Monday, October 31, 2005

A New Thought Provoking Speech by Larry Summers

"If you want a bad building, hire a good architect." Buildings are highly durable. What role does architecture play in determining a city's quality of life? In the speach presented below, Summers makes a nice point about pressure group competition leading to better outcomes today than in the past.

In the 1960s, an architect was selected and thus was a monopolist and he imposed his vision (i.e cement stalinism) on everyone else. Once the irreversible investment was made the urbanites were stuck with many eyesores. Today affected parties have more voice in the process. If the Woody Allens of the world use their regulatory power to block new construction, then this raise rents but this power can be a force for greening cities if it helps abort bad ideas.

Consider the case study of post 9/11, what should be built at the WTC site in New York City. It has been interesting to watch the pressure groups battle as this guy
Daniel Libeskind has learned that he really isn't the "master planner" at the site. Somehow these architects convinced themselves that they were benevolent monopolists. Public choice economists wonder if such folks exist in the real world!

Remarks at the Harvard Graduate School of Design symposium "Can Design Improve Life in Cities?"
Harvard University President Lawrence H. Summers
Cambridge, Massachusetts
October 20, 2005

As prepared for delivery

Let me begin by welcoming all of you here today on behalf of the University. I'd like to thank Dean Altshuler, Professor Krieger, and Bill Saunders, editor of Harvard Design Magazine, for organizing this event and for inviting me to speak with you today.

The question this symposium poses strikes me as a particularly interesting - and deceptively complex - one.
The presumptive answer - because the question comes to us in the context of an event presented by the Harvard Design Magazine - must be "yes."
And because it's being asked now, in 2005 - the post-Bilbao era - the evidence all around us confirms this presumption.
I won't bore this group with examples - you know them much better than I. I'll limit myself to the front of the symposium brochure, which, I think, says it all: Millennium Park in Chicago, with Gehry's explosive bandstand, Kapoor's shimmering kidney bean, Plensa's video fountain - and Gustafson's delicate park just out of view.
Hundreds of people are gathered together - listening to music, admiring art, strolling - all where, just 10 years ago, there were train tracks and parking lots.
Design clearly can improve life in cities.
But what's interesting to me is how rapidly the general consensus seems to have changed. As Millennium Park was being built, Cabrini-Green, the worst of Chicago's high-rise housing projects, was coming down.
Now, please don't misunderstand me: I'm hardly suggesting that Cabrini-Green's problems were largely attributable to its architecture.
I mention Cabrini-Green because not so very long ago - in my memory and yours - when one talked about the capacity of design to improve urban life, one encountered deep cynicism.
Cabrini-Green, for many, was a symbol of what happened when designers tried to improve urban life. Inspired, as many such housing projects were, by Le Corbusier's "City of Tomorrow," Cabrini-Green was design at its worst - an example of the utter failure of architecture to understand and address the practical challenges of city living.
Every city had a few such buildings or projects. Of course, they also had examples of terrific public buildings - some deco, some neo-classical, some modernist. But a few bad projects seem to have contributed to a fairly widespread view that design was or could be responsible for worsening conditions in cities.
I bet you all know too well the old saw, "If you want a bad building, hire a good architect."
But, you know, you don't hear it much these days. Now, the motto of many cities - big, medium, and small - might be said to be - to paraphrase my former colleagues in the Clinton administration - "It's the design, stupid!"
From Bilbao to Milwaukee to Davenport, Iowa, architects are being asked, not just to build good buildings, but to build buildings that will in some fundamental way change the image, the civic life, and even the economy of the city.
What has happened to effect such a change - a change that amounts, on its face anyway, to coming full-circle, back to the idea that design can, should, must be used to improve cities for the better?
And, more important for me and my colleagues here at Harvard, what does this change mean for a university about to embark on a 50-year project to build a new campus embedded in an urban environment, a project that, regardless of the designs of the buildings, will transform the city around it by sheer scope and scale?
These are the questions I'm hoping to discuss with you for most of the rest of the time we have together.
I'm keen to hear your thoughts and advice about a field in which you are the experts and I'm barely a novice.
But permit this novice to spend a few more minutes speculating about the moment we live in and why and how it matters for Harvard.
First, what's happened to bring us full circle - from design as master physician for urban ills, to design as villain, to design as general hope for our urban future?
To begin with, we probably learned something from the mistakes of our predecessors!
But more important, I suspect, is the empowerment of communities, neighborhoods, and interest groups which have become much more involved with projects that are initiated in their cities.
This is surely to the good - though I can tell you as a CEO that it has made life much more complicated for institutions like this one!
But the empowerment of communities doesn't tell the whole story either. The context has changed radically, too: financing, availability of space, our understanding of environmental impacts and the importance of sustainability - a host of enormously important and interrelated factors militate against the wholesale transformation of cities a la Moses.
Nonetheless, we find ourselves once again bombarded by rhetoric that sounds like a new version of that of the modernist visionaries of 75 years ago. What's different about today's rhetoric about the transformational power of design? And what does it mean for Harvard?
A few observations: first, what we mean when we speak of urban transformation today seems to have changed significantly. And here I'm seeking to characterize the public discussion, not the thinking of designers and planners. Where transformation once meant re-modeling huge swathes of the cityscape - literally tearing down buildings, even neighborhoods, and replacing them with infrastructure and new buildings - it now often means creating a single landmark building or project that will drag behind it, by force of its genius or distinctiveness or mission, the fortunes of the city in which it's located.
Permit me to say - parenthetically - that many municipal leaders have adopted a much more nuanced approach to urban development. I would put Mayor Menino on that list as one who has been supportive of and engaged in a variety of kinds and scales of projects - from several museum renovations and expansions, to neighborhood improvements, to our own Allston initiative.
But I worry that the public increasingly views planning issues or issues of urban development through the lens of single projects rather than larger contexts.
Returning to my principal theme and second observation, it seems to me in many cities that major changes to the urban fabric are being driven much more than in the past, frequently by institutions -museums, or universities, or libraries. These institutions are seeking to address their own programmatic needs as well as the needs of the cities they inhabit.
I'm not suggesting this is wrong. Indeed, in the best cases, it's a good thing, with cities supporting institutions and facilitating their projects - and seeking to integrate them into larger urban renewal and development efforts.
What I'm observing is that the partners in urban change have changed and that this presents institutions as well as cities with new kinds of challenges.
Finally, one of the principal objectives of transformation has become the attraction of visitors and the branding of the city as the sort of place that merits investment - by tourists, by the so-called creative class, by potential corporate tenants. The improvement of the city's infrastructure or the housing of its residents or the rationalization of its organization are often still goals, but tourism seems to rank much more highly than it ever did in the past - reflecting, perhaps, a fundamental change in how we think about the meaning and purpose of urban communities.
I'm being intentionally provocative here.
Some of you may know that that's gotten me into trouble before!
I acknowledge that I'm generalizing about what I'm calling the new rhetoric about design in cities. And I realize that I'm not giving due attention to recent projects which truly have benefited the cities in which they've taken place and represent significant civic and aesthetic achievements.
What I'm trying to do is not to prove a scholarly thesis - there are too many in the room who can point out my errors for that!
Instead, I'm suggesting that, at different times in our recent past, design has been a scapegoat, and it's been a magic bullet.
I think we're living in a magic bullet moment right now. And it's inevitable that in a few years we'll be hearing how all of these wonderful new buildings we're seeing now didn't live up to expectations, didn't deliver the tourists and the investment that they should have, cost more money than anyone expected, are difficult to maintain.
In some cases these criticisms will be true, in others, untrue. And we'll all spend lots of time figuring out which is which.
I suppose what I take from all of this is that cities and institutions - and this is especially true for an institution like Harvard engaged in a multi-year development project - must steer a middle course. We cannot run from design, from the very best new ideas and the most exciting architects; we cannot be afraid of their ambition and vision and strangeness.
Nor can we hide behind design, expecting it to cure what ails us, to fill our coffers, to populate our streets and plazas, to make traffic jams dissolve and smog disappear.
Design - by which I mean architects, landscape architects, and planners - is a partner to those of us who build buildings and neighborhoods and campuses, and we must be a good partner in return.
We are, all of us, seeking to create places. A place is somewhere that people inhabit and use. It must work for those people. In one sense, it must be a smoothly functioning machine, enabling those who use it to accomplish what they need to in it - whether that's living or studying or manufacturing. But it must also be comfortable and welcoming. And it must be a good neighbor to the other places around it.
And, finally, it must inspire, challenge, and be beautiful. Not every place must inspire as Rafael Moneo's Los Angeles Cathedral does. Nor must every building be as challenging as Rem Koolhaas's Seattle Library. The places we inhabit needn't always have the simple beauty of University Hall or the ornate monumentality of Memorial Hall.
But every building or plaza or campus has the capacity, and the obligation, to speak to us and to enable us to speak through it - as individuals, as communities.
And this, I think, is what we as patrons of architecture, builders of buildings, designers of places, have an obligation to work together to achieve.
I realize my conclusion may be a bit "middle-of-the-road" - neither visionary nor hellfire and brimstone. But I believe this is my - our - responsibility: Harvard is going to transform itself physically and in the process, and in partnership with the city and our neighbors, will transform a significant part of Boston. Design will improve the campus and the city that results. But we - institutional leaders and designers - have an obligation to be humble and clearsighted, to recognize that - because we are transforming a city - we must be ambitious and cautious, visionary and incremental.
I believe that in such a way, we will create a great campus and contribute to the continued development of a great city.
I thank you for your time and look forward to questions and discussion.

