Distinguishing Between Theft and Recycling

As copper prices rise, an arbitrage opportunity appears.  If you can find scrap metals, you can sell them for a high price.   Thieves know this and they looking for loose wires.   “Near-record prices for copper, platinum, aluminum and other metals have spurred a resurgence in the past several months in the theft of common items that in better economic times might be overlooked — among them, catalytic converters from automobiles and copper wiring that is being stripped out of overhead power lines, tornado warning sirens, coal mines and foreclosed homes, where thieves sometimes tear down walls to get to copper pipes and wiring. The thieves then make quick money by selling the items to scrap yards.”    

One way to address this concern is to remove the anonymity of market transactions. “California enacted a law in 2009 requiring people selling copper wire or catalytic converters at scrap yards to be photographed, have their driver’s license copied and wait at least three days for payment.”  This makes sense to me but I don’t see how this “origination information” allows the police to trace the evidence to the crime.

Two Random Items

Now that I’ve learned that there are some RBC readers who do not love economists (I am married to one), I thought I would offer two funny items to lighten the mood.    Here is an article highlighting the thoughts of Jonathan Haidt .  We ran track together at Scarsdale High School in the early 1980s.  Few Scarsdale grads chose to become professors. Instead, they became lawyers or went to Wall Street.  Jonathan argues that conservatives are under-represented in his field.  Why?    The second item I want to share is Kittey Kelley’s biography of Oprah Winfrey.   I read it on the plane ride the other day and found it to be fascinating.  I like ambition, gossip and success.

Peak Wheat

Paul Krugman links rising food prices to climate change.   “But the evidence does, in fact, suggest that what we’re getting now is a first taste of the disruption, economic and political, that we’ll face in a warming world. And given our failure to act on greenhouse gases, there will be much more, and much worse, to come.”    He could be right.  How does a free market respond to the growing realization that agricultural yields could be more volatile (great output, low output) over time?     Capitalism provides a number of adaptation strategies.  We can hold inventories.  We can buy futures contracts.  In areas where there are not great alternative uses for land, farmers can grow crops hoping that the price will be high when they harvest.     Paul Krugman should not forget the power of international trade to protect us!  Global agricultural trade (with low tariffs and quotas) is the best way to adapt to this anticipated volatility.  If Russia has a great harvest, it can export to Egypt at the world price.  Assuming that climate change has different agricultural impacts in  different geographical areas, this offers diversification of our food portfolio.

Dr. Krugman forgets that there are two sides to a market. We worry about rural poverty.  Which farmers are making good $ selling now that prices are high?  He is correct that the urban poor are hurt by this price spike.  But, this raises a basic nutrition question.  If the price of wheat, corn, sugar and oils all soar, what can a household substitute to? 

UPDATE:  An economist who actually conducts research on international trade in agricultural products contacted me.  Here is his post.

Envy Over NY Times Book Review Selections

Mark Hertsgaard’s Hot is reviewed   in the New York Times today.  I am jealous.  In fall 2010, I published a book on climate change adaptation but from the perspective of a “free market” economist.    We are both optimists about the globe’s ability to adapt to the scary challenge of climate change but we differ on why we have the capacity to adapt.   I emphasize the power of capitalism’s price signals to help stimulate migration, investment and innovation.

In contrast, the author of Hot embraces a multi-factor approach.  “But most important, what Hertsgaard finds is that the ability to adapt to climate change depends as much on “social context” — defined as “the mix of public attitudes, cultural habits, political tendencies, economic interests and civic procedures” — as on wealth and technological sophistication.”   This looks like mush to me.  He has listed so many factors that I see no way to disentangle their relative importance.  

Here is what his Amazon review says;  “Contrasting the Netherland’s 200-year flood plans to the New Orleans Katrina disaster, Hertsgaard points out that social structures, even more than technology, will determine success, and persuasively argues that human survival depends on bottom-up, citizen-driven government action.”   So, government will save us from climate change?  I’d like to see the formal proof of this conjecture.

My book highlights cases in which government action increases adaptation challenges (by crowding out self-protection actions or by not allowing water prices to rise — “price gouging”).  I am a “two handed” economist!  I also discuss ways (such as land use zoning) in which government can be a “friend” of adaptation.     The interaction of individuals, firms and governments will determine our adaptation path but government will only be incentivized to step up if there is competition between jurisdictions for embracing adaptation friendly policies. If the tax base will get up and migrate away from risky areas, then local politicians have strong incentives to step up and deliver such policies!  Here are the first 30 pages of his book.

Be Prepared

President Obama wants the CIA to show some foresight about anticipating new, low probability events such as revolution in Egypt.  This sounds like a good example of how “open source” smart blogs such as RBC could fulfill a patriotic duty.  We as a community could list the set of new “known unknowns” and then dispatch our list to the CIA and allow “the experts” there to rank them and to plan out our best responses to these emerging threats and opportunities.   So, the Nobel Laureate Ronald Coase posed the old question of why do firms exist?   Why does the CIA exist?  Recall the old “make versus buy” decision.  The CIA doesn’t have to do everything in house. If Jason Bourne is unavailable, they should consult with Jonathan Zasloff and the rest of the RBC community!

Innovation Based on a Predictable Trend

Anticipating that the share of the world’s population over age 65 is growing, entrepreneurs are thinking about what business opportunities will be available from such predictable trends.   The net effect of these investments will be that seniors will have an improved quality of life relative to previous cohorts.   Similar forward looking logic applies in the case of climate change adaptation     .  

Continue reading “Innovation Based on a Predictable Trend”

The Economics of Climate Change Adaptation

It takes a special event to nudge me to travel from Los Angeles to NYC in early February!  Yesterday, I had the pleasure of giving the Keynote Address  at a Rudin Center Event on Urban Livability at NYU’s Wagner School.   After the event, I participated in this   video interview  .  I know that I should stick to radio but if you click on the video you will quickly get a sense of my Climatopolis book’s key themes.    Climate change is a serious challenge.   Unfortunately, world greenhouse gas emissions will continue to rise.  Are we doomed?  In Climatopolis, I present a logical vision of how urban households, firms and governments will make new investments that collectively help us to adapt to this scary challenge.

Continue reading “The Economics of Climate Change Adaptation”

Harold and the Tale of John Henry

Harold’s post got me thinking about John Henry vs. “The Machine”.    I am a fan of capitalism (it beats the alternatives). In this snow example, it  has lowered the full price of removing snow.  According to Amazon, Harold could buy a good snow blower for $300.    Assuming it snows hard 5 times a winter in Chicago and that the blower lives for 6 years (I’m making up these numbers), then ignoring the lost interest and the cost of reading the instruction manual; rational Harold must ask himself whether he is a “John Henry”?  The “easy” soft solution here is to buy the machine and pay $10 per snowfall removal.  He would save time, and protect his back.   Capitalism has allowed him (at low price) to substitute capital for labor.  Armed with the blower, his driveway looks good and he has extra time to blog about the experience.  By buying the blower, you increase manufacturing demand in the exporting nation that built it and you are likely to lower back breaking work in that country.

Civil War: Does Urbanization Reduce or Raise the Risk?

Ed Glaeser writes;  “Cities aren’t just places of economic productivity and cultural innovation. For millennia, they have also been the epicenters of dramatic political upheaval.”   Glaeser’s piece is vague about what caused the initial uprising.

I can think of one big salient counter-example to his core urban density facilitating social contagion story.   Leading development scholars have worried about the costs of Civil War in sub-Saharan Africa. One well known 2009 PNAS paper argued that climate change will raise deaths in this region by over 300,000 by 2030.  These scholars claim that the probability of civil war is higher when average temperatures are higher.  While they do not discuss “urbanization” in their piece, the only causal logic I can think of is that higher temperatures affect agricultural yields and that “Mad Max” from Thunderdome scarcity issues arise and this sparks violence.  The PNAS paper appeas to conflict with Glaeser’s density point. In the case of Sub-Saharan Africa, I wonder if Civil War risk would decline as urbanization accelerates.   Why?  Fewer people would rely on subsistence agriculture for their incomes.  Globalized free trade will provide the food for their cities.   If civil war interests you, and you believe that economists have “value-added”, then read this!