Thursday, October 08, 2015

Maintaining Sustained Excellence: The Case of Harvard Economics

The Harvard Crimson has published a long piece about the current state of the Harvard Econ Department.   Two challenges are pointed to: the departure of Raj Chetty to Stanford (along with the recent loss of Athey, Imbens and Roth --- all to Stanford) and the fact that Littauer is an old ugly building that is neither air conditioned nor well suited for human interaction.

The article does not mention a third challenge which is called demographics.  Go to this website and count the number of professors over the age of 50  and then count the number of professors over the age of 65.  These are all outstanding scholars but there is a research/age profile.  If you don't believe me, read what Larry Summers said about the cost of ending mandatory retirement at research universities.

"One bad idea, he said, was the movement away from mandatory retirement in higher education. College faculty used to face obligatory retirement. That ended in the 1990s amid changing views toward age discrimination. That policy change, coupled with the powerful protections of faculty tenure, “is deeply toxic,” he said.

“The median age of the tenured faculty at Harvard now is 58,” Summers said. And that is unfortunate, he said, given that “a fundamental thing that Harvard does is relate to 19-year-olds.”

Summers said he has met some faculty who are at the top of their game in their 80s, and considerably more who are still contributing handsomely to their field at 75. But mandatory retirement opens up the possibility of hiring new talent, researchers who are on the upward arc of their scholarly careers."

Faculty are a durable good that ages one year at a time.   Across top 10 Economics departments, are younger departments more productive?  Are there more intellectual synergies in younger departments rather than having a set of superstars who each run their own empires?

The Crimson Article stresses social interactions as a key to having a well functioning econ department. This offers a test of Marshall vs. Jane Jacobs respective theories of urban economic growth and learning.  Ed Glaeser could solve out for whether faculty in similar fields should sit together or not.  David Laibson is quoted saying that research assistants should sit in close proximity to their faculty leader but this reduces space between faculty (unless students are stacked up on top of each other!  (I'm kidding)).   What is the optimal configuration of space to maximize learning and social interaction? Will Harvard run a field experiment here to figure this out?

I was told that Raj Chetty redesigned Harvard's office layout to try to achieve this but he is voting with his feet.  What inference should one draw here?

The point of this blog post goes beyond econ gossip.  How does a rich, famous university remain excellent in a key core discipline and avoid complacency?    Are there cycles of excellence?  The University of Chicago is wrestling with the same issue right now?   If the excellence is due to a "superman" (Becker, Heckman) then there will be a cycle and mean reversion.  How is excellence sustained in the brains economy?   The U.S needs to figure this out in its competition with China.   Harvard is a key U.S institution.

Wednesday, October 07, 2015

An Economist's Perspective of a 50% RPS Standard in California by the Year 2030

If Governor Brown is still in power in 15 years, he can be held accountable for committing California to generate 50% of its power from zero carbon sources (nuclear?) by the year 2030.  While environmentalists celebrate this new law, is this a free lunch? How costly is "this lunch"?

Given that California produces 2% of the world's GHG emissions, California action cannot stop climate change.  What California through its liberalism, wealth and education can do is to run this "green field experiment".  The problem is that there is no control group.   If in the year 2030, California still exists and still is home to 45 million people enjoying the good life here --- will we celebrate the success  of Jerry Brown's new law?  What is the counter-factual? What would California quality of life in the year 2030 be like if he hadn't signed this law?

This law will cause electricity prices to rise. How much will they rise?  While Erin Mansur and I documented that energy intensive industries do migrate away from high electricity price areas, California already has few manufacturing jobs and those jobs still here are not energy intensive.

How much extra will California households now pay for electricity?  For the typical household, what is its elasticity of demand? Will household expenditure on electricity go up or down as prices rise?  I expect that they will rise. Why will electricity prices rise?  Jerry Brown is nudging the utilities away from using cheaper natural gas to more expensive solar and wind. Solar and wind use a lot of land. California doesn't have that much land. What is the true opportunity cost of setting aside land for renewables? You may say; "roof top solar" --- but are there enough roofs?  Who will pay the costs for these new panels? We will.

No free lunch.  But what is the cost of this lunch?

For an old interview I did stating why I am a fan of AB32 and the RPS, read my discussion of the green guinea pig effect.  A key point is that President Obama should subsidize the people of California for running this field experiment. We are not free riding.  The ideas that are discovered to work in California can be used again in Texas. In this sense, Texas is free riding here waiting to learn the lessons we learn from our field experiment.

The Evolving Comparative Advantage of Cities

The NY Times provides a geography lesson today.  Readers learn about Fushun China.  While the article is quite strong, it wants to tell a cautionary tale of what happens to an area that specializes in resource extraction once the resources "run dry".   China has used a huge amount of cheap dirty coal to fuel its factories.  Until recently, these factories were its "golden goose".  As Siqi Zheng and I argue in our May 2016 Princeton University Book, Blue Skies Over Beijing --- this dynamic is changing.  China is transitioning into being a human capital based urban economy (think of the U.S today).

Returning to Fushun, does it have any future?  Pittsburgh offers an optimistic foreshadowing example. Pittsburgh was not a green city at the peak of its steel production but now the city has made quite a transition. What might be Fushun's future "golden goose"?

The NY Times writes:

"Fortunately, besides fossil fuel, Fushun has 70 percent forest coverage and rich water resources. In recent years, the city has taken on infrastructure projects outside the industrial center and revived the landscape along the Hun River, which runs through the city.

“When people first started exploiting the mines, no one thought about what the future would be,” Mr. Zhang said. “With some luck, if we explore a healthy development approach, Fushun will become a beautiful city along a river, what we call ‘Budapest of the East.’ ”

Will Fushun be a data point supporting the Kahn/Zheng thesis?

Crowd Sourcing Data on Donations to Syrian Refugees Offers a Test of Free Riding in Public Goods Games

The NY Times reports that  President Obama seeks to tap into private charity to generate more funds for Syrian migrant refugees.

"Visitors to the site, which is better known for helping inventors and filmmakers, can contribute $15 to buy a sleeping bag, $70 for an emergency rescue kit, or $160, which the site says could pay for a refugee’s shelter in a “well-built group tent, complete with sleeping bag and mat.”"

If the U.S government at random chose a subsidy for participating in this crowd sourcing that ranges from 0 to 100% so that if Matt is randomly assigned a 50% subsidy the price of the sleeping bag to Matt is $7.5 and the price of the emergency rescue kit is $35 (.5*70), then a researcher could study how the extensive margin (giving anything) and the intensive margin (how many $ donated given that the donation is greater than 0) is affected by the government subsidy. If the U.S government could merge this to IRS tax return data (they could call Raj Chetty), then the researcher could test whether there is a heterogeneous effect caused by the subsidy and test whether a person's age, income and gender are correlated with this heterogeneous effect.  For example, are richer people more generous?
By merging in political data on the person's county of residence (such as the % of the county that voted for Obama in 2012), the researcher could test if Red State and Blue State residents are equally responsive to government incentives to "do the right thing".