Sunday, October 30, 2005

Housing Afffordability and Green Cities

Urban environmental concerns are often used as a justification for blocking new housing construction in major cities. New tall buildings may block out sunshine and impede others' views from their existing buildings. New housing may crowd out public gardens.

The net effect of these actions is to raise urban housing prices. I certainly believe that there are environmental "green city" benefits from such actions --- thus the demand for living in such areas increases but in addition, these actions constrain housing supply. If demand is increase and supply is restricted, prices will rise and newspapers such as the New York Times will be puzzled by the "housing affordability" crisis.

Take a look at the 3rd paragraph in this Times article. In fairness to Bette Midler, this is a "free market environmentalism" solution to protecting urban green space. She did not use the political process to achieve her goal but instead she won an auction.

October 30, 2005
Midler Embraces Passing of Time and Greening of a City

After showing off the community garden with the composting toilet, Bette Midler took stock of things. The conversation had turned to two numbers that figure in her life these days: 60, for the birthday that she is about to celebrate, and 10, the age of the New York Restoration Project, the nonprofit group she started to clean up parks.

She started with the birthday. "I was going to get really depressed, and I thought, 'So what?' Let's put a good face on it, because it's a really good face," she said, and laughed.

As for her work with the parks - which included arranging the purchase of 50 city-owned lots to keep the city from auctioning them off for housing - she knows all the things that people whisper when a celebrity takes up a cause like parks in neighborhoods she does not even live in. "There's a distinct possibility that it's vanity, but even if it were, so what?" she said. "The gardens stand as a testament to nature, and I love nature despite what she did to me."

The two numbers - 60 and 10 - will come up again tomorrow at the group's annual Hulaween gala at the Waldorf-Astoria. Besides celebrating the group's first decade, Ms. Midler will give an award for environmental work to the rock star Sting and his wife, Trudie Styler. Elton John will be at the celebration, which is also for Ms. Midler's 60th birthday, on Dec. 1.

Adrian Benepe, the parks commissioner, called her "a delightful and purposeful Pied Piper" and credited her and her group with tackling projects "no one else would think of taking on."

Ms. Midler's involvement has been hands-on. While visiting a park in Upper Manhattan, she chatted with groundskeepers and gardeners about tree limbs that had been knocked down by storms. "I think I'm doing what I was meant to do," she said. "This is the greatest thing I ever did in my life."

She and her group have removed 80,000 tons of garbage from neglected parks and lots over 10 years, and she helped haul away discarded tires and other junk. The group helped create Swindler Cove Park on the Harlem River, at the Harlem River Drive and 10th Avenue, and found a donor to underwrite a boathouse there. It also renovated a cafe in Fort Tryon Park.

Ms. Midler helped clean up freeways under California's adopt-a-highway plan when she lived in Los Angeles. When she moved back to New York in 1994, she said, she was troubled by how badly the parks had deteriorated. "I remember driving past Riverside Park and saying, 'What happened?' " she said. She remembers seeing discarded couches, other junk and homeless people.

