Government to the Rescue?


I gave a lecture on climate change adaptation today to a group of 40 Ph.D. econ students from all of the UC campuses.  As you know, I place individuals and individual firms as our first line of defense in protecting us from the challenge of climate change.   In contrast, several students in the room were insistent that government will play the central in protecting future generations from climate change.  I respect their idealism but this merits a little bit of analysis.
In Climatopolis,  I argue that in an open system of cities in which people can migrate across cities at relatively low cost (and 3% of people in the U.S move across states every year), those cities that fail to adapt to climate change will suffer a brain drain as the skilled who seek safe, high quality of life cities will leave.  This threat of "exit" by the footloose skilled provides strong incentives for self interested mayors who want their tax base to remain to be pro-active in protecting their city.   I certainly agree that government can use its unique powers of taxation, public goods provision and zoning to "climate proof" a city but it will be much more likely to take these steps if the population sends credible signals of punishing those mayors who are no pro-active.
UPDATE:  Migration in response to climate change isn’t just a human activity.  Have you read this about the mobile critters?
In contrast, the students appears to embrace a "benevolent planner" model of government as it steps up to protect us from our misfortune.  I wish we lived in such a world but I have seen our politicians in action.
I do believe that politicians react to competitive forces and if the median voter wants adaptation investment then Mayors will think through actions that can help to protect the urban population. Again, the key idea here is the threat of competition and no mayor thinking that he/she has a monopoly on the skilled.  The threat of exit by the golden goose (the skilled) yields better governance.
I would also stress that the domain of what Mayors, Senators and even the President controls is small relative to the freedom and opportunities that the free market can create.  The President and Congress can enact activist policies such as paying for new highways or new health insurance but they cannot mandate technological advance. Neither Facebook nor Google was not created by government.   As I argue in my book, government has often created bad incentives for encouraging innovation that will help us to adapt to climate change. We need to face the scarcity signals for electricity and water. In many cases, regulation sets ceilings on how high prices for such resources can rise. If we allowed free markets to signal their scarcity (then as climate change makes them more scarce), innovation would take place that economizes on those resources.
I also worry about a certain lulling effect. If the UC students truly believe that government will rescue them, then this diminishes their willingness to be pro-active to protect themselves. In English, if you believe your neighborhood street is safe and low crime because of police patrols, you may not lock your doors.  The perception that you have a guardian angel can displace private self protection and I view this as a mistake.  There are certainly cases where private investment in self protection and public investment are complements (i.e like peanut butter and jelly) but this needs to be thought through on a case by case basis because I think they are substitutes in many cases.  Consider New Orleans. If government invests in nice strong Sea Walls (and taxes North Dakota to pay for them), more people will live there. This is a simple example of government investment in protection displacing private investment in self protection.  This is the substitutes case.
I am not a member of the Tea Party and I recognize that the government has provide some high quality public goods such as national defense and the welfare safety net.  That said,  climate change does raise a fundamental issue of which strategies we use to cope with a new challenge.
I think what the students didn’t explicitly say today is that they are worried that the poor do not have enough $ to protect themselves and so they really seek "big government" because this tax and spend regime will give the poor more resources to cope with climate change.  This conflates two different ideas; redistributing cash to the poor and optimal strategies for protecting ourselves from an emerging threat.  Economists often forget that many people care more about equity than the economy’s efficiency and it was interesting today to meet young economists who also feel this way.   But, the U.S deficit problems would vanish if the economy were growing faster and a more efficient economic system does grow faster!
A free market economist would say if the poor need more resources in order to successfully adapt to climate change then we need to figure out how to reduce poverty in the United States.  The solution can be found here.

Government to the Rescue?
Matthew E. Kahn
Sat, 20 Aug 2011 03:44:00 GMT


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