment and search for new solutions and they are finding them.  That was the whole idea of my Climatopolis book.  This is how we will adapt through experimentation and "small ball".

A quote from the piece:

 "I interviewed people like Jerry Habets, a barley grower in Conrad, Mont. Three dry years at the turn of the millennium left him desperately searching for answers. Bankrupt, divorced and about to lose his family’s 87-year-old homestead, Mr. Habets tried the Bible. Then he went to a psychic. And then he went organic. That improved his soil so it could store more water."

An under-researched topic is local social learning. Now that Jerry Habets has figured out a constructive strategy, how quickly do his neighbors imitate him? How do good ideas diffuse?  Development economists such as Conley and Udry have studied this but we now need similar studies in the U.S.  A serious field experiment research design would use randomization to achieve exogenous initial conditions and then watch for how the idea spreads across space.

In English, take a random sample of 500 farmers and and choose 100 at random to receive the treatment of some trusted excellent advice from the UC Berkeley extension experts at ARE.   Ideally this advice and or new capital equipment would be related to adapting to climate change.  For example, should the farmers grow using different techniques or slightly change their choice of crops.

These farmers would be asked at the time that they are "treated" to fill out a social network roster listing who are their buddies and who the swap ideas with.   Three years after the treatment takes place, the research team would survey their buddies and the treated farmers'  nearest physical neighbors to see if the idea is spreading across communities.  If to implement the idea requires upfront costs then the research team could randomize the size of a subsidy to lower the cost for a farmer to try this new strategy.

The payoff of this research design would be new knowledge concerning our willingness to experiment with new ideas and to adapt on our own solely due to the pursuit of narrow self interest.

The research team could then measure the "treatment effect" of their intervention in terms of the direct impact on productivity of the treated farmer and the spillover effects on farmers in the control group but who are connected to the farmer.   An ambitious research team could further ask the "treated friends" who their friends are and see if the social multiplier effect extends "several generations".

In 1951, a "High Pop Automatic Toaster" was priced at $21 dollars (nominal $).   In 2014,  Kohl's is selling a better $5 (nominal $) toaster.   I realize that this is a simplified consumer price index but this 76% reduction in price is the tip of the iceberg.   Nominal wages have risen over this 60 year period and real quality adjusted prices of durables have probably fallen by 95%.  To confirm this claim, we would need to do a hedonic quality adjustment (see Pakes) in order to have an "apples to apples" comparison of pricing the same product such as a toaster with a fixed set of attributes at different points in time.

So, why are there such concerns about the standard of living of the middle class?  Does "Black Friday" apply to everything we consume?   No.  College tuition is quite expensive (because it is labor intensive with professors and unionized workers).  Homes in some cities are expensive (both because of supply and demand but in our most expensive cities --- housing supply regulation is the major cause).

For pessimists, what other goods are increasingly expensive?  If you say "meat", I would counter that its quality has improved over time and I would note that food is just 13% of your budget so meat would be only 4% of your budget  -- your "inflation" exposure from this price rise would be tiny and then we would subtract out the deflation in prices for goods such as cell phones, computers, toasters, cars and all other durables in your home.

Paul Krugman and friends should take a sober look at the Consumer Price Index and acknowledge that quality adjusted CPI is falling over time.  The Boskin Report's main findings should not be forgotten.

Here is a technical report written in 2006 by the BLS where it talks about its efforts to keep up with the ever changing economy.

The NY Times reports  that a defunct power plant's ugly structure remains on Morro Bay.   You don't have to be Don Trump to recognize that a real estate developer would pay the costs of dismantling it and removing it if he/she could then develop on the vacated land.  Can Jerry Brown and the Coastal Commission figure out such a private/public partnership? Or does Gov. Brown and his local equivalents anticipate that Morro Bay would gentrify after such an efficient reallocation of land and thus he would block such a move.  Look at this picture:



The power plant is not a natural part of of the scene but it is within the Coastal Commission's jurisdiction. Have you read my paper on the role of the California Coastal Commission and its regulatory ruling's unintended consequences of raising home prices and limiting new real estate development?

Here is a lot for sale close to the Bay with a view of the power plant.   $279,000 is not much $ to pay for 1/4 acre of California beachfront property.   In Malibu, such a lot would cost $5 to 10 million dollars.    If the power plant wasn't there and if some exciting retail was there, what would be the impact on the local economy's total property value?   Is there any push towards the efficient allocation of scarce resources (i.e land) in California?

I will spend Thanksgiving in Carpinteria, California.   It is home to some of the world's most pleasant beaches.    Below I present two photos of our own "private beach".  We walk for about a mile along this beach and only occasionally see other people and horses.  In the top photo you get a sense of the sandy beach and the blue sky and the absence of other people and the rugged terrain..  In the bottom photo, you see some horses and their riders taking a peaceful ride and you see how the coastline evolves.   The calm ocean invites even an old guy like me to go out there and paddle around.




Economists understand that these are unique amenities and unfortunately Gov. Jerry Brown also knows this.  He can tax and many people do not run away to Texas because of the unique attributes that California offers.  Read Jan Brueckner's and David Neumark's insightful paper about this topic.  