She made some calls. One parks department employee told her, "I know you think Riverside isn't very nice, but let me show you something else." She said his inflection conveyed the message "If you think this is bad, let me show you worse."

Mr. Benepe remembered meeting her about that time. He had been a lower-ranking parks official, and he invited her to dinner at his apartment. He cooked - "I don't remember what," he said. "Probably seafood. As I recall, she was wearing overalls."

By then, groups like the Central Park Conservancy and the Prospect Park Alliance were looking after specific parks. Ms. Midler decided to set up a public-private partnership. "Until government gets it together, you can't allow everything to deteriorate," she said. "Until the government decides there is a different way to step in and raise money, we've got to."

Visiting a handful of parks and gardens in Manhattan one morning, she raced through a garden on East 114th Street near Pleasant Avenue, across 114th from Thomas Jefferson Park. The garden was restored with a $250,000 grant from Tiffany & Company, and John Loring, the Tiffany designer, created chairs and a statue with Jefferson's profile.

The garden is down the block from another, the Rodale Pleasant Park Community Garden. Rodale, the publisher of Prevention, Men's Health and other magazines, donated $250,000 for the garden and its rainwater collection system and composting toilet.

Ms. Midler contributes money to the group, but Julia Erickson, its executive director, said the amount was less than 1 percent of the group's $4.9 million annual budget, with the rest coming from donations from others. In 10 years, the New York Restoration Project has gone from 2 staff members working in an office at Rolling Stone magazine to 15 staff members in rented quarters.

Amy T. Gavaris, the executive vice president, was initially hired as an assistant director. She said she was offered the job in the first minute of her job interview, with the executive director at the time, and did not meet Ms. Midler until later.

Ms. Erickson, who joined the group this year, met Ms. Midler early on and also met with board members, but she did not get the job until her final interview, with Ms. Midler, who conducted it by telephone from New Zealand, where she was performing.

"One thing that hasn't changed, as far as I can tell, is her involvement," said Brian Sahd, a vice president. "She sees something and she still says, 'Brian, we've got to weed.' "

Saturday, October 29, 2005

Does the Absence of Trust Fuel the Demand for Sprawl?

Suppose that people trusted strangers in urban areas. In this case, people would be more likely to use public parks, public transit, and perhaps even be willing to send their children to public schools. Private clubs, private transit and private schools have a "selection" effect of excluding others. The demand for such "exclusivity" is higher when people don't trust the "Average Joe". In addition, when cities become more diverse due to immigration and rising income inequality, people are less likely to trust people who look "different" than themselves.

To link to sprawl, sprawl is single detached housing where there is literally a moat around each person's house. In a society with greater trust between people, there would be less demand for this moat. While its hard to test, my intuition tells me that the ecological footprint would be smaller in a more trusting city.

Co-ops represent high density living. The New York Times has an interesting piece on trust and monopoly power in "group living".

October 30, 2005
How a Co-op Lost Millions

JACK HABER rues the day that he and other board members of 200 East 74th Street agreed to crank up the maintenance charges that homeowners in the building were assessed to keep the place running.

"What's clear to many inside and outside the building's white-brick walls is that the experience has been an opportunity to learn some hard-earned lessons about the perils of communal living and that their lessons may be applicable to others in a city where more than 300,000 residential units are held in co-op or condo form.

Topping the list of hazards, real estate lawyers say, is giving anyone sole signing authority over a common checkbook or bank account, something Mr. Kissel obtained after he became treasurer in the fall of 1995. Members of the co-op acknowledge being remiss but say they were relieved that someone with a knack for business had taken on the role. They didn't have time, they said, to oversee or second-guess him.

That mind-set is pervasive at many co-ops and condos. "Keep in mind that co-op boards are made up almost always of volunteers," said Aaron Shmulewitz, the real estate lawyer who ultimately helped board members at 200 East 74th Street root out where their money went. "If one co-op board member volunteers to assume a larger burden with regard to a large areas like financing, co-op board members are naturally going to be happy about that."

Friday, October 28, 2005

Sprawl: Choice or Fueled by Implicit Subsidies and Regulation?

Resources for the Future will soon publish a book titled: "Zoned Out Regulation, Markets, and Choices in Transportation and Metropolitan Land Use" by Jonathan Levine. I'm not sure if Peter Gordon is going to love this book.

"The search for solutions to urban sprawl, congestion, and pollution has inspired a wealth of alternatives, including smart growth, New Urbanism, and transit-oriented development. Since 1970, researchers have sought to assess such alternatives by evaluating their transportation benefits. Implicit in research efforts, however, has been the presumption that, for these options to be given serious consideration as part of policy reform, science has to prove they will reduce auto use and increase transit, walking, or other physical activity. Zoned Out forcefully argues that the debate about transportation and land-use planning in the United States has been distorted by a myth--the myth that urban sprawl is the result of a free market. According to this myth, low-density, auto-dependent development dominates U.S. metropolitan areas simply because that is what Americans prefer.

Jonathan Levine confronts the free market myth by pointing out that land development is already one of the most regulated sectors of the U.S. economy. Noting that local governments use their regulatory powers to lower densities, segregate different types of land uses, and mandate large roadways and parking lots, he argues that the design template for urban sprawl is written into the land-use regulations of thousands of municipalities nationwide. These regulations and the skewed thinking that underlies current debate mean that policy innovation, market forces, and the compact-development alternatives they might produce are often "zoned out" of metropolitan areas.

In debunking the market myth, Levine articulates an important paradigm shift. Where people believe that current land-use development is governed by a free-market, any proposal for policy reform is seen as a market intervention and a limitation on consumer choice, and any proposal carries a high burden of scientific proof that it will be effective. Zoned Out reorients the debate by demonstrating that the burden of scientific proof that was the lynchpin of transportation and land-use debates has been misassigned, and that, far from impeding market forces or limiting consumer choice, policy reform that removes regulatory obstacles would enhance both. A groundbreaking work in urban planning, transportation and land-use policy, Zoned Out challenges a policy environment in which scientific uncertainty is used to reinforce the status quo."

