Tomorrow, the University of California Press will publish my Going Remote book.  In February 2021, Johns Hopkins Press published my Co-authored "Unlocking the Potential of Post-Industrial Cities" and in March 2021, Yale University Press published my book; "Adapting to Climate Change".

Why did I write these 600 total pages of stuff?

The Ongoing Challenge faced by Baltimore, Cleveland and Detroit

I spent two years working at Johns Hopkins University and I lived in downtown Baltimore for a year before the pandemic hit.  I wrote the Unlocking book because I recognized that I was living in a city that was stuck in a poverty trap. Very few people were actively thinking about the basic building blocks of economic growth namely attracting productive firms, encouraging private capital investment in firms, and upgrading old durable real estate capital. Young people were not investing in their skills because there were few local private sector jobs.  The basics of building a high quality of life city focused on improving school quality and safe streets and clean air and clean water were not being fully addressed as Baltimore's officials showed little interest in experimentation and formal evaluation of different program's effectiveness.  

Adapting to Climate Change

My book is an optimistic study as I synthesize what I have learned over my 15 years of researching and reading the climate change economics adaptation literature.   

Name any climate change challenge you can think of ranging from sea level rise, to extreme heat, to increased fire risk and I discuss how capitalism helps us to adapt to the challenge.  For capitalism to help us to adapt, prices must be allowed to signal scarcity. If drought occurs, water prices must rise. If real estate in a specific location faces new risk, then the price will decline and the new buyer will be a person with an edge in adapting to the risk.  Such an edge can be built up through developing skill or if there is sufficient demand to protect properties that can flood then it becomes profitable for firms to enter the "flood protection" business to protect such home owners.  As we learned from the development of the COVID vaccine, our economy features amazing adaptation potential.

Climate adaptation optimism is still viewed as politically incorrect stuff.  Why?  Through rising incomes, access to markets and rising educational attainment, our ability to adapt to new shocks increases every day.  

Going Remote

This is a book about the urban and environmental implications of the persistence of WFH in a post-COVID economy. I argue that the "experience good" effect that we enjoyed during COVID will offer huge medium term gains for our quality of life going forward.

Cities such as Baltimore will experience an influx of WFH workers as people who want to live in that city because they desire its affordable housing and culture and lifestyle can now live and have a good job as they work for a Amazon HQ2 or HQ3 of Google in a 2 hour drive in some direction.   The unbundling of where we live from where we work will help cities that have failed to attract modern companies to make a comeback if they offer good services and good quality of life.  If a Baltimore attracts more talent to live there, then this will stabilize the taxbase and increase the demand for the local Consumer City. This will create a service sector multiplier effect and increase opportunities for those workers who are not WFH eligible.   As young people foresee that they can be WFH workers if they have the skills, they will invest more in themselves and their parents will seek better schools for them. This will put pressure on the local public sector unions to teach!

So, there is a clear link between my Unlocking book and the Going Remote book.

The link to climate change adaptation is that a WFH eligible workforce can spread out. For those who seek to work for a Seattle firm but fear how climate change will impact Seattle, they are free to choose and "head for the hills".  The permutations become huge when you can work for one firm and live elsewhere.  Milton Friedman's "Free to Choose" becomes a more accurate description of our economy and this increases our wellbeing.

In 2019, the great jobs were in congested, expensive Superstar cities that faced increased climate risks.  WFH unbundles where we live from where we work and opens up many, many possibilities for how we configure our lives.  This represents a significant real pay raise!

I am not a modest man. I view my three books as creating a series of empirical predictions for how the urban system of cities will unfold over the next decades.  I would hope that my teacher Sherwin Rosen would respect how I have taken his hedonic equilibrium ideas and built on his edifice.  

 The New York Times has published a good opinion piece by a Professor of English on the unintended consequences of federal subsidies and regulations for living in flood plains.

In this brief piece, I am not talking about surviving a flood.  Instead, I will discuss how flood risk (ex-ante) and flooding affects the real estate market and the distribution of income.   In an increasingly risky economy, who should own the risky assets?