Is idea this QJE worthy?

Monday, October 05, 2015

A Detour into Macro Policy

The NY Times reports that the Fed had a big macro conference and some very famous economists agreed that they don't know how to stop the next financial crisis.    Here, I briefly sketch how to do so at low cost and with minimal moral hazard effects.

Step #1:  Building on ongoing work at the NY Fed, researchers need to build a data base that offers a predictive real time model for each household in the United States concerning whether the household has negative net equity or not.  As I understand it, the NY Fed is creating a real time balance sheet for each household where you would observe the household's income, home address, mortgage, car loans, college loans, credit card loans --- together this information can be used to create a prediction of whether this household will default on its loan or not.  Based on Paul Willen's work, a household default if the head is unemployed and the household is under water (i.e value of home - mortgage owed < 0).   The FED data can allow for a spatial heat map of how many people are in this situation and this is key for making "heat maps" of fire sales and the start of a chain reaction of declining asset prices triggering declining value of collateral and then margin calls.

Step #2:  Building on recent work on the Leverage Cycle, we need all banks to commit to having a maximum loan to value ratio.  Perhaps 70%?  If down payments for assets are higher, then asset owners have more skin in the game and will be less likely to default on loans.  Will this be costly for growth?  We will see.  If asset buyers are aware that they face this down payment constraint, then maybe this will stimulate more effort to earn the $ for the down payment and this could stimulate growth?

Step #3:  Write into asset contracts (especially for housing), that if the owner defaults and the asset is turned over to the lender that the owner has the right to rent the asset at a contracted price for the next X months.     By setting X correctly (and this can be experimented with),  the risk of fire sales diminishes.

Note that this blog post really was a "micro blog" post.  By creating better incentives, the macro event does not occur and the Fed Bankers can go home.

Sunday, October 04, 2015

New Ideas for Invigorating America's Cities: My New Public Transit Piece

The Manhattan Institute has just published a free e-book that anyone who cares about cities will gain at least $20 in consumer surplus from reading!  Your free copy is available here.  As usual, Ed Glaeser played a key leadership in putting this volume together.  He and Ingrid Ellen have done a great job.

Here is the table of contents.

About the Manhattan Institute..................................................... vi Contributors........................................................................... vii
Foreword ................................................................................ xi

Chapter 1. Housing America’s Cities: Promising Policy Ideas for Affordable Housing Ingrid Gould Ellen................................................................... 1
Chapter 2. The Bus-Choice Menu: Promising Policy Ideas to Improve Urban Mobility Matthew E. Kahn ...................................................................13
Chapter 3. The Preschool Debate: Translating Research into Policy Eric A. Hanushek....................................................................25
Chapter 4. Encourage Enterprise, Empower Cities: The Promise of Entrepreneurship Zones Edward L. Glaeser...................................................................41
Chapter 5. Brain Drain Reconsidered: Toward a More Sophisticated Approach to Regional Talent Aaron M. Renn.......................................................................55

As you can see,  I wrote chapter 2 and it is a kick ass chapter.

For once, I am unleashed as I was encouraged by the editors to make "bold policy" proposals.  I come out swinging arguing that we need to;

Repeal the Buy America Act

Privatize More Bus Routes

 Invest in Buses, Not Light Rail

 Increase the Bus-Choice Menu: “Uber for All”

Friday, October 02, 2015

The Microeconomics of Adapting to Hurricane Risk

Read this article about how New Jersey is getting prepared to cope with the new hurricane. Memories of Hurricane Sandy have a silver lining.  People in New Jersey and government officials are preparing for this shock and it will cause less damage because of their preparations. This is free market adaptation.  Self interest and risk aversion are the keys here driving this ex-ante effort.   Go read Gary Becker's paper on self protection.

Here are some of the specific adaptation efforts now taking place;


"Beyond that, Mr. Christie said it was too soon to know what effect that storm and Hurricane Joaquin would have on the rest of the state. But he assured residents that the state government had learned a lot from Hurricane Sandy and that it was ready to deal with whatever nature had in store.

For example, he said New Jersey Transit would move trains to high ground if the forecast worsens, a shift that could affect service but would prevent the losses the transit agency suffered when Hurricane Sandy swamped its low-lying rail yards.

For several days after that hurricane hit, gas stations in New Jersey either ran out of gas or lost the electricity they needed to operate their pumps. Since then, Mr. Christie said, the state had helped some station owners obtain generators to keep the pumps running during a sustained power failure.

Power companies in New Jersey had begun lining up assistance from utilities in other states, Mr. Christie said. The state’s largest electric company, Public Service Electric and Gas, said it had called in 1,500 linemen and 500 workers to deal with wind-damaged trees.

John Latka, senior vice president for electric and gas operations at PSE&G, said, “Right now, we are focused on shoring up critical equipment against possible storm surges and river flooding – installing concrete barriers, sandbags and portable pumps.”

Gov. Andrew M. Cuomo of New York said he too had learned painful lessons from Hurricane Sandy and was better prepared for Hurricane Joaquin.

“I have learned the hard way that it is better to prepare for the worst,” Mr. Cuomo said during a conference call on Thursday. “In the past, we did not take the worst-case scenario into full consideration. And we paid the price.”"

This is how we will adapt to climate change. Those areas that are silly enough to not make these investments will experience an out-migration of jobs and falling real estate prices.  This is the Climatopolis logic.

Thursday, October 01, 2015

A Contrarian View of Mark Carney's Recent Climate Speech

Neil Irwin has written an interesting piece about the UK's Mark Carney.   This important banker is worried about the future impact of climate change on risk exposure for banks. Permit me to supply one quote before I start to analyze his remarks.

Irwin writes:

"More subtly, expensive efforts at remediation — spending to try to contain the damage of climate change — could crowd out other forms of investment. Think of it this way: Sorry, we can’t afford to repair this bridge in Kentucky because interest rates are too high because Florida is borrowing so much money to try to keep Miami inhabitable."

1. The funny part here is that the Keynesian New York Times (if it believes its own reporting) should then be celebrating the expectation of climate change because this emerging shock to our capital stock will require us to make all sorts of new investments in infrastructure that will stimulate aggregate demand that will reduce unemployment.

2. The Banker, Mark Carney,  is worried that major insurers are on the hook for large risk exposure.  These insurers are aware of this and will raise the premiums they charge. More importantly these insurers will offer price differentiated contracts that incentivize the insured to take costly precautions to reduce their risk exposure. For example, homes in flood zones should pay less for insurance if the homes are elevated (stilts).

3. There is one crazy quote in the article;

"Global insurers are already facing a higher frequency of large, expensive disasters from extreme weather, and in the future could face untold liabilities as the losers from a warming planet try to extract compensation from the (insured) companies that profited from fossil fuel production."