JONATHAN LEVINE is certainly correct that equilibrium outcomes are a function of supply and demand. I have not read this book but my main empirical question for Levine would be: "There are over 300 major cities in the United States. Some of these cities are heavily influenced by powerful environmental groups, which European cities does he view as the "gold standard" of where the U.S should move to? What is his strongest empirical evidence that a large percentage of people would be willing to live in higher density, walking cities? There are certainly some people willing to live like this but how many? If there is such a demand for such cities, why aren't developers building them?

In defense of Levine, I do believe that as urban crime continues to fall that richer people will be more willing to live near strangers who do not look like them. The urban public schools are still the problem. Until urban public schools improve, I really don't see how the demand for "compact living" can soar except for gays and senior citizens and very young.

Wednesday, October 26, 2005

Bernanke and Dams in India Have Nothing in Common!

With everyone blogging about Ben Bernanke's virtues, I thought about going against the grain and asking why does the Fed need a boss who is an A+ academic economist? Robert Barro wrote a funny Wall Street Journal piece several years ago documenting that the economy grew the fastest when there was no economist as the head of the CEA.

Alan Greenspan, armed with a pre-Tom Sargent NYU PHD, has done quite well without having published in the AER, JPE or QJE. From taking a closer look at Economics Roundtable, I found a pretty good answer to my question posted at:

Still, I'm not completely convinced. Is it obvious that an academic star will make "better decisions" as the Fed Chair than some "Average Joe"? Does an academic star have more credibility with Wall Street? I've always wondered about what is the "credibility" production function? How many AER publications does a guy need before his word has some weight?

Switching gears and returning to my chosen topic of "environmental and urban economics", here is an interesting paper that examines the non-environmental consequences of dam construction in India.

Dams by Esther Duflo, Rohini Pande

NBER Working Paper No. 11711
Issued in October 2005
NBER Program(s): PE


The construction of large dams is one of the most costly and controversial forms of public infrastructure investment in developing countries, but little is known about their impact. This paper studies the productivity and distributional effects of large dams in India. To account for endogenous placement of dams we use GIS data and the fact that river gradient affects a district's suitability for dams to provide instrumental variable estimates of their impact. We find that, in a district where a dam is built, agricultural production does not increase but poverty does. In contrast, districts located downstream from the dam benefit from increased irrigation and see agricultural production increase and poverty fall. Overall, our estimates suggest that large dam construction in India is a marginally cost-effective investment with significant distributional implications, and has, in aggregate, increased poverty.

At least when I read an earlier draft of this paper 6 months ago, it included no information on the environmental costs of dams. The authors are probably wise to avoid the non-market environmental valuation literature. For example:

If a dam turns a river into a lake, what are the recreational benefits and costs of this action? What are the ecological impacts of this action? How many fish perish because of this? How many ecosystems are affected? How are they affected?

What I like about this Dams paper is its credible IV strategy.

Tuesday, October 25, 2005

Does Urbanization Reduce Environmental Consciousness?

The world is urbanizing. I'm almost done writing a book on the environmental consequences of this trend. My "Green Cities" book explores whether urban growth mitigates or exacerbates local and global environmental indicators such as air pollution and greenhouse gas production.

I've thought about a variety of ways that urbanization affects the environment but today the New York Times has an article suggesting a pathway I hadn't thought about.

Dr. David Suzuki, a zoologist turned environmental activist, has this to say;
"Even though Canada has a lot of wilderness, 85 percent of us live in cities," he said. "We don't understand ecosystems."

He makes this point with anecdotes and examples anyone can understand. For example, he recalled, when he wanted to do a television program about air pollution, he waited for a smog alert day and took a film crew to a hospital emergency room. "It was packed with old people and children," he said. "What blew us away was how many of these people were being driven to the hospital in an S.U.V. Because they live in a shattered world, it never occurs to them that the way they live is creating the problem."

Dr. Suzuki said he used to urge people to think globally, act locally. "That was a mistake," he says today. "When people think globally, they feel helpless."

Instead, his Nature Challenge outlines 10 simple steps - like eating meatless meals one day a week or using nontoxic lawn products - and urges Canadians to commit to three of them."

IF I understand what Dr. Suzuki is saying he is suggesting that urbanites are "disconnected" from nature. This sounds like a testable proposition. My son and I enjoy watching his videos that show "where our food comes from". As a lifelong urbanite, this was news to me.

While Dr. Suzuki's general point has some merit to it, farmers are major polluters in the United States. Ample Nitrogen use, chemical fertilizer and disposing of animal waste. I have not seen an analysis of who has a larger day to day "ecological footprint"; the urbanite or the farmer?

Monday, October 24, 2005

Garbage Exports to Africa

In the mid-1990s, Al Gore and Larry Summers debated the merits and fairness of exporting trash to Africa. Could people in Africa be made better off if the United States sent them money and garbage? This issue is back in the news.

It is interesting to compare garbage to dirty manufacturing. Environmentalists have argued that in a globalized world economy a “race to the bottom” would take place such that poor nations with lax regulation would specialize in exporting dirty goods. While this argument is intuitive, the environmentalists ignored that dirty industries tend to be capital intensive. Relative to making sneakers or blue jeans, it takes more capital to get an oil refinery or a steel mill up and going. In fact, the Factor Endowment Hypothesis posits that Richer nations will be the pollution havens!

While dirty manufacturing may not locate in poor nations, garbage is already produced. It only needs to be shipped somewhere. There is no reason except for high shipping costs for why poor nations would not end up with the world’s garbage. Intuitively, if proximity to garbage is undesirable then richer people will be willing to pay poorer people to “outsource” their trash. Economists have celebrated the gains to trade since before Adam Smith. Al Gore was offended that the African poor might suffer this extra injustice.

There are really two separate issues here. First, what is a “fair distribution of income”? Second, conditional on the distribution of income have the gains to trade been exhausted? For those of you who didn’t sleep through all of your economics lectures, is the capitalist equilibrium a pareto optimum? Most students display the ambition to be a benevolent social planner who get to choose the income distribution.

