I don't like to leave Los Angeles. I only fly away when I anticipate that I might learning something at my destination.  On December 9th, I'll have an opportunity to sit down with Professor Paul Romer of NYU to discuss China.  My parents will be there and they are eager to meet Paul.  I first met Paul in April 1988 when I attended the University of Chicago's Ph.D. recruitment day.    Spend two seconds studying his Google Scholar page and you will see his impact on the profession.   Urban economics has received a great boost by his ongoing interest in our core questions.

On December 9th, I want to talk about my May 2016 Princeton Press book but I already know what my book says.  Google Scholar points you to my academic papers focused on environmental and urban issues in China.   You can raise my REPEC ranking by clicking on specific papers here;  





 Instead, I would like to ask Paul the following questions;


1.  The New York Times (on almost a daily basis for example read this) punches the Chinese Communist Party.   The Times argues that quality of life is horrible in modern China. Is this true?  Is the standard of living improving in China?  Is the autocratic state responsive to the median citizen's desires?  Is there accountability in this leading non-democracy?

2.  Paul Romer has stressed the the unique public goods aspect of ideas.   For decades, China was copying Western and Japanese and South Korean ideas.  As China now builds up its R&D sector, what role will it play in pushing forward the knowledge frontier and what are the implications for achieving the "win-win" of economic development with less local air pollution and fewer aggregate greenhouse gas emissions?

3.  China currently burns plenty of coal. Why hasn't it moved faster up the energy ladder to relying more on cleaner natural gas?

4.  Daron Acemoglu has argued that China's extractive institutions are such that the nation's long run continued growth is unlikely to occur.   Are institutions "malleable"?  When the efficiency costs of bad policies are observed (i.e rising deadweight loss from status quo policies), do self interested politicians change the "rules of the game"?

5.  James Heckman has stressed the key role that early child development plays in determining whether a kid grows up and achieves his/her full potential.  If pollution hinders child development and if human capital (rather than the dirty factory) is increasingly the "golden goose" of the Chinese economy, then doesn't this logic chain imply that the "big bad CCP" has strong incentives to green its coastal cities?

6.  Hundreds of thousands of Chinese students are studying in the USA.  Many will return to China. How does this "trade" in ideas influence the development of a nation?  How does the United States in the year 2015 drive global economic growth?

Starting on November 30th, negotiation teams from all over the world will go to Paris. Many academics will be there but you won't see me. I"ll be at sunny USC.   The final treaty won't have a hard carbon cap with enforcement nor will there be a global carbon tax.  Without these real incentives, can the global carbon curve be bent (let alone decline in absolute value)?  I doubt it.

Take a look at these data from 1960 to the present. I see a linear trend despite plenty of talk about solar panels and "green energy".




Now some optimism;

1.  Around the world, households firms and governments are now awake and talking about climate change adaptation. This will translate into private and public actions that aggregate up to making more resilient in the face of new climate shocks. If you anticipate a punch, you can duck!


2.  What the COP21 will achieve is shifting expectations. Returning to the early Rational Expectations literature in macro (think of Tom Sargent), it is important to send credible "Rules of the Game" signals.  If long term investors anticipate that there will be a rising price for carbon emissions (such as more nations following California and introducing Cap & Trade for GHG emissions), then some of these business investors will substitute to natural gas and cleaner fuels and invest more in energy efficiency.  So, this shift in expectations concerning future policies incentivizes a greener set of investments now.

Note that the key point here is that rational forward looking investors anticipate climate change risks and climate change policy risks (i.e that the carbon tax could rise in the future), these self interested actors take actions to protect themselves.  So the invisible hand allows us to adapt to the shifting objective reality and policy environment.

To summarize this blog post.  COP21 represents a change in the global rules of the game. GHG emissions will no longer be an unpriced externality.  Those innovators who figure out how to economize on such emissions will make good $.  Given ongoing population and income growth, it is unlikely that the GHG tons will fall over the next 30 years. We must prepare to adapt and I am optimistic that we will figure out how to do so.  

