A Quick Economic Evaluation of Jim Hansen's Predictions About Our Urban Future

The respected climate scientist Jim Hansen says many interesting things in this interview.    Below, I reproduce one direct quote and then comment on it.

To think for a minute at the scarier end of the spectrum. If we do end up four or five degrees warmer, within a relatively short period of time — that’s the IPCC’s RCP8.5 scenario, by the end of the century, and that’s not counting some of these dramatic feedback mechanisms, what would that do to the planet, in your mind? 

“I don’t think we’re going to get four or five degrees this century, because we get a cooling effect from the melting ice. But the biggest effect will be that melting ice. In my opinion that’s the big thing — sea-level rise. Because we have such a large fraction of people on coastlines — more than half of the large cities in the world are on coastlines. The economic implications of that, and the migrations and the social effects of migrations — the planet could become practically ungovernable, it seems to me. But if you’re really talking about four or five degrees, that means the tropics and the subtropics are going to be practically uninhabitable. It’s already becoming uncomfortable in the summers, in the subtropics — you can’t work outdoors. And agriculture — more than half of the jobs are outdoors.”

MY TURN

So,  my fellow adaptation optimists do you see that Dr. Hansen says that if we build our future cities away from the coasts and work inside in summer that the costs of climate change are much lower?

I also disagree with the logic of the first half of his statement.  The coastal real estate capital stock is durable but won’t live forever.  Moving forward our capital stock won’t be as durable and this will be an adaptation strategy.  Think of the turtle. It can take its shell with it as it moves. We will do the same thing.   This is the point of the Bunten and Kahn 2017 paper, an ungated version of the paper is here.  Think of Lego.  Lego can be assembled and disassembled.  Such a building technology embeds an option value allowing the capitalist to unbundle his capital from land.  As SLR occurs, we surrender the land and drag the capital to higher ground.  There is higher ground within metro areas  (think of the New York City metro area, economic activity can move within the MSA to find higher ground) and some metro areas face less risk than others.

The typical environmental reporter ignores the general equilibrium point that yes land owners along the coast lose as the sea rises but other land on higher ground goes up in value. That is where we will build our future cities if zoning laws do not block such growth.  Pecuniary externalities are never discussed.

This potential for climate change to shift the ranking of city quality of life and hence to influence future investment patterns is a key research area.  Climate change adaptation offers a  great test of the rational expectations hypothesis.  Forward looking investors who know that they don’t know what sea level rise will do to coastal properties will change their bidding patterns and their self protection patterns (i.e homes on stilts and wetlands and other strategies that are now just emerging).  The combination of “fight and flight” at the micro level help to build up macro resilience in the face of climate change.  Doom and gloomers gloss over the basic ideas of modern economics.  Yes, there is “stranded capital”  along the coasts but it will not live forever (durability again) and its price will fall as a compensating differential for people who want to take the risk.  

Cities compete for people and jobs. Those cities that have an edge in offering relatively high future quality of life will attract people and jobs.  This competition between cities protects all urbanites.  This is the Climatopolis logic.  Go back to my 2010 statement here.  

Now, Dr. Hansen is discussing the developing world.  The same logic I stated above holds in the developing world.  Technological innovation in rich countries will diffuse to the LDCs.  The people in LDC nations need a menu of cities to choose from.  This migration will be “orderly” due to rational expectations. People will not wake up one morning in a panic and 5 million people will seek to exit Dhaka.  Rational expectations models predict a smooth adjustment process.  The New York Times and Dr. Hansen have warned us.  Capitalism now steps in and sends the price signals that directs “the traffic” (us) in an orderly way as we rebuild our capital stock and live our lives on “higher ground”.

Yes, LDC nations are poorer but the death toll from natural disasters declines as nations grow richer.  The same quality disaster causes less damage as the capital stock is of higher quality , as people have access to better food and medical care.  Capitalism helps us “to take a punch”.