Does the NY Times believe that Exxon and BP will be sued by the Maldives islands for causing sea level rise?   Given that we all create GHG emissions, how would a future progressive judge determine what share of climate change was caused by Exxon?  In a murder case, you have a better chance of figuring out who is the villain.

4. One interesting point that Mr. Irwin raises in his piece is when he argues that financial markets are connected. He points to the contagion effects of what happened when real estate defaults in Spain in the Great Recession, and in the U.S foreclosure crisis, rippled through the economy. His point is that a shock to one area affects others.  But did Hurricane Katrina's 2005 shock, hurt the U.S? Did it set off panic?

Many economists believe that the loan to value ratio must be lower for assets so that owners of assets have more "skin in the game".  If LTV is lower then defaults during bad times will not rise sharply and the chain of events that occurred during the U.S foreclosure crisis will not repeat themselves.  Our financial system will figure out how to have the benefits of international integration while reducing the "contagion costs".

5. Finally people like Mark Carney are worried that companies such as Exxon are holding a risky portfolio because they are so carbon intensive and world carbon pricing may be coming. In this case, the value of such companies could plummet.  But the price of gasoline will stay greater than the carbon price per gallon and these companies will continue to earn money.  If such companies anticipate that a major carbon tax will ramp up in the future, then by hotelling's law, they will sell more today.  These companies will liquidate their assets faster and GHG will rise faster because these companies accelerate their selling of their fossil fuels to avoid the tax. The only limit to this scenario is refining capacity but this may become a major industry in the unregulated developing world where the gas is desired for rising vehicle use.  Mr. Carney needs to study intertemporal substitution.

The opportunity cost of delaying extraction and paying the carbon tax is to extract now and sell at the world price.

Tuesday, September 29, 2015

The Cost of Companies Complying with Environmental Regulation: Evidence from the VW Emissions Scandal

Recent news reports have focused on VW's Emissions cheating scandal.  The fully story is available here.  For those interested in the costs and benefits of regulation, this case study reveals information about the cost of environmental regulation.  VW must have viewed this regulation as very costly to comply with. Otherwise, why would they risk a PR scandal if the company was caught cheating?  This point matters because leading economists have been celebrating the benefits of the Clean Air Act for life expectancy. Read Michael Greenstone's piece here.

He wrote:
As the United States and other nations continue to debate the costs of environmental regulation, they can do so with the knowledge that the benefits can be substantial."

Does the VW case change our priors about the costs of achieving these gains?  Why did this rational profit maximizing company cheat? What were the expected profits from doing so?  Did it really believe that the probability that it would be caught cheating was 0%?


Sunday, September 27, 2015

Macroeconomics and Reality Revisited

Each Sunday I read David Warsh's piece.  This week's column reports a strange quote from Harvard's Larry Summers.

David Warsh writes;

"Summers hinted at how his thinking had changed when he told an audience at a meeting of the Institute for New Economic Thinking at Bretton Woods, N.H., in March 2011,

I would have to say that the vast edifice in both its new Keynesian variety and its new classical variety of attempting to place micro foundations under macroeconomics was not something that informed the policy making process in any important way.

Instead, Summers said, Walter Bagehot, Hyman Minsky, and, especially Charles Kindleberger had been among his guides to “the crisis we just went through.”

MY Questions:

1. Does Larry Summers mean to say that the 1st year Macro Curriculum is worthless in helping the Fed and the Board of Governors to form counter-cyclical policy?  In this case, should there be more non-Ph.Ds in Economics sitting in at the Fed's main meetings?  For example, the President of the Atlanta Fed is a very impressive man who does not have a Ph.D. in Economics.

2.  "informed the policy making process" is a funny phrase.  There is a factual issue of whether Core Macro was used in this process versus the more important issue of whether it should be used.

3.  Many economists view Kydland and Prescott's Rules vs. Discretion as a critical paper (having already garnered over 7800 citations) in modern economics as it demonstrates the central importance of credibility in macro "games".    Does Dr. Summers really dismiss this paper as well as providing no "blueprint" for selecting policies?   A cynic might conjecture that Professor Summers is well aware that the policy fun in devising policy goes way down if the government commits to clear rules.  Discretion conveys more power to the key decision makers.  Is Professor Summers willing and able to confront a simple political economy model of decision making?

4.  It appears to me (and I recognize that I'm a failed UChicago macro economist) that the Fed's active policies starting in 2008 has been all about building hard to quantify "confidence" as it attempted to signal to the world's markets that it was the lender of last resort.  This suggests to me that Ben Bernanke had a model in his mind of how confidence is built up and how to minimize the chance of bank runs, fire-sales and asset depreciation leading to a further chain of bankruptcies.  Does Dr. Summers not embrace the Bernanke and Gertler credit channel worldview?   Would Professor Summers embrace this paper by D and D as being relevant for studying the challenge of 2008 and onward?

Diamond, Douglas W., and Philip H. Dybvig. "Bank runs, deposit insurance, and liquidity." The journal of political economy (1983): 401-419.

Economists since Hicks and Keynes have invested many hours of our scarce time in building up the human capital to explain and predict human behavior.  Is Professor Summers saying that the subset of scholars who were studying macro have been collectively wasting their lives?  Has he recommended that the macro sequence be cancelled at Harvard Econ?

Finally, where does Dr. Summers stand on modern growth theory? If the economy returns to its "steady state" growth, then won't the 2008 negative hit vanish from our collective memory?

Saturday, September 26, 2015

A Relaxed Economist

On September 16th 2015, I taught my USC environmental economics class from 2pm until 345pm that day and then took my overnight bag and got on a train to Culver City.  From Culver City, I took Uber to a UCLA Institute of the Environment retreat near Malibu.  Fortunately for me, I missed the afternoon meeting discussion and showed up just in time for drinks and dinner. After dinner, we had more drinks and talked about my UCLA Institute's future. This photo was taken the next morning. You can see that I haven't shaved and that I'm having fun.

Economics professors have a very good deal when we are able to teach and research at research universities.    I strongly encourage economists who are roughly my age (49 and older) to keep working.  The field of academic economics is stronger if people can withstand the urge to consult and to get caught up in state and federal policy making.  Academic economists should stay in the game and keep being academics.

Monday, September 21, 2015

A Few More Details on the Refugee Charter City

In a relatively close distance to Syria, there are many nations such as Romania who might be willing to participate in a migrant auction.  One possible mechanism would have such nations participate in an auction in which the nation agrees to accept an annual payment and up to 5 million new migrants who will be settled in a new charter city.  Such an auction would allow for information revelation as those nations that value expanding their nation's population would be rewarded for doing so.

Who would pay the "annual payments"?   In addition to the usual suspects such as the USA, China and Germany;  foundations such as Ford and Gates and "do gooders" such as Tom Steyer could contribute their $ to pay the nations who accept the migrants.  The nation could be paid a bonus stream of $ if it commits to allowing for a different set of institutions and rule of law (i.e Swiss or Canadian rules) than the home country's rules.