An interesting issue is why fast growing nations such as China and India are offering anything here regarding emissions intensity cuts.  Why place a constraint on your economic growth? Why not simply free ride and let the rich nations cut back?  One answer is that they seek "soft power" and that climate politics are bundled with other global issues in signalling world leadership. Perhaps a good international relations scholar could model this?

The Washington Post reports about a new study that argues fossil fuel corporate interests (think of Exxon) have confused the American people through a relentless "mis-information" campaign regarding the causes of global warming.   PNAS has published the paper and it is available here. 

Here is the abstract of Justin Farrell's paper (he writes like an academic);

"Drawing on large-scale computational data and methods, this research demonstrates how polarization efforts are influenced by a patterned network of political and financial actors. These dynamics, which have been notoriously difficult to quantify, are illustrated here with a computational analysis of climate change politics in the United States. The comprehensive data include all individual and organizational actors in the climate change countermovement (164 organizations), as well as all written and verbal texts produced by this network between 1993–2013 (40,785 texts, more than 39 million words). Two main findings emerge. First, that organizations with corporate funding were more likely to have written and disseminated texts meant to polarize the climate change issue. Second, and more importantly, that corporate funding influences the actual thematic content of these polarization efforts, and the discursive prevalence of that thematic content over time. These findings provide new, and comprehensive, confirmation of dynamics long thought to be at the root of climate change politics and discourse. Beyond the specifics of climate change, this paper has important implications for understanding ideological polarization more generally, and the increasing role of private funding in determining why certain polarizing themes are created and amplified. Lastly, the paper suggests that future studies build on the novel approach taken here that integrates large-scale textual analysis with social networks."

I salute the new empirical work but it raises several questions.  I must also admit that I haven't read the whole paper yet because it is behind a firewall.  

1. We learn that for profit companies act in their own self interest. Is that surprising?  People look to Exxon to sell them gasoline. Do they really look to Exxon for intellectual content?  Now, I do agree that to avoid conflict of interest concerns, all authors who take corporate $ need to report their potential conflicts of interest.

2. Does the media have a large causal effect on our beliefs and actions?  Who are these susceptible people?  When you read the NY Times does it inform your world view or confirm what you already believed? Treatment or selection effects revisited.

3. If the media does have such a large effect on shaping us, why didn't the "greens" launch a counter-revolution?  If you say that they didn't have the $ to achieve this, then you haven't been to Hollywood, New York City or Berkeley.  If so say that the greens face a free rider problem, then why haven't "green" corporations launched a counter-revolution boosting their narrative?  People like Elon Musk and Tom Steyer are trying and investing their money here.  Why didn't they start earlier? Why did they permit the "fossil fuels industry" to have the microphone for so long?

4. I thought that Al Gore's movie was watched by millions. Is there a similarly popular anti-global warming movie?  I thought that Hollywood releases dozens of crisis movies each year. Is it obvious that the fossil fuel lobby has the higher ground in the fight for the nation's focus?

Here is Justin Farrell's Google Scholar page.

For those economists who are interested in this general theme, read Jesse Shapiro's paper available here. 

Abstract A journalist reports to a voter on an unknown, policy-relevant state. Competing special interests can make claims that contradict the facts but seem credible to the voter. A reputational incentive to avoid taking sides leads the journalist to report special interests’ claims to the voter. In equilibrium, the voter can remain uninformed even when the journalist is perfectly informed. The quality of information transmitted is greater on less partisan issues, and communication is improved if the journalist discloses her partisan leanings. I use the model to explain persistent public ignorance on climate change, and I test the model’s implications using data on media coverage, public opinion, and journalism in OECD countries.

Cooling vests offer one pathway for keeping us cool in future summer heat and also warming us up when it is too cold.  The Economist Magazine reports  about ongoing innovation taking place at Finland's VTT Technical Research Center.  Do you see the simple econ 101 point that demand brings about supply?

