The Daily - Should The Government Pay for Your Bad Climate Decisions?

Episode Date: March 24, 2023

A few days ago, the Biden administration released a report warning that a warming planet posed severe economic challenges for the United States, which would require the federal government to reassess its spending priorities and how it influenced behavior.White House reporter Jim Tankersley explains why getting the government to encourage the right decisions will be so difficult.Guest: Jim Tankersley, a White House correspondent for The New York Times.Background reading: A chapter in the new Economic Report of the President focuses on the growing risks to people and businesses from rising temperatures.In theory, funding the government takes place in two major stages. But it’s a fraught and complicated process. Here’s a step-by-step guide.For more information on today’s episode, visit nytimes.com/thedaily. Transcripts of each episode will be made available by the next workday.

From The New York Times, I'm Michael Barbaro. This is The Daily. A few days ago, the Biden administration issued a report that documents how the federal government itself encourages Americans to make bad decisions about living with climate change. Today, White House reporter Jim Tankersley on why getting the government to encourage the right decisions will be so hard. It's Friday, March 24th. Jim, I arrive very skeptical that an economic report from deep inside the West Wing of the White House can be interesting and sustain an episode, but I'm open-minded and I'm asking you

to prove me wrong. So first off, I'm disappointed in you. I can't believe that everyone else is not completely riveted by this report. But no, here, let me sell you on why this is really important and interesting. Okay, please. So the economic report of the president is released every year. It's put together by the president's economic team, and it's hundreds of pages of charts and citations and deep detail about the way the economy is behaving and the way that it's going to behave going forward. Wait, wait, Jim, I just dozed off. I'm sorry, you're selling what here? Stick with me, Michael.

Go ahead. I will concede that in the past, some of these reports have been more targeted toward what we might call a deep nerd audience. A niche audience. A niche audience. People like me and professional economists and policy wonks whose job it is to really geek out about economic policy and projections. Right. But in this case, this year, there's a chapter that I think has big, broad, important appeal to everybody.

It focuses on climate change and specifically how we are going to adapt to a warming world and what that's going to cost. And it reflects a goal the Biden administration has had over the last couple of years to better present to the public what those risks of climate change look like. And not to put too fine a point on it, but it's basically a blueprint for how that adaptation might completely upend how we think about almost everything the federal government does. How it spends money, how it encourages people to do things or not do things. It's a really vividly detailed summary of all of the risks and costs of adapting to climate change or not adapting to climate change. All right, well, let's stipulate now that this does sound novel and important, All right, well, let's stipulate now that this does sound novel and important, but we're pretty far along in a climate crisis.

So simply acknowledging that it will affect the federal government doesn't sound hugely groundbreaking to me. I mean, just a few days ago, a U.N. report came out that said what so many of these reports ultimately say, which is we are in enormous trouble. Yes. And the White House report acknowledges that. And it acknowledges that we are already living with the effects of climate change. Americans are already making decisions that are influenced by climate change. But what the report also lays out really starkly is just how much government policies, as they are right now, are encouraging people to take more risk in the face of climate change, to do riskier things, more expensive things that they probably shouldn't be doing if the world's going to keep warming like this. So this report posits that our federal government, when it comes to climate change and climate adaptation, is kind of in its own way. It's part of the problem.

Yes, and gets in people's way. The places we live, the crops we plant, where we choose to build homes, all are flying in the face of climate risk right now. And I think there's a really easy way to understand why that is, because we subsidize a lot of behaviors through direct spending or regulations or the tax code. We give people sort of a thumb on the scale for stuff they should do with their lives. And that thumb was in a world where the risks were not nearly what they are from a changing climate. we're not nearly what they are from a changing climate. And so if you just keep with those existing policies, you create what economists call perverse incentives or moral hazards. You're basically encouraging people to do the wrong things. So walk us through how, according to this report, the government creates perverse incentives and

moral hazards when it comes to climate. Sure thing. First, and I think this is very easy for people to understand, the way we deal with natural disasters in this country, the way the federal government tries to stop them or guard against them or bail people out after they happen. So let's take forest fires, for example. The federal government fights fires all across the West, and those fires are getting worse and more damaging. And the report says, hey, if we keep fighting fires around, say, you know, gated subdivisions in parts of the West that are bone dry, that will continue to encourage people to live in those places

when maybe they should not be taking the risks of living in places that are very prone to fire. The same is true with flooding. There's more flooding that's being linked to climate change. And the federal government basically backstops all flood insurance across the country. And so it bears the costs of people living in flood zones. And when they flood more often, the government's paying the money and people can sort of continue to choose to live there. Right. And of course, the federal government backstops flood insurance. We've talked about this a lot on the show because private flood insurance that you could buy in theory on the open market is so prohibitively expensive because it actually reflects the true cost of insuring a house in a flood zone. So the government kindly,

of insuring a house in a flood zone. So the government kindly, generously says, we got this, we'll take care of it. And you're saying that is incentivizing bad decision-making around living in flood zones. Yeah, what the report says is that so long as the federal government does that, you're not going to see people correctly accounting for the risks of where they live.