How would the migrants' rights be protected? In this age of Twitter and drones, there could be full surveillance of what life is like in the new cities.    Note that by making the payment an annual flow that this would incentivize the host nation to "play nice" with the new migrants.

The refugees provide a test of whether new mega-cities can be formed. This represents a viable alternative to "congesting" existing cities.     Ideally, a nation would both create the new cities (and receive the payoff from the richer nations) and would give the refugees the option to live and work there versus moving to existing cities.

New urbanists could use the new cities as a laboratory for testing their ideas about social capital and social interaction and urban productivity in an area without a past. NBER economists and J-PAL economists could run their field experiments to see what works in these cities.

How long would it take to launch the city? We have past examples from projects such as building the Los Alamos New Mexico complex during WW2.

Show some imagination here.  Think differently (I'm cracking  a Steve Jobs joke here)!   We need to increase the menu of locational choices and reward those who are willing to increase the choice set.   This unfortunate natural experiment creates a great lab for economists, engineers and political scientists to work together to help these refugees achieve their life dreams for themselves and for their children.   My grandfather arrived in this nation in 1921 off of a tough boat ride.  His son went on to great success.  Why can't this old story repeat itself again and again?

Sunday, September 20, 2015

Different Vintages of Human Capital

Haishi Li is a brand new Ph.D. student at the University of Chicago's Economics Department.   He is a friend and co-author of mine.  He sent me a photo of himself next to a photo of the 1988 Entering Class at the University of Chicago.     This photo is now 27 years old.  For those with good eyes, you will see a young Ed Glaeser in the fourth photo from the left (near Haishi's ear).   You will see me down one row in the 3rd photo from the left.   Peter Ireland is to my left and Hedi Kallal is to my right.    You can't see Erzo Luttmer, or Phil Strahan. Ethan Ligon is down and to the left.   You can see half of Alberto Bisin (top row 3rd from left).   The University of Chicago had a lot of talent back then.  Did the faculty know that?

Displaying Head tilt.jpg

Saturday, September 19, 2015

Human Ingenuity: The Rise of Fake Meat

Nick Kristoff has written a NY Times piece that I learned from and enjoyed reading (a first!).   He celebrates the rise of "fake meat".

He writes;

"So look out. If the alternatives to meat are tasty, healthier, cheaper, better for the environment and pose fewer ethical challenges, the result may be a revolution in the human diet.

“The next couple of years will be exciting ones,” says Joseph D. Puglisi, a Stanford University professor of structural biology who is working on meat alternatives. “We can use a broad range of plant protein sources and create a palette of textures and tastes — for example, jerky, cured meats, sausage, pork.”

So, note the optimism about the role that human ingenuity plays in directing technological change.  Demand creates supply.

Note that entrepreneurs, not government, are the driving force here bearing the risk and expecting a future payout.

Another Quote:

" Puglisi is advising Beyond Meat, a start-up that is a leader in the field, with investments from Bill Gates and both Biz Stone and Ev Williams of Twitter fame, not to mention Kleiner Perkins Caufield & Byers, the venture capital firm that backed Google and Amazon. Beyond Meat says its sales are doubling each year.

“We’re really focused on the mainstream,” said Ethan Brown, the founder of Beyond Meat, over a lunch of fake chili, meatballs and hamburgers. It was a banquet of the bogus.

Brown, 44, is deeply concerned by climate change and spent eight years in a company making hydrogen fuel cells. But he read that livestock cause more greenhouse gases than the entire transportation industry, and he wondered if he shouldn’t focus more on food."

Now a serious climate change mitigation study would compare the greenhouse gas emissions from producing our current meat diet (and would forecast forward the extra emissions as people growing richer in India and China and other LDCs consume more meat) versus what our GHG emissions from our diet would be if high quality "fake meat" is invented. This would be a very nice carbon footprint study.

Friday, September 18, 2015

Paul Romer's Optimistic Vision for the Role that New Cities Play in Coping with Change

This week, I am declaring that Paul Romer wins the competition for posting the most interesting blog post among the economics heavyweights named; Krugman,  Romer ,  Cochrane and Summers.    In his piece titled; "Let them come and they will build it" , Professor Romer writes about the European refugee crisis;

"The real problem is not that people are queuing up to get into Europe. Rather, it is that tens or hundreds of millions of people live in a place where a failing government precludes any chance at the basics that any person wants: safety, dignity, opportunity, hope."


To see what a real solution would look like, you need only remember three things:

1. It takes only a few cities, on very little land, to accommodate tens or hundreds of millions of people.

2. Building cities does not take charity. A city is worth far more than it costs to build.

3. To build a city, do not copy Field of Dreams. (“Build it and they will come.”) Copy Burning Man. (“Let them come, and they will build it.”)

How do we know that cities are worth more than they cost to build? Just look at the value of the land they sit on. Building a city on top converts land that used to be worth very little into land that is extremely valuable. The increase in the value of the land is the sign of the gains that can finance the cost of offering people a government that can create the conditions that offer residents safety, dignity, opportunity, hope.

Creating these conditions does require a local government; even at Burning Man, there is no libertarian free-for-all about where you can set up camp and where the public space will be. The local governing entity determines this before anyone shows up."

MY Thoughts

WOULD the Gates Foundation be willing to buy land somewhere and create its own Charter City?  Call it Gatesland or "Windows" or Ballmerville.   Would Germany and the other European nation who are not excited about importing large numbers of refugees be willing to help to create these new cities? How long would it take to build these?  The Chinese work crews could be brought in to show how to build a 15 story hotel in 48 hours.

Note that Professor Romer is thinking "outside of the box".  Why can't we increase the menu of cities for individuals to choose from? What are the fixed costs for creating a city? Are these fixed costs shrinking over time?   How durable would the new capital have to be?  Think for a moment. The new urbanites in Gatesland would need;

1. shelter
2. food
3. water
4. electricity
5. sewage disposal
6. garbage disposal
7. transport services for moving within the city and for trading across cities
8.  The children would need schools
9. basic health care

For each of these, what is the production function for producing such goods? Wouldn't Keynesians get excited about the "multiplier effects"? It would be ironic if Europeans from high unemployment countries such as Spain and Italy moved to this new Gatesville to work there!

To paraphrase John Lennon, Give Paul Romer's ideas a chance!

Thursday, September 17, 2015

What Happens When Faculty Attend an Overnight Retreat?

Don't worry, this will be a G-rated story.  For the last day, the UCLA IOES core faculty  held a retreat at the Topanga Canyon Inn.  Since I'm on leave this year, I haven't seen several of my colleagues for months.   I arrived just before dinner on Wednesday night.  At this dinner, we sat around a big table and there were roughly 12 of us.   We had a group talk about many environmental issues and the group discussion was wide ranging. I mentioned three new economics papers related to the dinner table conversation and my colleagues were quite interested.  After dinner, we continued to talk and drink wine and I only stumbled up to my hotel room by 10pm.