Here is today’s New York Times:

October 24, 2005
Poor Nations Are Littered With Old PC's, Report Says

Much of the used computer equipment sent from the United States to developing countries for use in homes, schools and businesses is often neither usable nor repairable, creating enormous environmental problems in some of the world's poorest places, according to a report to be issued today by an environmental organization.
The report, titled "The Digital Dump: Exporting Reuse and Abuse to Africa," says that the unusable equipment is being donated or sold to developing nations by recycling businesses in the United States as a way to dodge the expense of having to recycle it properly. While the report, written by the Basel Action Network, based in Seattle, focuses on Nigeria, in western Africa, it says the situation is similar throughout much of the developing world.

"Too often, justifications of 'building bridges over the digital divide' are used as excuses to obscure and ignore the fact that these bridges double as toxic waste pipelines," says the report. As a result, Nigeria and other developing nations are carrying a disproportionate burden of the world's toxic waste from technology products, according to Jim Puckett, coordinator of the group.

According to the National Safety Council, more than 63 million computers in the United States will become obsolete in 2005. An average computer monitor can contain as much as eight pounds of lead, along with plastics laden with flame retardants and cadmium, all of which can be harmful to the environment and to humans.
In 2002, the Basel Action Network was co-author of a report that said 50 percent to 80 percent of electronics waste collected for recycling in the United States was being disassembled and recycled under largely unregulated, unhealthy conditions in China, India, Pakistan and other developing countries. The new report contends that Americans may be lulled into thinking their old computers are being put to good use.
At the Nigerian port of Lagos, the new report says, an estimated 500 containers of used electronic equipment enter the country each month, each one carrying about 800 computers, for a total of about 400,000 used computers a month. The majority of the equipment arriving in Lagos, the report says, is unusable and neither economically repairable or resalable. "Nigerians are telling us they are getting as much as 75 percent junk that is not repairable," Mr. Puckett said. He said that Nigeria, like most developing countries, could only accommodate functioning used equipment.
The environmental group visited Lagos, where it found that despite growing technology industries, the country lacked an infrastructure for electronics recycling. This means that the imported equipment often ends up in landfills, where toxins in the equipment can pollute the groundwater and create unhealthy conditions.
Mr. Puckett said the group had identified 30 recyclers in the United States who had agreed not to export electronic waste to developing countries. "We are trying to get it to be common practice that you have to test what you send and label it," he said.
Mr. Puckett also said his group was trying to enforce the Basel Convention, a United Nations treaty intended to limit the trade of hazardous waste. The United States is the only developed country that has not ratified the treaty.

Much of the equipment being shipped to Africa and other developing areas is from recyclers in the United States, who typically get the used equipment free from businesses, government agencies and communities and ship it abroad for repair, sale or to be dismantled using low-cost labor.

Scrap Computers, a recycler in Phoenix, has eight warehouses across the United States to store collected electronics before they are shipped to foreign destinations, and Graham Wollaston, the company's president, says he is opening new warehouses at the rate of one a month. Mr. Wollaston, who describes his company as a "giant sorting operation," said there was a reuse for virtually every component of old electronic devices: old televisions are turned into fish tanks for Malaysia, and a silicon glass shortage has created huge demand for old monitors, which are turned into new ones. "There's no such thing as a third-world landfill," Mr. Wollaston said. "If you were to put an old computer on the street, it would be taken apart for the parts."
Mr. Wollaston said the system was largely working, though he conceded that some recyclers dump useless equipment in various developing nations, most notably China. "One of the problems the industry faces is a lack of certification as to where it's all going," he said. He says his company tests all equipment destined for developing nations.

The Environmental Protection Agency concedes that "inappropriate practices" have occurred in the industry, but said it did not think the problem should be addressed by stopping all exports.

"E.P.A. has been working with the Organization for Economic Cooperation and Development countries for the last several years on development of a program that would provide much greater assurance that exports of recyclable materials will be environmentally sound," Tom Dunne, of the agency's Office of Solid Waste and Emergency Response, wrote in an e-mail message.

Terrorism and Global Warming: Crisis Issues?

Today the New York Times published a pro-gas tax editorial. I agree with almost all of its substance except I’m confused by its first sentence. “There's no serious disagreement that two major crises of our time are terrorism and global warming.” Is there a crisis with respect to either of these issues? Both pose risks to our day to day life but does this equal a crisis?

I could see that policy activists would like people to believe that these are “crisis issues” because this would increase the likelihood that innovative policies will be adopted as the public clamors for Congress to “do something”. I’m not sure why the Times engages in this overheated rhetoric. Do their editors really get so breathless as they think about day to day life? Or do they think that their enthusiastic cheerleading will make some Scarsdale Mom write a letter to her Representative?

There are costs and benefits of fighting terrorism using our scarce resources. There are costs and benefits of mitigating greenhouse gas production using our scarce resources. Ideally, these decisions could be approached in Spock from Star Trek logical way rather than turning to Dr. McCoy.

Gas Taxes: Lesser Evil, Greater Good
October 24, 2005

“There's no serious disagreement that two major crises of our time are terrorism and global warming. Now, however, the energy risks so apparent in the aftermath of Hurricane Katrina have created both the urgency and the political opportunity for the nation's leaders to respond appropriately. The government must capitalize on the end of the era of perpetually cheap gas, and it must do so in a way that makes America less vulnerable to all manner of threats - terrorist, environmental and economic.
The best solution is to increase the federal gasoline tax, in order to keep the price of gas near its post-Katrina highs of $3-plus a gallon. That would put a dent in gas-guzzling behavior, as has already been seen in the dramatic drop in the sale of sport-utility vehicles. And it would help cure oil dependency in the long run, as automakers and other manufacturers responded to consumer demand for fuel-efficient products.”

The Editorial was also weak with respect to the efficiency costs of gas taxes. Do high gas prices cause recessions? Or was this past historical relationship a statistical artifact?

Sunday, October 23, 2005

The Market for Katrina Lemons

Hurricane Katrina will offer an excellent test of George Akerlof’s work on adverse selection in the used car market. Over 500,000 vehicles in the New Orleans area were flooded. Used car buyers beware! You may be purchasing a “biohazard”. What will be the equilibrium?

The New York Times reports:

“Since the hurricane struck on Aug. 29, auto clubs and law enforcement officials have warned consumers to scrutinize used cars for water damage and investigate their histories. Because a damaged car's title can be "washed"- varying state laws make it relatively easy to obtain a clean title in one state for a vehicle branded with a "flood" or "salvage" title in another - such warnings are routine after major storms.

