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28.4.07

Thales of Nashville

Todd Zywicki challenges environmentalists to make like Thales and earn some profits from their predictions of climate change:

But I do understand economics. And if believers in global warming are so certain that it is going to occur that they are willing to impose taxes and other coercion in order to combat it, why aren't they buying up all the land 300 yards or so from the current beach, or wherever they expect the sea level to rise to in the future? Shouldn't Al Gore be cornering the market on coastal land twenty feet above today's sea level? Surely that land must be a bargain today compared to what it will be worth if his predictions are accurate.


But there are a host of problems with this proposal:

1. Not everyone is an insatiably profit-seeking homo economicus. And environmentalists in particular are unlikely to have such an orientation, being more attracted to what we might call the homo sufficientus model. Speaking for myself, even if the other objections I list were somehow neutralized, I wouldn't be buying up any future beachfront property, because "real estate speculator" is not the kind of person I want to be or the kind of life I want to lead regardless of the amount of profit to be made. (On the other hand, there are certainly entrepreneurial environmentalists out there, including to some degree the one Zywicki singles out, Al Gore.)

2. You'd think a devotee of economics would remember to account for incentives. Once you own a piece of future beachfront property, you have a vested interest in the amount of climate change that will make it pay off. In Thales' case this wasn't an issue, because he had no control over the weather that he was banking on. But the whole point of climate change is that we are controlling the weather. What environmentalist would want to create a real or percieved conflict of interest with his or her advocacy of policies aimed at minimizing climate change? (Indeed, it's easy to imagine some clever economist proposing that all policymakers working on the climate change issue own current beachfront property, to give them an incentive to seek the strongest policies.)

3. Post-sea-level rise beachfront property will not be as valuable as current beachfront property. The value of beachfront property is due not strictly to the proximity to water, but to the type of shoreline landscape associated with relatively stable coastlines. People want a nice clean beach with a view out over a big flat ocean and nice places to swim. What future beachfront property will overlook, however, is a swamp dotted with the roofs of flooded houses, trees obscuring the horizon, debris washing in all the time, and perhaps some ugly, hastily-constructed levees. It's possible that the view could be so depressing that coastal property would end up being less valuable than inland property. Just take a look at any of the immediately post-Katrina pictures of New Orleans and ask yourself if you'd want to vacation somewhere that overlooks that.

4. Sea level is not going to quickly rise 20 feet and then stabilize there. Sea level rise will be a long process, potentially continuing long after today's investors are dead. So you can't just draw a line on a map and say "I predict that these parcels will be the future's beachfront property." What property is beachfront will change over time as climate change unfolds. (And indeed, under the most optimistic geo-engineering scenarios such as widespread carbon sequestration, today's beachfront may end up being beachfront once again.)

5. Presumably sea level rise will stop at some point (if only because we run out of ice to melt and thermal expansion for the oceans to experience). But predicting that ultimate stop date requires predicting the outcome of political choices, which are affected by lots of things outside the environmental arena (e.g. current US climate policy has been shaped by 9/11 and the GOP corruption scandals through their impacts on which party gets power). Predicting long-term political outcomes is orders of magnitude more difficult than predicting the short-term behavior of markets or geophysical systems.

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