In a relaxed atmosphere with no anxiety or appointments or other distractions, everyone was in good spirits and eager to chat and to get to know each other better.   Such social capital is very valuable stuff.    This morning I woke up and I wore a t-shirt and shorts.  My casual dressing was noted by my colleagues.   The Inn's staff made breakfast for us. We again sat at a table like a big family and ate together and then had a post-breakfast spirited discussion for 2.5 hours.  During this time, we discussed our hiring strategy and our hopes and goals and concerns for the new academic year.

I walked out of the retreat with a renewed hope and optimism that UCLA does have its act together. I was highly encouraged by what I saw, heard and participated in.   There is a general lesson here that academia is an unusual workplace.  On one level we are small shopkeepers all selling our wares on the same block.  We compete against each other but we also work together to make the block look good.  Our "output" is multidimensional as we conduct research, try to influence the policy debate, train graduate students and try to get undergraduates to invest to learn more about our subject matter.
Before the retreat, I questioned why I was showing up during a year when I'm at USC but now I know why I attended and I"m glad that I did.  

Sunday, September 13, 2015

Economists Have Failed to Educate the Public About How Markets Operate

Professor Timothy Snyder of Yale must be a very smart guy.  He is tenured at Yale and my wife greatly respects his book Bloodlands.    Google Scholar suggests that has been his big work. We own this book and my wife advised me not to read this WW2 book about Stalin and Hitler because it would depress me.  In today's NY Times, Professor Snyder has published a scary piece in which he predicts that in a climate change suffering world that China will steal Africa's land (in its  quest to feed its people) and that this action will cause millions to suffer in Africa.  As a historian, he appears to be working too hard to build a bridge between his historical studies and modern events.   As I discuss below, he ignores the point that new markets help us to adapt so that the future does not resemble the past and our past experience can actually help us to avoid making the same collective mistake.


"The danger is not that the Chinese might actually starve to death in the near future, any more than Germans would have during the 1930s. The risk is that a developed country able to project military power could, like Hitler’s Germany, fall into ecological panic, and take drastic steps to protect its existing standard of living.

In Sudan, drought led to conflict and the displacement of many civilians. How might such a scenario unfold? China is already leasing a tenth of Ukraine’s arable soil, and buying up food whenever global supplies tighten. During the drought of 2010, Chinese panic buying helped bring bread riots and revolution to the Middle East. The Chinese leadership already regards Africa as a long-term source of food. Although many Africans themselves still go hungry, their continent holds about half of the world’s untilled arable land. Like China, the United Arab Emirates and South Korea are interested in Sudan’s fertile regions — and they have been joined by Japan, Qatar and Saudi Arabia in efforts to buy or lease land throughout Africa.

Nations in need of land would likely begin with tactfully negotiated leases or purchases; but under conditions of stress or acute need, such agrarian export zones could become fortified colonies, requiring or attracting violence."

So note that this non-economist is making dozens of implicit assumptions;

1.  Property rights over land will not be respected in the future (i.e Chinese invasion and colonization).

2.  Food is not storable.  This is a crazy assumption.  He appears to have a "Mad Max (think of Mel Gibson) vision of the future.  Why would the Chinese (or us) fall into this trap?  International trade in agricultural produce creates smooth markets with a law of one price adjusted for transport costs.

3.  If scarcity is predicted to rise in the future, why won't future prices signal this and why won't this induce innovation (i.e GMO innovation) and substitution to foods that continue to be grown?

4.  So, does Prof Snyder oppose international trade in agricultural goods and land leases?

5. The Chinese population growth is slowing and the population is aging. Yes, a richer nation eats more meat but is it obvious that China will demand a large % increase in calories in the year 2050?

6. Why would China make itself so reliant on Africa for agricultural exports?   A risk averse nation will see a diverse set of food exporters and international markets provide this.

7. If China develops a reputation for stealing other nation's land, then there could be WW3 but China would suffer greatly in such a conflict.  Does Dr. Taylor understand the deterrence concept?

The NY Times fears the rise of the Chinese military and seems to use every opportunity to use scarce inches of its newspaper to rail about potential threats. I respect Dr. Taylor's imagination but he does not discuss how free markets help to diffuse the dangerous scenario that he so eloquently sketches.

UPDATE:  At lunch today, I sketched this blog post to my wife and she said that a key issue here is whether the Chinese leadership  in the CCP are Malthusians.  If they embrace the Malthus view that technological innovation is not possible, then if they demand more calories and are unable to grow them and don't believe that markets will supply them then land grabs become the clear insurance mechanism for them to embrace.   If she is right, then this again highlights why economists need to teach the world's leaders how free markets work. Perhaps we need to send 1 million copies of Acemoglu and Linn's 2004 QJE to the Chinese Communist Party Leadership.

Here is their abstract (just substitute the word food for drug);

Market Size in Innovation: Theory and Evidence from the Pharmaceutical Industry

  • Daron Acemoglu
  • Joshua Linn

This paper investigates the effect of (potential) market size on entry of new drugs and pharmaceutical innovation. Focusing on exogenous changes driven by U.S. demographic trends, we find a large effect of potential market size on the entry of nongeneric drugs and new molecular entities. These effects are generally robust to controlling for a variety of supply-side factors and changes in the technology of pharmaceutical research. © 2004 MIT Press

Friday, September 11, 2015

Can We Adapt to a Worst Case Scenario? Or Will Don Trump Continue to live in NYC in the Year 2400?

The NY Times often features Justin Gillis.  Mr. Gillis is very worried about our future if we fail to cap our greenhouse gas emissions. In a piece just published, I will report a few of his choice quotes.


"Burning all the world’s deposits of coal, oil and natural gas would raise the temperature enough to melt the entire ice sheet covering Antarctica, driving the level of the sea up by more than 160 feet, scientists reported Friday.

In a major surprise to the scientists, they found that half the melting could occur in as little as a thousand years, causing the ocean to rise by something on the order of a foot per decade, roughly 10 times the rate at which it is rising now. Such a pace would almost certainly throw human society into chaos, forcing a rapid retreat from the world’s coastal cities."

Quote #2

"A sea level rise of 200 feet would put almost all of Florida, much of Louisiana and Texas, the entire East Coast of the United States, large parts of Britain, much of the European Plain, and huge parts of coastal Asia under water. The cities lost would include Miami, New Orleans, Houston, Washington, New York, Amsterdam, Stockholm, London, Paris, Berlin, Venice, Buenos Aires, Beijing, Shanghai, Sydney, Rome and Tokyo.

Nobody alive today, nor even their grandchildren, would live to see such a calamity unfold, given the time the melting would take. Yet the new study gives a sense of the risks that future generations face if emissions of greenhouse gases are not brought under control."

Mr. Gillis doesn't talk about what will be the land area of the globe still above sea level in this worst case scenario that he sketches could unfold perhaps by the year 2300.   I predict that there will still be significant land mass for us to build our future cities.  Here is a map of what are future land will look like.  There is a lot of land remaining.