But Katrina's automotive losses were hardly routine. Cars that sat in sewage- and fuel-contaminated floodwaters in New Orleans could pose unprecedented risks to anyone who handles the vehicles or their parts, according to the Coordinating Committee for Automotive Repair, a nonprofit organization that provides advice on pollution prevention and worker health and safety issues to segments of the auto industry, including repair businesses. “

AS ALL ECONOMISTS KNOW, the adverse selection problem arises due to asymmetric information. Information technology is “leveling the playing field”.
Consumers can research whether a vehicle was ever registered in counties declared a federal emergency disaster area by entering the VIN at At the Web site of the National Insurance Crime Bureau,, one can enter a car's 17-digit vehicle identification number, or VIN, to find out whether it is among the 60,000 listed so far in a database of vehicles damaged by Hurricanes Katrina or Rita.

Its interesting to contrast homes and cars. The soggy homes cannot be cheaply exported and sold on the national market while the cars can be.

Saturday, October 22, 2005

Chernobyl's Long Run Effects?

Risk perception plays a key role in economic decision making both for consumers and producers. Post 9/11, people were afraid to fly and the airlines lost billions. Since the Chernobyl nuclear accident in 1986, people have been afraid to live and work near "Ground Zero".

The New York Times today reports on an effort to "reclaim" land near this disaster's epicenter.

Nearly a quarter of Belarus, including some of its prime farmland, remains radioactive to some degree. Belarus'government is making an effort to put the contaminated lands back to good use.

"The farm, no longer known as the Karl Marx collective but still state-owned, reopened two years ago with the millions of dollars' worth of harvesters, tractors and other equipment provided by President Aleksandr G. Lukashenko's government.

A year before that the checkpoints that once restricted access to this region, 150 miles from Chernobyl, disappeared. Families began returning. Some had never left; all needed jobs.

A scientific study released in September by seven United Nations agencies and the World Bank concluded that Chernobyl's lasting effects on health and the environment had not proved as dire as first predicted. It recommended that the authorities in Russia, Ukraine and Belarus take steps to reverse psychological trauma caused by Chernobyl, encouraging investment and redevelopment.

Lands where agriculture was banned or severely restricted can be safe for growing crops again, the report said, using techniques to minimize the absorption of radioactive particles into produce."

IT will interest me whether agricultural products grown near the Chernobyl site will be sold in export markets. If so, will they sell for a lower price? Will consumers trust that the product is "safe"? The experts say it is safe but will consumers trust their judgement?

In the United States, there has been an interesting hedonic real estate literature that has examined home price dynamics before after a toxic waste site (a Superfund site) has been cleaned up. They counter-factual question is whether post-clean up do home prices converge back to what they "would have been" in the absence of the clean up. If people do not trust government to get the job done then even after a clean up, we would predict that home prices near the affected Superfund area would sell for a price discount because of this lack of confidence in government. (See the work of Kathy Kiel).

Friday, October 21, 2005

Asking Stiglitz to Guide Us to "Moral Growth"

Foreign Affairs Magazine has made the wise move of displacing one more piece about Kissinger and actually allows an economist to speak his piece. In reviewing Ben Friedman's new book, Joe Stiglitz reveals himself to be an ethical economist. As a Chicago Economist, I was impressed.

"In short, the debate should not be centered on whether one is in favor of growth or against it. The question should be, are there policies that can promote what might be called moral growth -- growth that is sustainable, that increases living standards not just today but for future generations as well, and that leads to a more tolerant, open society? Also, what can be done to ensure that the benefits of growth are shared equitably, creating a society with more social justice and solidarity rather than one with deep rifts and cleavages of the kind that became so apparent in New Orleans in the aftermath of Hurricane Katrina?"

I am not smart enough to answer Joe Stiglitz's challenge. But, Stiglitz is smart enough to answer his own riddle. I would like to ask Prof. Stiglitz; "If you were President of the United States, what micro and macro policies would you enact to achieve your goal of moral growth?"

Is Bill Gates, a profit maximizer who redistributes billions, contributing to moral growth?

Is the World Bank contributing to moral growth?

It seems to me that we would need a lot more information concerning how consumers and producers respond to incentive effects (such as taxes and subsidies) before one could justify that the "equity benefits" of certain proposals would be worth the efficiency costs.

I would like to ask Prof. Stiglitz whether there has ever been a time period in U.S history when we have achieved "moral growth". Is it the 1990s? Is it the 1960s? What was going right then that has changed today? Is it simply Republican Rule?

Will the Democrats in 2008 run on Stiglitz's platform?

Thursday, October 20, 2005

Teaching The Theory of the Firm

Today was the day I dread every fall term. Am I the only micro teacher in the world who hates teaching our perfectly competitive model and monopolist model? Our job is to explain and predict human behavior. Do these models teach us anything about "real world" firms? These static models are boring and mechanical.

When I read the business section of the newspaper, I see little link between its coverage and these models. I appreciate that the perfectly competitive equilibrium's properties are useful for knowing how low prices could go but I have trouble staying awake for these chapters.

Fortunately, after presenting monopoly I can then discuss price discrimination and finally discuss firm strategy. These topics allow for some much needed realism relative to the two polar cases.

It amazes me how many generations of economics students have slept their way through the static monopoly and perfect competition models. Years ago I read Milgrom's and Roberts' textbook and I just thought that their approach was a much better way for teaching the economics of firms.

Perhaps the next generation of textbooks will have the guts to banish this boring material. I felt for my students today as they suffered through the important insight that the perfectly competitive firm produces where P=MC.

Melting Artic Ice Caps and the Pollution Havens Hypothesis

The New York Times published a piece on 10/10/2005 documenting that Climate Change could sharply reduce the cost of shipping goods across continents because ships could pass through holes in the Artic Ice Caps.

This newspaper focused on "As Polar Ice Turns to Water, Dreams of Treasure Abound" but I'm more interested in how this shock will affect the pollution composition of international trade. Environmentalists are convinced that increased international trade leads to poorer nations specializing in dirty exports because they have more lax environmental regulation than richer nations. Economists have countered that dirty industries tend to be capital intensive (think of oil refining) and thus richer nations with more capital may have a comparative advantage.