Exactly what you just said, that they are not fully pricing in, as economists call it, the risks they're taking by where they're choosing to build their homes. And the costs of that end up being borne by taxpayers. So people who don't live in risky areas end up subsidizing the people who do. Right. And we tend not to think of this as a subsidy. We tend to think of it as a rescue. It sounds like this report is starting to rebrand this as basically paying people to make bad decisions. Yeah, effectively, yes. So that's natural disasters.

What else does the government do, according to this report, that essentially encourages bad climate behavior? do, according to this report, that essentially encourages bad climate behavior? So another way is not just insuring homes, but also helping people to buy them. So, you know, I think a lot of people know this, but some don't. The federal government plays a large role in the mortgage market. It has these what are called government-sponsored entities, Fannie Mae and Freddie Mac, that essentially take on mortgage risk from private lenders. And there's all this evidence, the report cites, that lenders are quietly sending loans they've made to houses in risky climate areas. Think like coastal communities, vulnerable to sea level rise. They're sending those loans basically to the federal government. If're sending those loans basically to the

federal government. If I'm a lender and I write a mortgage for that, I might be really worried that that house gets washed away as the sea level goes up. But if I can just offload that mortgage to the government or to Freddie and Fannie, well, then I don't worry about it as much and I'm much more willing to write the loan. And so that's what the report lays out, that by being able to offload those loans to the government, private mortgage lenders are making riskier loans in the face of climate change. But it's not just where we live. It's also what we grow, agriculture.

You know, the federal government subsidizes insurance for big crops farmers grow. If those crops fail for whatever reason, like there's a drought or a flood, then the insurance pays out and the farmer isn't out a ton of money. But the report says by subsidizing that insurance, you're again taking some of that risk away from farmers

and encouraging farmers to grow the wrong crops in the wrong places, essentially risky behavior and piling the costs onto taxpayers. Right. This sounds a lot like the way the federal government plays a role in home insurance in flood zones. Sounds like it plays a similar role with crops being grown in climate vulnerable areas. And I have to imagine this is especially problematic for farmers in the American West, where there is

so much drought these days. Yes, but also across places like Texas, where cotton crops have been under a lot of pressure lately. And across the Midwest, I mean, there's no part of the country that's immune from climate change. Right. Okay, so I recognize this is a long list of things, and that a lot of it is maybe stuff that people don't associate with the federal government. But I'm going to give you one more that is something everyone associates with the federal government. Medicare, one of the biggest, most popular programs in American history. And the report is very clear that climate change is going to affect health care spending, Medicare and Medicaid. And how, exactly?

care spending, Medicare and Medicaid. And how? Exactly. Because climate change is a health risk, particularly for poor people who have a harder time moving to get away from the effects of climate change. So if you are, say, a senior citizen living in Arizona where temperatures are getting higher every year and you are at a higher risk of heat stroke or of respiratory disease from air pollution linked to climate change, then you're going to have higher health care costs that get billed to the government. So one way, very simple way to think about this is that the more people are at risk from heat waves and other climate-related events, that's more money that it's going to cost taxpayers to take care of them and more strains on the health care system, which is a huge driver of the national debt going forward. And the government might need to rethink how it spends that money and how it apportions

health care just to keep up. I mean, one way or another, it feels like this report is essentially saying that the federal government's policies are misaligned with or are misfiring in almost every corner of American life when it comes to climate. And yet, Jim, just to play devil's advocate, I mean, how exactly is that such a problem? Because the government's job is to help people as they experience new challenges in their lives. And climate's a new challenge, and the government is going to have to use its existing systems to help them, right? So what's the problem? The Biden administration would absolutely agree, and this report agrees, that a big part of the federal government's role in a warming world is to help people, particularly poor people, adapt to climate change. But the report's all about making that adaptation less expensive. There are smarter

ways, the report says, to do all this. And there are ways the government can help people make smarter decisions on their own. But there's a problem with helping people make smarter decisions. It often means telling people things they don't want to hear. We'll be right back. So, Jim, how does this report from the White House propose getting people to make smarter decisions and get the government out of its own way on climate, given the specific policies that we have been talking about so far? Well, there's basically two very broad ways that the report talks about that. The first is, you can help people make better decisions by giving them better information about the decisions they're making. So if we don't really know what the risks are from climate change, it's hard for us as consumers to know what to buy or where to live or what to plant.

