Yesterday, I had the opportunity to talk to John Batchelor for 15 minutes on his radio show about my Climatopolis work. He likes my recent PERC publication: Climatopolis Revisited. I argue that rich, educated cities can handle all of the challenges posed by climate change. This adaptation will not be costless but through rational expectations and risk aversion, we will build a new set of robust and resilient structures such that urbanites will continue to thrive (think of Singapore today). The developing world needs to urbanize faster to help it to adapt to the serious risks associated with climate change.
Economics plays a key role here because cities who are parts of nations that have low trade barriers for agricultural goods will more easily adapt. Why? The price of food will not bounce around as a function of local climate shocks if the nation imports from other nations. Recall that under perfect competition that a buyer is a price taker and no one geographic unit is large enough to move the aggregate price. Economists are also needed to introduce dynamic pricing for insurance, water and electricity. All three of these goods should feature higher prices as scarcity increases and as risk increases. To avoid moral hazard problems, risk must be priced. Coastal real estate owners and investors will make socially better decisions if they face the costs of their actions. I will continue to argue all of these points and now that it is politically correct to discuss adaptation, I'm eager to have a broader public discussion about these points. Of course, the poor face greater challenges in the face of climate change. We protect the poor through reducing their risk of poverty by embracing Heckman's Pre-K agenda and by encouraging innovation and trade so that adaptation friendly products (think of air conditioning) become cheaper. Even the cell phone is a key piece of adaptation. Such real time access to information greatly helps individuals to cope during a crisis and points them to strategies for coping. For example, during a heat wave you can for free ask Google "where is the closest cooling center". Uberx can deliver you there for $3. This would be a good investment on a very hot day. If $3 is too high a price, then maybe we do need government subsidizing Uberx on extremely hot days for qualified people just as some kids get free school lunches at public school.
As I said to John Batchelor yesterday, one person's crisis is another entrepreneur's opportunity. Zuckerberg created Facebook because he saw the demand for social connection. Analogous new products will emerge because of the demand for resilience and protection in the face of heat and floods. Environmental economists need to re-read their Julian Simon because many of them have taken a step towards Paul Ehrlich. In the name of balance, I will re-read my Ehrlich!
I believe that the Trump Administration will invest in climate change adaptation. Mr. Trump owns many pieces of valuable real estate and he has an incentive to protect them. Land owners in coastal areas have strong incentives to protect their assets. I do want them to use their own $ to pay for such protection. Safe cities should not be cross-subsidizing the protection of at risk cities. As I ask in my 2010 Climatopolis, if Milton Friedman ran FEMA how would he operate this agency?