In my own work on economic geography, I have used bilateral trade data for clean and dirty manufacturing industries to document that distance matters. All else equal, if a nation if further from the United States, then it even less likely to be a pollution haven for the U.S. This is especially true if the final output is costly to ship. Africa is far from the U.S and this is a major reason for why the evidence
is weak that African nations are pollution havens.

The melting of the polar ice provides a test of this hypothesis. A nation such as Russia or Romaina will now be closer to the United States final consumers. If the ice caps melt and new trade routes open up, will these nations become leading exporters of dirty goods to the United States?

Wednesday, October 19, 2005

Effective Environmental Regulation: Does Money Matter?

Economists like to estimate production functions. The education production function literature asks whether students' test scores rise when more money is spent on inputs such as teachers. Environmental economists who are interested in the role of regulation in mitigating externalities are about to have an opportunity to study whether "money matters".

The Bush Administration and the Republican Congress are looking to cut government expenditures to lower the deficit. "Republicans struggled on Wednesday to gain support for another round of domestic spending cuts, leaving uncertain the fate of legislation that was to have been debated on the floor of the U.S. House of Representatives on Thursday." You don't have to be a genius to forsee that the EPA will get itself
trimmed here.

When a regulatory agency loses $, what gets cut back? I have the feeling that the answer will be partially research grants to academics. But, this is a small % of their budget. If EPA has a few billion less dollars, does this lead them to curtail data collection? To monitor fewer polluters? How will the EPA prioritize how to use its finite budget to address air versus water versus hazardous waste challenges?

If polluting firms anticipate that EPA is scaling back (for example during the Reagan Administration EPA conducted fewer inspections than during the Carter years), how does this affect the incentives of such polluting firms to "green" their production processes?

Will EPA's threats no longer be credible if its budget is paired back? An optimist might say that activist environmental groups such as Robert Kennedy Jr. will use the court system to sue if they sense that the EPA is shirking on its monitoring job because of who its boss is and because of budget cuts.

It seems to me that environmental economists have a harder job in estimating "pollution production functions" than educational economists. I would like to know if we take away 1 billion dollars from the EPA does that mean that more pollution will subsequently be produced? What types of pollution? Where will it be emitted?

If the marginal productivity of the EPA in battling pollution is low then such anticipated budget cuts will have little brown consequences. But this is an empirical question!

Tuesday, October 18, 2005

Information and Urban Problem Solving

In 2001 the Nobel Prize in economics was awarded for research on the consequences of asymmetric information. I don’t really care about the used car market but I do care about urban governance. A necessary condition for an urban mayor to be up to the job of providing local public goods and internalizing externalities is that he have kosher real time information on the “State of the City”.

Today’s New York Times highlights Mayor Bloomberg’s cutting edge data creation. As an empiricist what shocks me here is that his approach is viewed as so “revolutionary”. It makes me wonder what information previous Mayor’s staffs collected before they made key policy decisions.

Bloomberg Lives by Statistics and Gives Aides a Free Hand By JIM RUTENBERG
October 18, 2005

Barely 12 hours after winning the 2001 mayoral election, Michael R. Bloomberg, still dazed and hoarse from late-night celebrations and early-morning television interviews, wandered into his Midtown campaign office, turned to a key member of his transition team and asked only half-jokingly, "Now what do we do?"

But perhaps more significant, he reshaped the way the mayor's office runs New York, applying a results-based approach to almost every area of city government, and largely appointing his commissioners based on expertise and giving them nearly free rein to determine policy regardless of political consequences.

Wall Street Ways at City Hall

Mr. Bloomberg exercises control over the city much like Mel Karmazin, the former Viacom chief, famously did at his company: by closely monitoring the numbers produced by a team of star department heads who are free to run their agencies as they see fit so long as they meet strict production targets.

It is a strategy grounded in his experience in the business world. Mr. Bloomberg spent 15 years on Wall Street with Salomon Brothers, working his way from a $9,000-a-year position in its bank vault to a partner in charge of running the firm's information systems department. Pushed out of the firm in 1981, he then earned billions by using his $10 million severance to create a machine that compiled and analyzed real-time data from the financial markets to help traders gain an edge.
As mayor he has tried create a similar system from which to govern. Data analysis is religion for Mr. Bloomberg, and numbers are the lifeblood of his administration. They drive policy rather than just track progress.

It was in large part in the pursuit of more city data that Mr. Bloomberg created the 311 help line. It provides one-stop shopping for people seeking information about everything from parking rules to trash pickups. But perhaps more significant, residents' grievances on the line are also stored in a database so the city can immediately identify a festering problem area, and react.

Linda Gibbs, Mr. Bloomberg's homeless services commissioner, said she began the first citywide census of homeless people on the streets this year guided by the mayor's results-based approach. The census provoked serious debate within the administration, she said, because by creating a new set of numbers "you're taking the risk it could go in the wrong direction."
"His reaction was," she said, "you're not going to be able to overcome an issue unless you really understand it."

Ms. Gibbs said that at the height of a homeless crisis in 2003, she presented Mr. Bloomberg with a chart showing some good news: an alarming rise in the number of people in shelters was finally stabilizing. But the mayor was not content, and drew a line pointing downward from the plateau on the chart, saying, "Come back when it looks like that."

Such an approach has helped drive nearly all of the city's major indices in positive directions, just in time for Mr. Bloomberg's re-election campaign. But the approach has often drawn criticism, particularly on the schools front, with educators saying the administration is obsessed with test scores at the expense of a more holistic approach to improving student performance.”

AN INTERESTING incentives issue here is whether Bloomberg’s technical people “fudge” the statistics because they know that the boss will reward them for progress. Look at the test scores and education fact that Houston schools tell low scoring kids to stay home on testing day because this raises the school’s average score. For a quantitative incentive system to work there need to be accountants who can verify that the data is a representative sample of what the Mayor had hoped to sample and not a select sample.

Saturday, October 15, 2005

Garbage Disposal in New Orleans

New Orleans has an odor problem. The New York Times provides a graphic discussion of the quality of life challenges this city faces in the short run. Perceptions of quality of life will play a key role in determining whether the skilled return to New Orleans.

