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Capitalism will help us adapt to climate change, economist says

Capitalism has caused climate change — and it will also help the world adapt in order to survive the impending shake-up, UCLA Professor Matt Kahn argues in his new book, "Climatopolis: How Our Cities Will Thrive in the Hotter Future" (Basic Books, 2010).
A city skyline stands on the horizon over a bleak, parched landscape and under a hot red sky.Kahn, an environmental economist, takes a pessimistic view of climate change — it's too late to avoid rising sea levels and hotter summers, he wrote — but he believes cities can cope with the changes.
"Many people are fixated on how we can reduce greenhouse gases, and acting like adapting to a warmer climate is still in the sci-fi future," Kahn said. "But we've passed the point of no return. Certain urban places — like Los Angeles — will suffer. But I'm optimistic that Los Angeles will also adapt."
Sure, you could hedge your bets and move north and inland, where cities are more sheltered from higher sea levels and warmer temperatures. Kahn predicts that Salt Lake City, Milwaukee, Buffalo, Minneapolis and Detroit may give New York and L.A. a run for their money in the new, warmer world. By his calculations, you could get a real bargain if you buy now: The price of one home in L.A. equals the cost of 100 homes in Detroit.
But Kahn's staying in Los Angeles. It helps that L.A. is where the UCLA Institute of the Environment professor has a house and dual appointments in economics and public policy, but he's also upbeat about L.A.'s future.
"I foresee a lot of challenges for urban cities, but I think they'll reconfigure themselves," he said. "I'd guess that in 2070, Los Angeles will have New York- or Hong Kong-style density, clean air, a working subway and much more development in the city's temperate zones."
The key is the very capitalism that has propagated the jumbo-sized, gas-guzzling American Dream, complete with a house full of energy-hungry air conditioning and two SUVs in the driveway, Kahn said.
"Capitalism is always coming up with new products," he explained. Energy-efficient air conditioners, electric cars and floating houses built to rise with sea levels or flash floods are just a few of the products that he expects will provide a profitable reason for companies to help the world adapt to climate change.
The way people will adapt depends on whether we're all a bunch of Spocks or Homers, Kahn explains. Spocks – named after the rational-to-a-fault Star Trek character — would calculate the risks of climate change and prepare accordingly. Homers — named for the bumbling father figure on “The Simpsons” — would seek instant gratification and find cheap housing exactly where climate change will cause the most damage. Whereas some economists think of the world population as either all Spocks or all Homers, Kahn thinks we're a mix of both — and that's what will save us.
"The Homers will be desperate to survive after the climate apocalypse, and their desperation creates incentives," he said. "The Spocks will respond to that need and profit by coming up with the products that will be in huge demand. The Homers’ very existence creates the demand that saves them."
That's not an excuse for people to ignore climate change, Kahn warned. For cities to adapt, households and businesses need to learn about and respond to new data, he said. Climate models being developed in UCLA's Institute of the Environment, where Kahn works, will help give people the information they need to make smart choices about where they live and work, he said.
"My colleague Alex Hall is working on very detailed climate models that turn L.A. into a checkerboard of wildfire risk, flooding risk, average temperatures and so on," he said. "Home prices will rise and fall accordingly, and people will make more climate change-based decisions." Kahn foresees homeowners picking their neighborhoods by checking climate models along with crime rates and school districts.
Accurate information will be vital for people to make good climate decisions, which is why the saving power of capitalism could be derailed by government interference, Kahn argued. Subsidies and assistance can muddy incentives, he said. For example, he's disturbed by the message sent by low water prices in Los Angeles.
"Climate change is going to make water both scarcer and more in demand, but charging so little for water is actually exacerbating the water shortage problems," Kahn said. "People need pricing signals or they won't respond to shortages."
Companies that might otherwise develop water-saving devices have no incentive to do so if tap water isn’t priced high enough to make people want to buy the new products, he argued. "Capitalism is much less efficient when pricing signals are artificial."
So while Kahn is generally optimistic about how cities will adapt to heat waves and higher oceans, he does have some qualms. Optimism can lead to complacency, he warned.
"We still need a sense of urgency," Kahn insisted. "We can't let the expectation that we'll be okay keep us from making the effort now. We'll have an easier time if we start adapting now." 
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