And so the report suggests the government do more to actually quantify and specify what those risks are. But the second thing, and the much bigger, more overarching part of the report, is the government needs to stop paying you to make what the government already believes are very risky decisions. And that is the big change it's proposing. Sweeping changes to all sorts of government programs to pull some of that perverse incentive back. Okay, how does that actually work in practice? Making people stop making bad decisions?

Well, let's go back to some of those examples we were talking about earlier. Like, take forest fires. The report sort of posits maybe the Forest Service needs to do less wildland firefighting. Maybe you should just let some places burn is the implication because they're too risky. I mean, that would be a very big change, and it might mean telling somebody that their house is going to burn down. Right, right, which nobody wants to hear that the government might let your house burn down. But that would be the implication of letting people bear that risk more on their own. Okay, how else can the government change these incentives? So I think another really big one, and it's contained in this kind of fun,

shaded box within the report, almost like a nerd Easter egg in the report, is about insurance markets. Because sometimes the perverse incentive from the government is that insurers see the risks of people living in certain areas, and they just won't insure them anymore. And the government ends up footing the bill. So what the report envisions is completely rethinking how insurance works so that it's not the government stepping in with a big check at the end, but that actually we're spreading the costs over an efficient market over time. Now, here's how that would work. Right now, you buy fire insurance or hurricane insurance or flood insurance like as a separate one-off policy. The report envisions, and I guess they do this in some countries like France and New Zealand, the big national multi-parallel disaster insurance,

basically just like everything in one policy. And everybody has to buy it, everybody pays into it, and then that spreads the risk. When disasters strike, that fund pays out the benefits. So you're essentially creating a much broader risk pool and keeping the government from having to pay these huge costs that, again, could be perversely incentivizing people because they know the government's going to step in if bad things happen. Right. going to step in if bad things happen. Right. So this might not exactly stop people from having a house or building a house in the wrong place, but it's going to prevent the federal government from footing the bill when the cost of that decision comes due. Right. The idea is that the people in those areas will have at least some more skin in the game because they'll be buying insurance

of some kind, even if a private insurer has pulled out of their market. And what about the crop insurance subsidies that you had mentioned? What does this report suggest doing differently when it comes to something like that? Well, the obvious implication from the report is the government should subsidize crop insurance less, in particular for highly climate change-exposed crops. And if you reduce the subsidy, there will be less of that planting.

So, so far, the solutions seem kind of obvious, which is if a government policy has perverse incentives, do less of that perverse incentivizing. Yes, that's what a lot of this policy is. But the report goes beyond that. And I think this is a fascinating part of it. It talks about the federal government trying to use its muscle to try to change some of the incentives that cities and states have right now that leads them to allow building in risky places. Okay, explain that. What are the local incentives? Well, there's a lot. So right now, if your community on the coast or in the mountains, and you greenlight more building that is businesses or homes, and that brings in property taxes, well, the local government

reaps the values of that. But overall, that building might be really risky for the country. And if fires rip through those new homes, the federal government ends up often paying the costs of the disaster relief. Right. So what the report suggests is, hey, let's condition federal dollars more on states and cities making better decisions. We're going to give money to the places that don't build on floodplains, that don't build in fire zones, that are more careful about what and where they build. Interesting. So in other words, the federal government knows that it can't tell a coastal community, you can't build houses there,

even though ultimately the federal government's going to bear a huge amount of the cost of bailing out that community in a flood. But what it can do is say to the entire state, hey, you want something from us? Then you need to behave differently. And that might trickle down to that coastal community and affect decision making there. Right. Listen, we've got lots of money for infrastructure. Perhaps you say even more so than the government already is, we're not going to rebuild your bridge that keeps getting washed out by floods. We're going to rebuild a bridge if you choose to build in a safer place. Or we're not going to put broadband internet into that new subdivision in a really

high fire risk zone. So a lot of the things we've already talked about are the federal government removing incentives. This is the federal government exerting pressure. It's using the power of its dollars to make city and state leaders feel like we need to rethink how we are developing our communities if we want to be eligible for this federal funding. Republican-controlled communities and states whose leaders are openly skeptical of climate change are going to be a lot less likely to therefore receive federal spending, given the strings that would be attached to it, and more likely to be kind of punished under this kind of a system?