Paul Romer serves as the Director of NYU's Marron Institute of Urban Management.   I am a Visiting Scholar at this Institute and try to show up there twice a year.   The Institute has just posted my new Working Paper titled: Climate Change Adaptation: Lessons from Urban Economics.    This paper builds on my 2010 Climatopolis book by tracing out my current thinking on the key issue of how cities help us to adapt to climate change.  I have found that a growing number of researchers are starting to work on this topic and I think that I've nudged many of them to think about how Sherwin Rosen's hedonic model helps to better understand this issue.

I was given the chance to speak for 5 minutes yesterday at a public event.  Unlike the other speakers, I stuck to my time limit and tried to give a punchy talk about the Future of Los Angeles.  The event took at place at Prof. Thom Mayne's studio called Morphosis Office in Culver City.



Here is a photo of me talking and you can see that I'm having fun and the audience of roughly 45 people are listening.   I stressed four ideas;

1.  Competition
2.  Big Data
3.  Incentives and entrepreneurship
4.  Experimentation and humility among government officials.

1.   In an open system of cities, Los Angeles competes to attract, retain and grow the skilled. If in 2050, Los Angeles is no longer sexy to the mobile young and educated then its future is bleak.

2.  This is the Big Data age, we have an incredible amount of data about urbanites concerning their desires and their activities.   Where is the low hanging fruit in making LA a more energy and water efficient city? I talked about my research with Frank Wolak where we implemented a field experiment where we educated households about the increasing block tariff for which they pay for electricity, we find large reductions in electricity consumption among those who were high baseline consumers

3.  AB32 will raise energy and water prices and will incentivize more Elon Musks to enter the game of designing and marketing green products.  The same induced innovation optimism holds true for products that help us to adapt to climate change.

4.  The Mayor's office should acknowledge that it "knows that it does not know" what are good policies for encouraging sustainability. Such humility is a first step to running pilot field experiments to learn about what policies are cost effective. Since ideas are public goods, those policy ideas (such as dynamic pricing for parking in downtowns) that turn out to work can be replicating everywhere.

Thom Mayne is a really impressive guy.  He gets economics and that's a rare trait at UCLA.

Suppose that upstate New York has a snow blizzard.   What types of workers produce the
same level of output on such a day?   I recognize that guys who operate snow plows are more productive on those days!   But, there more and more indoor workers who are just as productive at home than if they commute to the office for face to face interactions with peers.    A benefit of deindustrializing is that fewer people must work face to face to produce something.  An assembly line's output could not be produced at home son a snowy day.

 Let's consider a couple of cases.  A Buffalo 5th grade teacher will produce less output during the snow blizzard because school will be cancelled.  An economist who teaches at SUNY Buffalo will have her classes cancelled but she will get more research done while working at home.What is the difference?  The school teacher's output requires face to face meeting while the Professor of Economics (who is judged on research and teaching) is able to produce more "output" at home.

My big point is that with the increased ability of more and more workers to work and be productive at home that disruptions to our economy (yes I"m talking about adapting to climate change again) become less costly.   While a dentist can't practice medicine at  home,  a software designer can.  Skype calls can take place rather than face to face meetings.

With the Big Data revolution, more people can work and be monitored at home. Read this China experiment on this topic.  

Weather storms create logistical issues but what are the productivity benefits of bearing the commuting and hassle costs of leaving your house?   For which urban jobs, does face to face communication really matter? If fewer and fewer jobs fall into this category then we are better protected from severe weather shocks.  This is another example of how labor markets evolve to help us to adapt.

Professor Jeff Reimer was kind enough to send me a great example of ingenuity at work to protect natural capital in the Pacific Northwest.  Julian Simon would respect  the salmon cannon.  This video from Last Week from John Oliver tells the story.

An honest discussion is now taking place concerning the unintended consequences of limiting new construction.   Paris hasn't allowed many high rise buildings to be built. Would Paris continue to be "Paris" if there were Hong Kong style buildings?   Everyone appreciates the basic prediction of econ 101 that by limiting supply that real estate prices rise in restrictive cities.  People seem only now to be willing to contemplate that a select sample of cities (those that are liberal and run by progressives) are most likely to engage in these policies.

Here are some quotes from Paris:

"But many older Parisians fear that city officials did not learn the lesson of Montparnasse, a building that regularly makes lists of the 10 ugliest buildings in the world. They believe that skyscrapers are simply out of place in the heart of Paris.

“We are not in Dubai,” said Danielle Outreman, 60, who is retired. “I like it that in Paris I am not surrounded by enormous buildings. I think that putting them all in La Défense is just fine.”

So note the generational war.  Those older people who own properties in Paris enjoy the fact that housing constraints inflate their house values and they value the continuity of the city (that it does not change over time perhaps except for a few Starbucks opening up).  The young renters (if they understood general equilibrium effects) are likely to support more real estate construction.    There should be more European economists working on the cross-generational fights across Western Europe concerning what are "good public policies".  In the case of housing supply limits, is this a zero sum game or a negative sum game?  When incumbents control laws through local voting, is the efficient allocation of resources achieved?

Many environmental economists work on the demand for non-market goods. This Paris case raises this same issue.  What is "Paris" with respect to its characteristics?  Which of these attributes would be "injured" if more development took place?  How do we measure the character of a city and its uniqueness?  How do we know if small changes to its architecture and its neighborhoods produce great changes in the local quality of life? If people who live there say this, is that merely cheap talk?  What is the market test that Paris' quality of life is declining?  To an economist, tourism trends would offer one market test. Do mobile tourists continue to visit? If the answer is "yes", then an economist would conclude that Paris still "has it".