Adapting to Wildfire PM2.5 Spikes in the American West
Are We "Passive Victims" or "Active Adapters"?
David Wallace-Wells has posted an excellent newsletter sketching out the challenge to our health posed by wildfires in the American West. His entry relies on peer reviewed evidence by my friend Marshall Burke. Go to Marshall’s Google Scholar page and read his work.
I want to sketch out the free markets vision for how we will adapt to this challenge. How does capitalism evolve to help us cope with a potentially serious threat?
point #1 Home prices will decline in areas experiencing persistent PM2.5 spikes. Real estate prices are higher in higher quality of life places. If some part of Oregon now has more smoke during the fire season, this fact will become known and incumbent home owners will suffer an asset value loss due to this ugly “new news”.
This pricing dynamic has two consequences. The incumbent property owners have an incentive to take proactive steps to protect their area from pollution spikes. Of course, wind blows smoke around and “importing areas” will suffer from lower local housing demand and reduced prices for housing.
Point #2 Those who move to the area are not “victims”. They have chosen to live there. They can use the $ they save on cheap local housing by buying self protection equipment. Amazon already sells hundreds of such products.
The induced innovation literature teaches us that as the aggregate demand for products increases, for profit firms will devote more R&D effort innovating to design effective products. Read Acemoglu and Linn or our 2018 paper.
Point #3 We are diverse. Those of us who suffer the most from PM2.5 pollution spikes will move away from those areas that now face these spikes. It is certainly true that old people are less likely to migrate and many have chosen to live in areas that now face greater PM2.5 spikes. These PM2.5 spikes pose extra morbidity and mortality risk for the elderly. We know these “climate damage functions”. The elderly have wealth and housing wealth to tap into to protect themselves from this new threat. Effective air filters and masks help to attenuate their pollution exposure. These devices do not have to operate every day of the year. Instead, they are needed during pollution episode spikes.
The Big Mac is a cheap free markets product. I predict that over the next decade that many companies will become rich designing and marketing the climate adaptation equivalent of “The Big Mac”. These products will be affordable and will protect the vulnerable from environmental threats on nasty days. We are not passive victims here and the firms that design these products will not be doing “charity”. Instead, the invisible hand steps up to supply the products we need.
This free market environmentalism is not discussed enough these days. Marshall and I have debated this point. Endogenous adaptation innovation is a ripe subject for young economists to work on.
Such innovation fuels my own twist on Robert Lucas’s Lucas Critique. As Mother Nature changes the stochastic climate process we face (i.e pollution and heat spikes), firms change their investment patterns and this yields innovations that help to flatten the health damage caused by outdoor pollution exposure. We are not passive victims here! We are active adapters and capitalism will lower the price of adapting. This was the theme of my 2021 Yale Press book Adapting to Climate Change.