That's a complicated question, and I think there's two answers to it. The first is, the report does note that places where people believe strongly in the science of climate change tend to be better at adaptation and take less risk in the face of climate change. So in that sense, they'll be less hard hit. A lot of liberals live in the mountains and on the coasts. And often you see communities there really fighting back against any idea that the government's going to tell them they can't have that second home or they can't be where they want to be. Republicans certainly don't like the government telling them what to do. But a lot of ways that they currently behave don't work anymore. So the politics of this, you're saying, are much more nuanced and complicated than they might seem.

Absolutely. Take my home state of Oregon, which is a fairly liberal state where people really believe in general in the signs of climate change. But when the state tried last year to publish a map showing fire risk for homeowners, Oregonians just recoiled. There was a huge outcry. People were complaining that it was going to drive up their insurance costs, and it was going to drive down their property values. And the state had to withdraw the map and then go back to the drawing board on a new process for it this year. And I think that just sort of shows just how difficult this is going to be, trying to get people to adapt to the risks of a changing climate, because people want to live in their homes. They don't want to be told that the existing world they live in is suddenly more expensive or less valuable.

Right. What's interesting about that example, Jim, is that, first of all, it's pretty modest, right? Just publishing a map that says you're at greater risk if you live here. But it's also exactly what this report suggests the federal government needs to do, which is to tell people the truth, give them lots of data about where the risks are greatest, and then follow up with carrots and sticks that either reward or punish communities based on whether or not they're adapting to climate change.

That's exactly why this is so hard. If just publishing a map that just shows fire risk is this difficult, imagine how hard it's going to be when the federal government comes along and says, hey, we're not going to give you that grant because you just greenlit a subdivision that we think is going to flood in 10 years. I mean, it's just generally true in American politics, probably just politics, that it's easier to give people carrots, hey, I'm going to incentivize you to do something that we think is right, than to punish them for doing something you think is wrong. And actually, we know this from the administration's approach to climate change in a variety of other ways. They're subsidizing people

buying electric vehicles because they think that's good. They've chosen that path as opposed to making it more expensive to buy gasoline by putting on a carbon tax. And so what's really interesting in this report is it envisions a world where you're pulling away subsidies, where you are changing risk behavior in part by a lot more punitive measures. Right. It's very clear that should this approach ever be adopted by the federal government, because right now it's all very theoretical, there would be a ton of resistance. the federal government, because right now it's all very theoretical, there would be a ton of resistance. So how likely is it, Jim, that what we're discussing, what this report envisions, will ever become reality? That the Forest Service might not fight fires that would save a house, and that the government might withhold money to a community for a bridge if that state doesn't get its climate act together. How realistic is

that? I think the political pressure against these sort of government changes to adapt to climate change is going to be really high. It's going to be hard for any future administration or this current one to start implementing a bunch of these things. But I also think that adapting to climate change is going to be hard. And that is sort of the real tension driving the economics in this report. You're probably not going to have a choice in a lot of these communities of just sticking with the life you had before the world started warming. You're going to be dealing with more forest fires. You're going to be dealing with more sea level rise. You're going to be dealing with more flooding and natural disaster. And the only question is who pays for that?

What we are seeing from this report, what we see from all of the climate warnings we're getting now is that it's becoming more immediate. This is not some abstract concept where we have a binary choice of, oh, do we want to deal with it or not? You have to deal with it. It's like paying your taxes. You can put it off as long as you want, but at some point you have to sit down and deal with it one way or another. And I think what this report is trying to do

is kind of make clear that there are less expensive or more expensive ways to actually deal with it and hopefully steer people to the less painful, less expensive ways to actually deal with it and hopefully steer people to the less painful, less expensive ways. Right. You're saying we have to add something to that list of death and taxes, death and taxes and the bill for climate change. Those are the things that we have to deal with.

Death, taxes, adapting to the horrible realities of a warming world. Yes, exactly, Michael. Jim, thank you very much. Thank you so much for having me. We'll be right back. Here's what else you need to know today. We do not trust TikTok will ever embrace American values. Values for freedom, human rights, and innovation. During a five-hour congressional hearing on Thursday,

lawmakers from both parties berated the chief executive of TikTok, claiming, frequently without evidence, that the hugely popular platform is a tool of the Chinese government. TikTok has repeatedly chosen the path for more control, more surveillance, and more manipulation. Your platform should be banned. TikTok is owned by a company based in China. But in his testimony, its CEO, Shou Chu, told lawmakers that TikTok is an independent company that is not influenced by China. And he assured them that the company has carefully protected the data of its American users from any foreign interference by making sure that that data never leaves the United States. That's what we've been doing for the last two years,

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Contains original music by Dan Powell and Marion Lozano, and was engineered by Chris Wood. Our theme music is by Jim Brunberg and Ben Lansbrook of Wonderly. That's it for The Daily. I'm Michael Barbaro. See you on Monday.