During my 10 years on the UCLA faculty, I got to know many great economists. One of my UCLA colleagues was Walker Hanlon. He has just released a terrific new NBER Working Paper titled Coal Smoke and the Cost of the Industrial Revolution. This is a great piece of economic history whose results are relevant for President Trump today.
Back in the 2nd half of the 19th century in England, different cities specialized in different industrial activities. Some specialized in textiles while others specialized in making other goods. These industries differed with respect to their energy intensity. Energy intensity is a measure of energy inputs required to produce a unit of output. So, a pizza has a cheese intensity (I don't know this number!). If you want to make 3 slices of pizza, there is some minimum amount of cheese you need.
Back to Walker. Suppose that Manchester, England features an economy whose industrial composition is highly energy intensive. Now suppose that due to rising demand for British exports that Manchester enjoys a booming economy. As demand for Manchester's production increases, energy demand will increase a lot (because this economy's industries are energy intensive). Since England's power at that time was mainly produced using coal, coal burning increased. As local coal burning increased (the fuel), pollution increased. As local pollution increased, urban mortality in Manchester increased relative to urban mortality in other British cities whose industrial structure was less energy intensive.
As Manchester becomes "less livable", the city must pay combat wages (a Sherwin Rosen wage premium) to continue to attract workers to live there. As these wages go up, firms in non-polluting industries who are located in Manchester choose to move to other cities where they can pay lower wages. This dynamic plays out so that dirty cities actually chase away their clean footloose industries.
To Walker's credit, he has linked pollution dynamics to the underlying industrial structure of the city. Such endogenous pollution cycles, greatly interest me. For those of you who know my work, his work is related to my 1997 paper, my 1999 paper and my 2015 paper.
Environmental and urban economics is a very exciting field to work in!
Why does this historical study have relevance for President Trump? If Rust Belt manufacturing has a revitalization under President Trump, will pollution increase there again? Based on my 2013 paper, I do not believe that manufacturing will return because of powerful labor unions.
Given that coal is still used throughout the Rust Belt as a source of power, pollution would rise downwind from the electric utilities. Whether improvements in industrial energy efficiency are large enough so that the region could both boom and have few air pollution consequences remains an open question.
The cool part of Hanlon's paper is to link pollution dynamics to macro events (greater export demand) and to link this back to emerging compensating differentials (that increasingly more polluted cities had to pay greater combat pay to retain workers).