Embedded image permalink

   On this "higher ground", Singapore type air conditioned cities will emerge.  Is this future "waterworld" scenario so scary?  I see opportunities for those entrepreneurs who can devise solutions.

Yes, our famous past coastal cities have a problem but why will that cause big problems for our great, great grandchildren?    Mr. Gillis should read my new "Lego Economics" paper.

As a starting point, he should read my system of cities paper in the face of climate change.

The Costa/Kahn Family's 40% Market Share of the September 2015 Journal of Economic Literature

Dora and I have a 40% market share of the new September 2015 Journal of Economic Literature.  Her piece on long run trends in health is better than mine but my review of Jeffrey Sachs' new book  The Age of Sustainable Development might interest you.

Front Matter (#1)
Full-Text Access | Supplementary Materials
Health and the Economy in the United States from 1750 to the Present (#2)
Dora L. Costa
Full-Text Access | Supplementary Materials
The Beveridge Curve: A Survey (#3)
Michael W. L. Elsby, Ryan Michaels and David Ratner
Full-Text Access | Supplementary Materials
Communicating Uncertainty in Official Economic Statistics: An Appraisal Fifty Years after Morgenstern(#4)
Charles F. Manski
Full-Text Access | Supplementary Materials
A Review of The Age of Sustainable Development by Jeffrey Sachs (#5)
Matthew E. Kahn
Full-Text Access | Supplementary Materials
Learning from Failure: A Review of Peter Schuck's Why Government Fails So Often: And How It Can Do Better (#6)
David M. Levy and Sandra J. Peart
Full-Text Access | Supplementary Materials
Book Reviews (#7)

Here is the abstract for my piece:

Abstract:How does economic science inform the study of sustainable development? In his new book, Jeffrey D. Sachs analyzes the challenges of achieving economic growth while protecting the environment and achieving an equitable distribution of resources. This review presents an overview of this ambitious book with special emphasis on the role of the objectives of local and national leaders and their incentives to pursue the sustainability agenda. Given the huge migration to cities now playing out in the developing world, special attention is paid to the role of urbanization as a cause of sustainability opportunities and challenges. (JEL Q01, Q54, Q56, R11)

Additional links:Author Disclosure Statement(s)

Kahn, Matthew E. (UCLA and U Southern CA) 

Note that this is my first published USC paper.  I doubt it will be my last one.

Wednesday, September 09, 2015

Forecasting and Adapting to Climate Change Fire Risk

This year I am a faculty member at both USC and UCLA.  I am quite impressed with both sets of colleagues.  Some of my UCLA colleagues just released a new environmental science paper predicting future fire risk in Southern California and making bold claims about how our future capital stock will be affected.

 Here is a quote that will amuse people who embrace (and understand) the Lucas Critique.

"Co-author Alex Hall, a UCLA professor of atmospheric and oceanic sciences and expert on climate modeling, generated the future-climate projections for the research. Feeding those projections into fire ecology models, the study’s authors found that by midcentury, the area burned by Santa Ana fires will increase by 64 percent, mainly due to drier air during Santa Ana wind events. The area burned by non-Santa Ana fires will increase by 77 percent, mainly due to an increase in temperatures. The researchers also predict that the number of structures destroyed by Santa Ana fires will increase by 20 percent, and the number of structures destroyed by non-Santa Ana fires will climb by 74 percent."

The last sentence should make an economist giggle.  Why will we continue to build structures in the same places using the same materials if we now face this greater risk? This assumption of behavioral "invariance" to changes in the shocks that Mother Nature throws at us is at the heart of all of the "doom and gloom" that environmental scientists predict about our future.  As I have highlighted before (read this and this). Behavioral economics is deeply embraced by the environmental science community. This is a key assumption that merits testing and exploration.  I do not believe that this group of scholars is even aware of their implicit worldview.  This is a very pessimistic worldview of how we form expectations under uncertainty.  Given our well known risk aversion and if we are self aware to "know that we don't know" the risks we face, why wouldn't we build in more options and reversible investments to protect ourselves from ambiguous risks?

In my "Climatopolis" world,  rational real estate investors (incentivized by the insurance industry) invest in more robust resilient fire resistant structures in increasingly at risk fire zones and the damage predicted by researchers such a Prof Hall never is realized.  Do you want to bet me on these outcomes?

UPDATE:  You can read the peer reviewed paper here:  In Section 3.5, they present their methodology for predicting future fire risk. They do report confidence intervals on their predictions but based on my reading of the technical details (see page 9 of their paper), the Lucas Critique still holds. They use regression estimates from the recent past (see Table 2) and a climate change model to project future losses.  This type of out of sample prediction raises the Lucas Critique. Why are the parameters estimated in Table 2 deep time invariant parameters?  How will urban planning, breakthroughs in materials design and other directed technological change affect the relationship between fire damage and fires?

Free Entry and Perfect Competition Among Economics' Superstars

The probability that a blog post will be accepted for publication (with only a light revision required) is quite high!   I have often argued that academic economics would make greater scientific progress if our superstars "stay in the game" and write more and engage more rather than drifting off into consulting, kids soccer coaching, academic administration or government jobs.  Thus, economists should celebrate the nascent competition in the blogging arena featuring at least these heavyweights named; Krugman,  Romer ,  Cochrane and Summers.    

It is interesting to note that none of the top 100 University of Chicago economists bother to blog about economics.  Yes, I know about the Freakonomics blog but its resident Clark Medal winner has posted two entries in the last year.   Are Chicago's scholars all too busy to participate in this perfectly competitive market for ideas?  

Tuesday, September 08, 2015

Using Behavioral Economics to Reduce the Count of Undiagnosed Type II Diabetics

Many behavioral economists seek to improve our quality of life and are especially interested in helping the less fortunate.  This article claims that up to 33% of diabetics don't know that they are diabetic.   Such individuals are imposing costs on themselves and on society by not changing their diet and exercise patterns to reduce their blood sugar levels.  Could behavioral economics and its (choice architecture) help to reduce the count of such individuals and thus help them to help themselves?    In work I completed in the 1990s, I argued that the lost consumer surplus to being diagnosed as a diabetic is declining over time.  Read paper #1,  paper #2 and paper #3.

A couple of ideas for nudging the public to have their blood tested;

1.  Pharmacies could pay people $10 to take a 5 second blood test to see if they have diabetes.  People would go to their local pharmacy and see people they trust (the pharmacist).  The government could subsidize this payment or offer people free flu shots if they also take the 5 second blood test.  Such a program would pay for itself in the middle term.

2.  Fast food restaurants (where undiagnosed type II diabetics) are likely to eat could pay some nurses to do the same thing and the government could subsidize this activity. The fast food places would earn some good press for looking after the health of their customers.

3. Public schools in high poverty areas could test children and offer them a cash payment for taking the 5 second blood test.