Many "doom and gloomers" forget the simple economics of introducing new product varieties.  If there is sufficient aggregate demand for solutions (caused by aggregate misery from heat waves, coastal flooding etc), then there are very strong incentives for innovators to engage in climate change adaptation innovation.  Too many scholars are studying climate change mitigation innovation. Daxuan Zhao and I will soon release a paper on induced climate change adaptation innovation.

A very valid question here would ask; how much does VTT charge for their technology? Won't only the rich elites afford it?  At first the answer is "yes" but the beauty of the global supply chains and the rise of generics is that this company will face competition and its monopoly will vanish in the medium term.  This means that even low value added outdoor workers would have access to such products in the medium term. The more interesting economics issue is the incidence of such products. Will outdoor wages decline as firms provide these cooling jackets to workers?  Compensating differentials and climate change adaptation is an interesting subject.

Sociology lives on.  The NY Times reports that when NBA teams visit sleepy cities such as Indianapolis or Salt Lake City  that the visiting team players grow bored.  Hollywood has figured out that this is a great time to offer a free screening of new movies such as Spectre so that the players can watch , be photographed watching the movie and then will tweet to their followers about what they liked about the movie.  This successful identification of the "focal points" in the social network allows the movie makers to achieve some free organic advertising and allows the NBA teams to know that their human capital is not depreciating that night at a late night bar (see Charles Barkley for data from the 1980s).

The Times ends its piece on a witty and elitist note;

"Recognizing this, studios are increasingly trying to combine the right team, in the right city, with the right film.

“I don’t know if you want to show them ‘The English Patient,’ ” Rice said."

Will somebody write the Public Editor that this borders on statistical discrimination?

While the challenges vary on a state by state basis, here is one current report card grading states on their preparation for climate change.  Here I list a set of "free market" policies to facilitate adaptation.  For those who have read my 2010 Climatopolis book, this will be familiar.

1.  Sign up more households, farmers, industrial and agricultural customers for dynamic pricing of water and electricity.  By exposing consumers to dynamic pricing, this will encourage conservation and purchasing more resource efficient durables. The net effect will be that heat waves and drought cause less "shortage" and blackouts and rationing.   Prove this to yourself by contradiction. If water and electricity prices do not rise when demand is high, there will be shortages of water and blackouts and climate change will exacerbate these peaks.

2.  The state governments should create spatial maps of places featuring fire risk, flood risk and air pollution spike risk and share these data widely and update them over time.  This will incentivize behavioral change.

3. State governments should work with local governments to increase upzoning in relatively safer areas of cities. For example, Santa Monica is really low density along the Wilshire corridor in West LA. Why aren't 50 story buildings built all up and down this corridor?   Read my paper on this subject. 

4.  State governments should work with the insurance industry to actively encourage it to price discriminate across space.  If you insist that you want to build a house in an increasingly fire risk areas of Malibu, your fire insurance for your property should be really high but you should receive a discount if you build with flame retardant materials and if you clear the vegetation.  Google Earth could be used to check the 2nd point. We need more price discrimination to adapt to climate change. Will progressive politicians allow this to take place or must all properties be treated "equally"?

5.  There should be an "open source" process in which citizens declare what they believe are emerging threats caused by climate change --- for example the San Francisco airport flooding -- and the governor could then commission serious scientists to study the issues that citizen voters voice the most often.
 
With this process in place, our cities (even the coastal ones) will continue to thrive.  To see some thinking about coastal cities read my new durable capital paper.  

In the past, I've done some writing on social capital and civic engagement.   I just put the theory to the test by volunteering to serve on USC Econ's PHD Admissions Committee.     USC Economics is world renown for its excellence in econometrics.   With Antonio Bento, Dana Goldman, me and Arie Kapteyn now all at USC (and many other research active Price School faculty),  a talented student can take his/her knowledge of econometrics and apply it to the economics of aging, health, the environment and cities.  There are many exciting possibilities and permutations here.  I strongly encourage serious students to apply. I'm especially interested in attracting students who are graduates from U.S undergraduate institutions.  Please contact me if you have any questions.

