Understanding the Arguments Made by Climate Change Adaptation Pessimists: Part One

Climate change adaptation refers to our individual and collective ability to cope with Mother Nature’s more intense weather punches in terms of extreme heat, drought, fire, flood and many other place based risks. My microeconomics research, as sketched out in my 2010 Climatopolis book and my 2021 Adapting to Climate Change books, argues that capitalism accelerates our ability to adapt as market price signals encourage substitution and innovation. Whether government policy complements the private sector muffles the private sector’s efforts continues to be a major research topic. In my 2010 Climatopolis book, I asked; “If Milton Friedman ran the U.S FEMA (and thus committed to no generous ex-post bailouts to shocked places) how much faster would adaptation occur?” In my ongoing empirical work, I continue to study how extreme weather affects our economy. I see evidence of adaptation progress as the “climate damage function” flattens and this means that the same punches thrown by Mother Nature cause less damage over time. My students are studying this hypothesis in the developing world and investigating what frictions (such as government policy) inhibit adaptation from taking place. An example would be government price supports for agriculture that create a moral hazard effect. See this 2015 paper set in the United States. My Thoughts About the Work by Two Talented New York Times Journalists The New York Times continues to be the paper of record. Two of the leading authors for the Times are Christopher Flavelle and David Wallace-Wells. I link to their work so you can read it on your own. David recently published a huge New York Times Magazine piece that you can read here. I want to keep this entry short but I plan to expand upon the themes I present below. I must acknowledge upfront that I have not interviewed either of them about their climate change adaptation pessimism. My points I present here are based on my reading of their work. How Does a “Climate “Crisis” Emerge? Global greenhouse gas emissions will continue to rise. Read our 2022 NBER paper. We do not know how much global average temperatures will rise due to rising emissions and we do not know what “crazy” weather will emerge because of what we have collectively unleashed. In a series of case studies, Flavelle argues that we have built up billions of dollars of place based capital in increasingly risky areas such as Florida that face more severe disaster risk. He emphasizes the moral hazard effect that the expectation that there will be Federal Bailouts of struck areas encourages more rebuilding in these areas. So, he is telling a story that we do not learn from our mistakes. He does not explain who is the “adult in the room”? Why don’t city urban planners, the mortgage lending industry, the real estate development industry, the insurance industry adopt new “rules of the game” so that new real estate development is nudged to “higher ground” or if we build in risky places that private actors are incentivized to invest in pre-cautions that reduce the damage caused by the next storm. Starting with my Climatopolis book, I have argued that if people make place based bets (such as investing in Miami real estate), then they should flip two sided coins. They get to keep the upside appreciation if local prices rise but they also must “eat” the downside loss if local prices decline because of rising risk and better opportunities in other real estate markets such as Boston or Houston or Buffalo. I do respect his point that the public sector activism in insurance markets is causing an important free market distortion. As the social cost of this distortion rises, economic theory predicts that political reform will take place. Why should tax payers on “higher ground” bail out risk takers over and over again? Why reward “bad behavior”? As we saw with the economy’s reorganization during the COVID crisis of 2020, markets adapt and change when new news occurs if government does not distort price signals. The rise of the Zoom WFH experiment was an amazing example of adaptation. David Wallace-Wells argues that adaptation is costly and will exacerbate existing inequality. A quote “Talk enough about adaptation, and you drift into technical-seeming matters: Can new dikes be built, or the most vulnerable communities resettled? Can crop lands be moved, and new drought-resistant seeds developed? Can cooling infrastructure offset the risks of new heat extremes, and early warning systems protect human life from natural disaster? How much help can innovation be expected to provide in dealing with environmental challenges never seen before in human history? But perhaps the more profound questions are about distribution: Who gets those seeds? Who manages to build those dikes? Who is exposed when they fail or go unbuilt? And what is the fate of those most frontally assaulted by warming? The political discourse orbiting these issues is known loosely as “climate justice”: To what extent will climate change harden and deepen already unconscionable levels of global inequality, and to what degree can the countries of the global south engineer and exit from the already oppressive condition that the scholar Farhana Sultana has called “climate coloniality”?” These are great questions but note that these are economics questions. What is the quality adjusted price of the goods we need to continue to be safe, comfortable and healthy? David Wallace-Wells owns a computer and a cell phone. These products didn’t exist in 1940. Every day they grow cheaper and become of higher quality. This is what market competition does. More poor people in the developing world can afford these products as quality adjusted prices decline. Note that Wallace-Wells is rightly concerned with poverty and the challenges that poor people will face going forward. An economist would reply to his pessimism; “okay, you are not worried about Elon Musk’s ability to adapt to new risks. Let’s rank all of the world’s population with respect to their income. Who are the people who currently do not have the capacity to adapt to the serious challenges that wacky weather is posing? What income growth would give them the opportunity to adapt? Why isn’t this income growth occurring? “ Note that David Wallace-Wells is saying that economic growth in the developing world is the key to adapting to climate change. We need poverty alleviation to help everyone to be able to adapt. Here we agree. Economic growth is the key tool for adapting to climate change. Such economic growth reduces poverty. Here is a study of global poverty alleviation by a leading macro-economist. I recognize that I am positing that national economic growth reduces poverty. Is this a controversial claim?