When one owns an asset, there is uncertainty about how the price of the asset will change over time.  A share of Tesla can either rise or fall over time.  A home's value can go up or down over time.  The asset's owner is not guaranteed that "nothing bad" will ever happen to the home.   Under the logic of the efficient markets hypothesis,  expected future risks to a specific property will be reflected in the value of the asset today.

For example, if crime is expected to rise in the year 2024 in a Los Angeles neighborhood because the police have announced that they will no longer patrol there --- economics predicts that home prices for such homes in April 2022 in these areas will decline now to compensate buyers for the emerging risks as crime rises. Those who buy the homes today are "adults" and know what risks they are taking on.  Economics predicts that self-selection will arise. Those with an edge at defending themselves (so think of Clint Eastwood or Bruce Lee or the Terminator) will be more likely to buy these homes due to comparative advantage in self-defense.  A home buyer can buy one of these discount homes and install security cameras and use a private car to drive one around to avoid contact with potential robbers.

This same logic applies in flood zones.   Professor Rush gives some quotes of home owners who are frustrated that the value of their home has declined because of increased flooding.  Are they victims who the rest of society should subsidize?  These individuals chose to own when the opportunity cost is that they could have rented and held a more diversified portfolio.  Most poor people are not home owners.  This means that middle class and richer people own these at risk to flood homes are they really the "vulnerable" people who deserve federal handouts for choices they voluntarily made?

I think the answer is no for several reasons.  First, none of us flip "one sided coins". If their homes had tripled in value, they would not have given 50% of their equity gain back to us.  These home buyers want to keep their capital gains and nationalize any losses.  This subsidy of risk taking creates moral hazard effects.  

These home owners could have sold their homes previously and rented in the same area to reduce their risk exposure and to keep their social network and commute.  These home owners can sell housing equity in their home to outside investors to diversify their portfolio.   If home owners do not engage in any of these risk diversification strategies, are they victims?

Note that up until now I have focused on the incumbent property owners who are increasingly aware of the flood risk they face both from their past experience and because of new entities such as First Street Foundation's Flood Score.

As I argue in my 2021 Yale University Press book Adapting to Climate Change, we will be better able to adapt to flood risk if society agrees on evolving flood risk maps such as First Street's that show property by property the expected risk.  Banks and insurers should be allowed to risk price based on these such that riskier properties face higher interest rates, lower loan to value ratios and higher insurance premiums.    Home buyers who are quoted these interest rates and insurance premiums will quickly figure out that the property is risky and these Bayesians will update their beliefs and bid less for the home.  The owner of the home will receive a lower sales price for the "common knowledge" that the home is riskier due to climate change.  

The Banks and Insurers will act as the "adults in the room" nudging real estate buyers to reduce their demand in risky places and increase their demand for housing and real estate in safer places.  If we change our zoning codes to up zone in safer places featuring less fire risk, flood risk and extreme heat then a more elastic housing supply curve emerges there and prices of real estate will reflect demand and increased supply. Worries about climate gentrification on higher ground will be muted.

Will flood zones be emptied out?  No, I predict that in beautiful and productive locations that happen to be flood zones, single family homes that are adjacent to each other will be purchased and knocked down. They will be replaced with wetlands and tall buildings that have empty lower floors to reduce building damage.  Civil Engineers will figure out how to have productive real estate assets that are acclimated to the risks.

The key to this smooth adaptation dynamic is for government to retreat.  Government is taxing people on higher ground to subsidize people taking risks.  Why is that fair?  Mancur Olsen  asymmetric interest group logic can explain this political equilibrium but I believe that reforms will occur as tax payers realize the size of the subsidies we are paying to the risk takers.

The next steps in the climate change adaptation research agenda is to focus on induced innovation. As more home owners face flood risk, this creates a demand for solutions and this creates profit opportunities for innovations that offset this damage.  Do you doubt that capitalism will deliver here?

Finally, note that at no time in this piece did I discuss major engineering projects.  Such projects can protect an area from flood risk but I argue in my 2021 book that they should be funded locally. Such projects protect local land and home owners own those and thus should pay for their own defenses. The central government can provide the expertise and human capital but local public goods should be funded locally.

One More Point!   Those who cry that climate change is lowering the value of homes in areas that now face flood risk ignore that there are other homes on "higher ground" whose values rise because they are relatively safer. It is an exaggeration to call this a "zero sum game" but even good economists ignore this cross-elasticity point.  General equilibrium effects always exist.  

This will be a "big think" blog post that shares my thinking about this March 2022 Nature Human Behavior paper titled "The data revolution in social science needs qualitative research".

Permit me to focus on one example.  Consider a sample of 5,000 equally talented and ambitious 18 year olds.  Each has graduated from High School and each is considering applying to the University of California.  The students differ that some are Asian and some are Hispanic.  To simplify, let's assume everyone is a member of one of these two groups.  

The researcher observes that 72% of Asians 18 year olds in the sample apply to the University of California while only 32% of Hispanic 18 year olds in the sample do.

A qualitative researcher would take the next step of interviewing a random subset of the Asians and the Hispanics in this sample to ask them various questions about their beliefs, life goals, family circumstances and several other nuances that cannot be captured by a standard demographic survey.

A field experiment researcher would proceed with a different strategy.  She would take a new sample of 5,000 equally talented and ambitious 18 year old Hispanic and Asian students in the next year and randomly assign a subset of each group to a specific treatment such as a 20 minute information course on understanding the application process to the University of California and the gains to attending an elite 4 year college.  The control group would not receive any of this information

The field experiment researcher would observe the following pieces of information;

X1 =  percentage of Asians who apply to the University of California given random assignment to the treatment group.

X2 =  percentage of Asians who apply to the University of California given random assignment to the control group.

X3 =  percentage of Hispanics who apply to the University of California given random assignment to the treatment group.

X4 =  percentage of Hispanics who apply to the University of California given random assignment to the control group.

Suppose for this new sample of young people that the researcher observes the following facts;

X1 =  74%

X2 =  72%

X3 = 70%

X4 =  32%

These data immediately indicate that the intervention had a much larger impact on the Hispanic teens than on the Asian teens.  The intervention closed the gap.

What is My Point?

I am interested in asymmetries in social science.  Economists assume that people know themselves and have a life plan and a "conception of the good life" and they strategically make their choices such as who they marry, where they live and how much education to attain with their plan's goals in mind.  The observer knows that she does not know what is each person's life goal. Social scientists learn about people based on the choices we observe them make.

In the example sketched out above, a field experiment researcher seeks to explain the "education gap" and to test for what might be cost-effective strategies for closing this gap.  How did the field experiment researcher choose the specific intervention that turned out to be effective?

One answer is introspection. Another answer is the researcher has read journalistic accounts explaining why some talented teens do not apply to great schools.  Another answer is that the field experiment researcher has engaged in her own qualitative research to list out the menu of possible explanations for the education gap.  

The question here pertains to how quickly will the Big Data researcher zero in on the right treatment to pilot?   If the Big Data field experiment researcher is baffled concerning what treatment to pilot, then qualitative research is crucial for narrowing down the set of strategies.  

Given the publication incentives of academic researchers and given their finite research budgets, they have strong incentives to pursue treatment effect designs that are effective. Researchers cannot publish papers that say; "I tried this crazed treatment and it turned out to have no effect.".   The self doubt of the field experiment researcher leads her to pursue qualitative strategies (at least on a small sample) to reduce her risk exposure of investing her time and $ in a project that doesn't yield credible statistically significant results.

"Dynamic" Facts in the Social Science

Note that the effective intervention means that the "Old fact" (that eligible Asians are much more likely to apply to the great colleges than eligible Hispanics) is no longer a fact going forward as the effective intervention brings about convergence.   In Physics, this does not occur.   

Final Point and a New Thought

When the field experiment researcher knows that she does not know the causes of behavior (so in this case why Hispanics are not often applying to the UCs), she has an incentive to invest in qualitative research to help hone the actual treatment.  

In the example I have sketched above for both Hispanic and Asian teens in the treatment group (so they received the information session) who both choose to apply to the UC and not apply , I would find it interesting to interview a subset of them.  There is a jump from the "intention to treat" to "treatment status" and I don't think we understand what types of personalities and under what circumstances are people eager to play along and try something new.