For those of you who already have a Ph.D., perhaps it is time for you to do a refresher course to see if you are still at the frontier. It is sunny and 80 degrees today on November 18th 2015 in LA. Can you say the same thing about where you are now standing?

Now that I have moved from UCLA to USC, I have the opportunity to teach undergraduate urban economics again.  I taught this course at Columbia and Harvard back in the 1990s but I haven't taught it since 1998.   My friends are trying to help me to teach a good course.    Walker Hanlon has given me his UCLA course material  .  Jan Brueckner's book is both excellent and affordable.    Today, I just received a new book by William Fischel called "Zoning Rules!".  This book will greatly improve my housing supply lectures.   Here the Lincoln Press webpage for the book.

Here is the book's Abstract

Zoning has for a century enabled cities to chart their own course. It is a useful and popular institution, enabling homeowners to protect their main investment and provide safe neighborhoods. As home values have soared in recent years, however, this protection has accelerated to the degree that new housing development has become unreasonably difficult and costly. The widespread Not In My Backyard (NIMBY) syndrome is driven by voters' excessive concern about their home values and creates barriers to growth that reach beyond individual communities. The barriers contribute to suburban sprawl, entrench income and racial segregation, retard regional immigration to the most productive cities, add to national wealth inequality, and slow the growth of the American economy. Some state, federal, and judicial interventions to control local zoning have done more harm than good. More effective approaches would moderate voters' demand for local-land use regulation—by, for example, curtailing federal tax subsidies to owner-occupied housing.

Bill Fischel has taught economics at Dartmouth College since 1973. His scholarship focuses on local government, especially land use regulation and property taxation. Bill has served on the Hanover, NH, zoning board and on the board of directors of the Lincoln Institute of Land Policy.

I will have more to say after I carefully read this book.

To better appreciate my 2015 November Journal of Regional Sciences Lecture at the Portland Regional Sciences Meetings, you should read this NY Times long piece about melting Ice Sheets and their potential impact on our coastal cities.  Here is a quote relating the environmental science to real estate risk:

"We might imagine a rapid collapse of the ice sheets in B-­movie terms: sudden and terrifying, with enormous waves of water cresting over beachside homes in Malibu, Calif., and nature reclaiming the Rockaways. In truth, the remoteness of the sources of new icebergs means no devastating tsunamis. Because the calving would happen over the course of many decades rather than weeks, the catastrophe would manifest over time. First there is water in the basements, gutters and subways; then, storms regularly bringing water into the streets. Year by year, the rise accelerates. Brine infiltrates drinking-­water systems and sewer plants; electrical grids spark out. Flood-­insurance policies are discontinued, and home values plummet. Row by row, seaside homes are abandoned. Still the rise continues. Large-­scale evacuation then becomes imperative — as long as inland cities and funds are available for relocation. In low-­lying countries, however, the implications of significant sea-­level rise, and the occasional storm surges that amplify the floodwaters, move beyond the economic to the existential. ‘‘On these longer time scales,’’ says Anders Levermann, a sea-­level expert at the Potsdam Institute for Climate Impact Research, ‘‘the magnitude of the sea-­level rise could get so big that we have to evacuate New York, Calcutta, Hong Kong, Shanghai, Hamburg and most of the Netherlands.’’

So, you can see that there are interesting economic implications here and we have been warned about their consequences. Coastal real estate owners have incentives to plan and invest accordingly.  My JRS Lecture (joint with Devin Bunten) explicitly studies this issue of how coastal investment patterns will be affected.  Capital does not live forever and we have choices over where we place it,how we build, how we maintain it and how we protect it that together reduce our risk exposure.  This is the micro economics of adaptation such that a zillion individually rational and small ball decisions add up to a safer urban future despite the serious risks posed by climate change. Anticipate and react!

For a free copy of my paper; click here: