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     .  

When I speak about my climate change book, undergraduates ask me; “You mean that climate change will cause technological innovation that will help us to adapt to climate change?”   I respond that there is “missing link” to their logic leap.  The anticipation of climate change and the havoc it could cause, leads some for profit firms to make costly investments now as they anticipate future profits from selling to desperate people down the road. From a law of large numbers, several of these innovations efforts will succeed.  Ideas are public goods.  In a world of 7 billion people, we need 1% of 1% of innovators to step up.

Author: Matthew E. Kahn

Professor of Economics at UCLA.

11 thoughts on “Innovation Based on a Predictable Trend”

  1. Your second paragraph link to your climate change book is actually a link to this very post, making your book the missing link!

  2. Yes, this is all true. And we have confounding rapid episodic change and emergent phenomena moving around in the way of nice, clean equations – equations arranged in a way that when solved, we get an r^2 that is too low for policy, as their results too often don’t account for enough chance. Such equations are among the suite of things at our disposal, but they are not necessarily accorded priority over anything else.

    And besides, there are lots of poor people in places other than the US, Canada, and Western Europe. They likely can’t pay. What about them? Which private companies are innovating to save lots of money to address their needs? Is anyone besides the military thinking about adapting to their hunger and rage?

  3. For short posts like this, could you please keep it all “above the fold”? It’s much more pleasant to read the blog if I don’t need to click through to read every post.

  4. Climate change is, itself, a product of economic innovations, driven by incomplete internalization of costs and inadequate account of depletion. And, more of the same, plus new opportunities to sell stuff to desperate people is a cause for optimism, how?

    I have no doubt that the capitalist market economy will generate adaptations to climate change. Given the time-frames involved, I do not see any basis for stressing investment in adaptation in anticipation of change and its effects. But, sure, if the Arctic is clear of ice, and that seems to be become the “new normal”, ocean shipping companies will take advantage. Duh.

    For all practical purposes, though, the investments will come after the fact of effects from change emerge (as in the case of Arctic shipping lanes), unless governments manage to organize policies that change prices, to better internalize anticipate costs. Absent such policies, entrepreneurs will respond to prices and the people, who can pay those prices, as they always have. Perhaps, most relevantly, absent aggressive government policies to internalize costs and sharply limit emissions of greenhouse gases, all that capitalist innovation will serve, simply and inexorably, to further accelerate global warming and environmental degradation, and its ill-effects.

    A growing market of elderly (assuming the Chicago economists do not succeed in their mission of abolishing Social Security and Medicare, depriving that market of most of its spending cash), may very well combine with increasing returns in the production of various goods and services, to improve the welfare of seniors. Specialization, the font of the wealth of nations, is limited by the extent of the market, and all that. That’s predictable, and I can see the case for optimism, because I can point to the mechanisms of economies of scale and technological advancement.

    It is much less clear to me that the continuing, unrestrained operation of the system that created the probable catastrophe of climate change can be rationally anticipated to do anything other than continue to accelerate the catastrophe. As long as we remain unwilling and incapable of taking the political steps necessary to properly account for externalities, depletion and congestion costs in the price system driving our market economy, our market economy will continue to drive the planet toward crises. We’ll adapt to climate change, peak oil, overpopulation and environmental degradation, alright, but in ways that accelerate and make more acute the very changes we are adapting to, and ultimately immiserate future generations with the loss of natural resources and Malthusian crowding.

  5. From the Publishers’ Weekly review:

    On how the urban poor will cope with climate change, Kahn shrugs his shoulders writing, “the truth is that this group has always faced hardship…the question is, how much worse will their quality of life be?”

    Seriously? This is what the Reality-Based Community is saying nowadays about the poor? I don’t know why people here profess to be unhappy about Egypt, or are fretting about Obama’s proposal to back the Egyptian politician most closely tied to torture. After all, Egyptians have always had it pretty tough. They’ll no doubt get through this in some fashion.

  6. Bruce, I agree, but ‘Mathusian crowding’ presumes ecosystem states remain as they are today. They likely will become more unstable and some will flip states. If the oceans flip, there goes a large chunk of animal protein and that will be a hard landing for a very large fraction of the human population. Much of Australia appears to be entering the unstable stage, and Northern China as well. Lots of pressure on the grain supplies.

    That is: really what we are dancing around is whether we have a hard landing or soft landing. And for how many.

  7. @Dan Staley

    I’m not sure what I thought the phrase, “Malthusian crowding” should evoke in the mind of a reader.

    What I think is that there are two components to a Malthusian thesis. One is the arithmetic of the division of produce, leading to an equilibrium of subsistence. The other is the calculus of accelerating dimunition of productivity, relating to congestion and depletion of the commons.

    At some point, adding another fishing boat and another fisherman to the lake, just reduces the catch of all the other boats. At some point, the fish stock crashes, and the fish yield plummets, all the efforts of men, just accelerating the disaster.

    The earth is our commons. In the 19th century, the pathetically inefficient and wasteful technology of the early Industrial Revolution, proceeding on very modest scale, got a huge boost from opening of whole continents to exploitation, accelerating growth. In the 21st century, our technologies are vastly more efficient and effective, but we should expect the opposite of a huge boost, from the constraints of the natural world, colliding with the increased scale of population and economic effort.

    A plain reading of the data would suggest that the oceans are already well along in a fifty-year process of cascading population crashes and ecological collapse. Unless some capitalist entrepreneur comes along with an innovation changing the physics of calcium carbonate deposition in the presence of acids, and gifts it to the coral — an “adaptation” that seems a trifle unlikely — I would not expect anything to stop it, short of actually stopping the self-destructive behaviors Professor Kahn celebrates so optimistically.

    “In moments of progress, the noble succeed, because things are going their way: in moments of decadence, the base succeed for the same reason: hence the world is never without the exhilaration of contemporary success.” G.B. Shaw

    Oh, joy!

  8. I’m an ecology guy, Bruce, and I don’t see crowding lasting for long. I took the opportunity of the use of the phrase to explain why I don’t think innovation is going to work to forestall the wave of extinctions/crashes. I see our population increase and resultant resource exploitation as a direct function of cheap energy. It cannot continue without it, and depleted ecosystems will control our population, not energy or technology.

  9. I’m with politicalfootball. That is, appalled!!! People like yourselves who have power and influence have no business sitting on your hands and giving up the game like it’s lost already. Our whole economic/political system is based on the idea of the best and the brightest, and I for one would like to think that not *all* of them (you?) are corrupt and complacent.

    Now get out there and win one for the Gipper! Ya bums.

Comments are closed.