Have the field experiment runners tried these research designs?   Such a researcher would simultaneously learn about poor people's demand for relevant health information and by diagnosing those people who have the condition the public finance burden of future undiagnosed diabetes would be attenuated.

Monday, September 07, 2015

An Auction for European Migrant Destinations?

In the car today as we drove back to Los Angeles, my son asked me where all of the European refugees from Syria should move to within Europe.  I told him that I don't know the answer but a simple mechanism to answer this question would be to have the European EU nations bid in an auction to take the migrants.  Those countries with the least distaste for welcoming the migrants would receive both the migrants and a check for resettling these individuals. Such an auction mechanism would both efficiently allocate the resource (the migrants) and would allow nations such as Canada, China and the United States to contribute valuable resources. These nations could contribute $ to the resettlement fund and this $ would then be given away in the auction.   Individuals from around the world could contribute their $ to this resettlement fund and this would be a more productive activity than tweeting messages that "someone must help the refugees".   Free riding would decrease (or would it?) as people would have an explicit market to do their part during this crisis.

UPDATE: Once the supply of national slots was established, the migrants themselves would then need to sort into which groups want to locate in which of the destination countries.  A lottery number could be randomly assigned and this would establish property rights and then the refugees could write binding contracts to trade with each other or they could simply use their slot to choose their favorite destination nation if available slots are still available.   This is how undergraduates are assigned to housing at universities.

Why is an an auction valuable here?  There is asymmetric information. The European nations differ with respect to their distaste from allowing the new migrants to enter their nation. The auction would reward nations for truthfully revealing this information.   Mechanism design is an important research field with real world applications.

Saturday, September 05, 2015

Interest Groups and the Competition Between Green and Dirty Technologies

While "enlightened" entrepreneurs such as Bloomberg, Musk and Steyer celebrate the nascent green economy, there are other entrepreneurs growing rich from fracking activity.   Today there is a race between "green technologies" that have a smaller climate change impact than fossil fuel technologies.  Economists such as Acemoglu et. al.  have studied how "sustainable" development could result depending on the relationship between these two technologies and government policies intended to tilt the playing field towards green tech.

In my past work, I have documented the fact that educated progressives (i.e Californians) are more likely to purchase green products.  Take a look at my hybrids work, and my solar work.

But, today --- a new NBER Working Paper got me thinking about another key margin here;  workers.  At this time when there is great concern about income inequality and the well being of the middle class; does the green economy or the fracking sector create more jobs for the low skilled?  If the low skilled benefit both from cheap gas prices (as car drivers) and from employment opportunities in the fossil fuel sector (as frackers) , then they will not support carbon pricing.  My past political economy research ; read this and this,  supports this claim.  In this case, the greenhouse gas mitigation effort has a challenge in convincing the median voter.

So, this was a long winded intro for talking about this recent NBER paper;

Who Needs a Fracking Education? The Educational Response to Low-Skill Biased Technological Change

Elizabeth U. CascioAyushi Narayan

NBER Working Paper No. 21359
Issued in July 2015
NBER Program(s):   CH   ED   EEE   LS 
Over the past decade, a technological breakthrough – hydraulic fracturing or “fracking” – has fueled a boom in oil and natural gas extraction by reaching shale reserves inaccessible through conventional technologies. We explore the educational response to fracking, taking advantage of the timing of its widespread introduction and the spatial variation in shale oil and gas reserves. We show that local labor demand shocks from fracking have been biased toward low-skilled labor and males, reducing the return to high school completion among men. We also show that fracking has increased high school dropout rates of male teens, both overall and relative to females. Our estimates imply that, absent fracking, the male-female gap in high school dropout rates among 17- to 18-year-olds would have narrowed by about 11% between 2000 and 2013 instead of remaining unchanged. Our estimates also imply an elasticity of high school completion with respect to the return to high school of 0.47, a figure below historical estimates. Explanations for our findings aside from fracking’s low-skill bias – changes in school inputs, population demographics, and resource prices – receive less empirical support.

So, the authors of this paper are interested in how human capital attainment choice is affected by labor demand shocks.  I'm interested in a different question; what is the economic incidence for lower socio-economic groups from a boom in fossil fuels? Their evidence suggests that Tom Steyer's push to nudge us away from extracting fossil fuels  won't have many supporters away from Stanford and UC Berkeley.

Self interested workers in industries that will be injured by carbon mitigation regulation have strong incentives to oppose such regulation.     How will Steyer's team respond to this challenge? How will he avoid being painted as an elitist? Will he say that "the people" are the ones who will be hurt by climate change?  "The people" are likely to counter that if they are allowed to earn and work in these growing sectors that they will earn the $ to be able to protect themselves.

Back in 1997, John Matsusaka and I published a paper studying Californian voting on direct democracy initiatives related to environmental protection.  We found that voters in agricultural and manufacturing counties voted against specific pieces of regulation that threatened their industry's well being (even though they protected the environment). Our paper was squarely in the University of Chicago/Peltzman School of political economy.  The same issues are very relevant today. It is no accident that President Obama (because of his war on coal) isn't that popular in West Virginia.

Friday, September 04, 2015

Some California Carbon Dioxide Emissions Arithmetic

The NY Times has published a long article about Gov. Brown's policy nudge to reduce California's petroleum consumption by 50% below today's level by the year 2030.  Is this an impressive "Green Big Push"?  Can California stop climate change?

California consumes 11% of the nation's gasoline.    Transportation is responsible for 27% of total USA greenhouse gas emissions.  The United States produces 18% of the world's annual GHG emissions.

So, let's do some algebra.

USA Transportation is responsible for .27*.18 = 4.9% of the world's total greenhouse gas emissions

California transportation is responsible for .11*.27*.18 = .5% of the world's total GHG emissions.  This is a very small number.  

A 50% reduction in California emissions by the year 2030 will thus have no observable impact on climate change.   It does represent a demonstration project and provides a Big Push for Tesla and other companies.  You can read my old interview on this point but the NY Times needs to brush up on its algebra.

China's Rail Firms Jump the U.S "Buy America Act" Wall

China, Japan and South Korea have gained valuable experience producing high quality public transit buses, subways and railroad equipment.  One reason that these nations acquired this knowledge is a large home market for selling such capital.  In the name of domestic protection, the U.S has erected a non-tariff trade barrier called the Buy America Act.     In a  2015 Journal of Urban Economics paper,  Shan, Jerry and I argued that this act raises the price of U.S public transit buses as our cities purchase fuel inefficient, outdated technology from small inefficient domestic companies who face little international competition.

The U.S. public transit system represents a multi-billion dollar industry that provides essential transit services to millions of urban residents. We study the market for new transit buses that features a set of non-profit transit agencies purchasing buses primarily from a few domestic bus makers. In contrast with private passenger vehicles, the fuel economy of public buses has not improved during the last thirty years and is irresponsive to fuel price changes. To understand these findings, we build a model of bus fleet management decisions of public transit agencies that yields testable hypotheses. Our empirical analysis of bus fleet turnover and capital investment highlights the role of energy prices, environmental regulations, and the “Buy America” mandate associated with receiving federal funding to purchase public transit buses.
I mention this because the NY Times reports today that a Chinese firm is jumping the Buy America Wall and is actually going to pay the fixed cost of opening up a production facility in Springfield, MA.    Such a firm would only pay this fixed cost if it expects the scale of demand in the U.S to be sufficient for it to not lose $.
This is an example of increasing returns to scale in trade.  The U.S could actually have a world class public transit system if it "globalized" its imports of better tracks, railroad cars, and buses and subway cars.  Ride a bus in Singapore and you will see what I mean.  The combination of Smart Aps and clean, fast buses on dedicated lanes creates a type of Uber for All.  This reduces transit expenditures and increases one's speed in cities.

Thursday, September 03, 2015

Harvest at Night? Changing Work Shifts and Climate Change Adaptation

In Rome, garbage pickup takes place in the middle of night in order not to disrupt the city during peak hours.  Now that summers are becoming even hotter, why do farm workers pick up fruit at peak hours? Why not provide some lighting and move this activity to the night time?   The theory of compensating differentials would predict that some workers might prefer working at night in low heat relative to working in the sunlight and heat.    Here is Yoram Weiss' 1996 paper on Work Synchronization. 

If climate change shifts the daily climate distribution, then it is now time to think about changing work patterns to reduce outdoor worker exposure to extreme heat. This is a logical and easy step allowing us to adapt to the "new normal".  

Wednesday, September 02, 2015

Does Attending Class Lower Athletic Performance?

Are college athletics and classroom learning substitutes or complements?  In this blog post, I propose a simple experimental design for testing this.    Consider the following example.  USC's academic year features two semesters (Fall and Spring) and the school year starts in late August. UCLA's academic year features 3 quarters (Fall, Winter and Spring) and the school year starts in late September. So, in early September USC is in session and the faculty are teaching while UCLA is not in session.  If USC plays UCLA in an early September game then we have within pair variation to test whether the USC is more likely to lose.   If, on average, USC loses more of these early September games, then attending class (or at the least the intent to attend class) lowers athletic performance.

More formally, what the researcher would do is code up for every college football team a dependent dummy variable that equals 1 if the team won that game in that week and 0 otherwise.

This Win variable would be regressed on a school specific fixed effect  and on its opponent's winning percentage in the previous year, and on an indicator of whether its opponent is on a semester or quarter schedule and on an interaction term between whether the school is on a semester or quarter schedule and its opponent is on a semester or quarter schedule .  You could even put team i vs team j fixed effects in this model because some games are played in September while in other years they will play in November when both schools are in session.

Controlling for all of these variables, the key explanatory variable would 1(September)*1(Own School is semester)*1(Opponent is on quarters).

This product of three dummies would equal 1 if the month is September and if your school is on semester schedule while your opponent is on quarters.  My hypothesis is that this interaction term would have a negative coefficient. This is the test of whether the classroom crowds out athletic performance.

I recognize that if this effect is big enough then coaches may order players not to go to class in September!  This choice places an upper bound on how large the September effect can be.

Tuesday, September 01, 2015

Tax the 1%?

I'm not sure why I received the following email:

Hello Matthew,

I am writing to inform you that the renowned Primm Ranch, located on 10 acres and five minutes away from the Las Vegas Strip, will sell at auction without reserve through industry leader Concierge Auctions. 

Located at 7000 Tomiyasu Lane, an exclusive enclave and celebrity-studded street, the Primm Ranch compound was once desired by pop icon Michael Jackson. The 21,000 square feet of living space, currently owned by casino and resort developer Gary Primm, is made up of two parcels, containing a total of 12 bedrooms and 19 bathrooms. Unique features include a golf range, equestrian facility, an underground shooting range, a 2,000-square-foot, 20-car showroom and more.  

Currently listed for $14.5 million, the property will sell without reserve on October 10th in cooperation with Kristen Routh-Silberman of Synergy Sotheby’s International Realty.

The press release is attached, along with an image. More high res images are available upon request. You can also view this outstanding property here by watching the video:

Would you be interested in speaking with someone from Concierge Auctions for more information about this property and the auction process?

Please let me know if you have any questions. Thanks you!



How Does Nature Adapt to Climate Change? A Field Experiment

Wired Magazine reports  that John List and J-PAL are not the only researchers running field experiments.   Ecologists are running "out of sample" field experiments to test which plants, trees and creatures can adapt to extreme heat that they have not been exposed to in the past.  The main research finding is that nature appears to be more resilient than some think.

A Direct Quote:

"A FEW YEARS ago in a lab in Panama, Klaus Winter tried to conjure the future. A plant physiologist at the Smithsonian Tropical Research Institute, he planted seedlings of 10 tropical tree species in small, geodesic greenhouses. Some he allowed to grow in the kind of environment they were used to out in the forest, around 79 degrees Fahrenheit. Others, he subjected to uncomfortably high temperatures. Still others, unbearably high temperatures—up to a daily average temperature of 95 F and a peak of 102 F. That’s about as hot as Earth has ever been.

It’s also the kind of environment tropical trees have a good chance of living in by the end of this century, thanks to climate change. Winter wanted to see how they would do.

The answer came as a surprise to those accustomed to dire warnings that climate change will turn the Amazon into a desert. The vast majority of Winter’s seedlings didn’t die. In fact, most thrived at significantly warmer temperatures than they experience today, growing faster and larger. Just two species succumbed to the heat, and only at the very highest temperatures. The trees’ success echoes paleontological data, which hints that warmer temperatures can be a boon for tropical forests. After all, the last time Earth experienced average temperatures of 95 F, there were rainforests in Michigan and palm trees in the Arctic.

That doesn’t mean climate change won’t affect tropical forests of today. It already is. And it definitely doesn’t mean humans needn’t worry about global warming. Climate change will be the end of the world as we know it. But it also will be the beginning of another.

Mass extinctions will open ecological niches, and environmental changes will create new ones. New creatures will evolve to fill them, guided by unforeseen selection pressures."

Unlike nature, we consciously self select how we live our life and provides further hope our our potential to adapt.

END of Quote

As you know, I work on environmental conditions in cities. Cities are insulated from nature and cities rely on the brain. One's brain is the ultimate adaptation device.  Combine a smart brain with access to free markets and you have millions of different adaptation pathways. Then give this person a choice over where he/she lives across a nation with a large geographic menu of alternatives and all of a sudden you have a highly adaptive economy that can take a punch.   Re-read my Climatopolis or this NBER paper  and tell me the flaw in the logic?  The only criticisms that I believe have real validity is pointing out short run frictions (i.e durable capital built in increasingly risky places and migration costs to higher ground) and the challenge that the urban poor face. But, this creates an imperative to accelerate economic growth for this will help the poor.