In New Orleans, the Trashman Will Have to Move Mountains By JENNIFER MEDINA

NEW ORLEANS - On one front lawn, a two-foot-high pile of debris stands where a hedge would normally be. A rusting mattress lies next to a bottle of cleaning fluid and a television set. The stench of paint combined with weeks-old food is choking. Flies hover over the whole thing, zeroing in on a handful of foil-wrapped chocolate eggs.

This is just one pile. There are thousands upon thousands of others, totaling 22 million tons of waste, according to state officials. They have baked in the swampy heat for weeks now, making this city look and smell like a landfill.

It is more trash than any American city produces in a year. It is enough to fill the Empire State Building 40 times over. It will take at least 3.5 million truckloads to haul it away. "It is absolutely and completely revolting," Kathleen McGoey said on a recent day as she stood in front of a mound of Sheetrock, wicker chairs and moldy clothes outside an apartment building she owns.

This is not even counting the cars that have been abandoned on sidewalks, or the boats stranded on the streets. It is not counting the more than 1 million refrigerators, stoves and washing machines on curbs all over the area. This is not counting any of the hundreds of homes that will inevitably be demolished.
It is the largest, and most complicated, cleanup in American history.

It will take months to get rid of the muck already clogging streets, and only a fraction of former city residents have returned home so far and have yet to empty out their homes. The Army Corps of Engineers says it is likely to take seven months, while Chuck Carr Brown, the assistant secretary of the Louisiana Environmental Services Office, said the process could take as long as two years.
In some neighborhoods, the rancid piles permeate the air with a smell that seems a mix of sour milk, foul river water and rotting meat. Residents who have returned are complaining about the odor and the accompanying maggots. They wear rubber gloves and face masks to guard their senses and protect their health from bacteria and mold.
Regular trash collection still has not resumed in several parts of the city. In the French Quarter, the odor assaults diners even as they walk out of recently reopened upscale restaurants.

Moving the debris from the streets is just one step. Although officials are urging residents to separate and label their trash, few people have the time or desire to pile their aluminum cans away from their microwaves. Instead, most simply just drag the trash to the curb and leave it to the contractors to sort out the paint thinner from broken telephone poles.

Contractors must then sort the debris at a collection site before the mounds of rubbish will be taken to burn sites, recycling areas or existing landfills within the New Orleans metropolitan area.

The corps is only beginning to make plans for the six categories of waste: green, household, construction, chemical, appliances and vehicles. They have no accurate estimate of how much of the debris fits into each category.
There is no immediate threat of disease, and preliminary tests have shown less soil contamination than many feared. But the soppy, sticky mess has festered for weeks, and local officials worry that residents will be exposed to bacteria, chemical fumes or other toxic substances.

The plans to move forward quickly have drawn some concern from environmental advocates, who say that the pressure to simply get the stuff out could set a dangerous precedent with dumping in local processing sites and landfills.
Even in places that suffered little damage from the storm, homeowners have returned to five-week-old food in refrigerators that stopped working the day of the storm. Now, those refrigerators sit curbside, wrapped tightly with tape. In Jefferson Parish, local officials have set up what some call a refrigerator graveyard, where residents can drop off their discarded appliances.
The freezers contain what were once pounds of fresh meat, crab and shrimp - all of it now liquefied and putrid. Many have messages that warn "gross" or "don't touch - stinky food."

But somebody must touch them. The corps has hired contractors to remove the Freon from the appliances so that they can be recycled. Those same contractors are also expected to clean out whatever is inside.

"Right now, our job is just to get this stuff off the streets," said Marnie Winter, the director of the Jefferson Parish Department of Environmental Affairs. "People have so much to worry about, the last thing they want to do is empty their refrigerators."

Wednesday, October 12, 2005

The Marginal Cost of Being a Green City

A productive municipal government produces output using relatively little labor and other inputs. One important output is garbage collection. In the past, New York City was not a productive municipal government. Today the New York Times is celebrating a productivity improvement in New York City garbage collection. Is it a new piece of equipment that makes it easier to scoop up trash and dump it? Not exactly.

October 12, 2005
City Said to Reach Innovative Deal on Sanitation Contract

"Mayor Michael Bloomberg will announce a 17.5 percent raise today for the city's 6,600 sanitation workers as part of a 51-month deal that his administration says is a landmark on increasing productivity.

The tentative contract would give the Uniformed Sanitationmen's Association the largest raises of any municipal union in the current round of bargaining. But city officials said the raises were financed by various measures to raise productivity, including an agreement to lengthen each truck's collection route.

Most of all, Bloomberg administration officials were boasting about the introduction of one-worker garbage trucks in what they called a productivity breakthrough. Under that arrangement, one worker, the driver, will pick up the large, metal "roll-on, roll-off" garbage boxes and take them to the dump.

As a result of these productivity measures, the city expects to be able to reduce the sanitation work force by 200 workers."

THIS ARTICLE raises the interesting question of how much were New Yorkers overpaying for garbage pickup? I'm assuming that the Unions wanted this overstaffing of garbage trucks to increase their membership and their dues. In addition, with 2 guys for each truck the workers could work less hard.

I'm confused about whether this "price premium" for garbage pickup affected NYC's "greeness"? If NYC had privatized garbage pickup, it is obvious that a for profit would have used the efficient capital to labor ratio but would the quality of service be any different?

Tuesday, October 11, 2005

What is an “Environmental Refugee”?

The United Nations University’s Institute for Environment and Human Security ( has issues a press release claiming that by the year 2010 the world will need to cope with as many as 50 million people escaping the effects of creeping environmental degradation.

The press release says that “environment-related migration has been most acute in Sub-Saharan Africa, but also affects millions of people in Asia and India.”

The one nuance in the press release is provided by Dr. Janos Bogardi who says “the term “environmental refugee” rankles many experts as simplistic, masking what are often compound motives behind migration and implicitly laying the blame on nature when often the policies and practices of people are the cause of displacement.”

One salient example is New Orleans and Hurricane Katrina. This event has created thousands of U.S environmental refugees. Building on Bogardi’s point, there is a synergy between policies and environmental shocks. If the levees had been in better shape ( a policy), the same natural shock (Katrina) would have caused less damage to New Orleans and there would have been much fewer environmental refugees.

Experts working in this field will face the challenge of disentangling whether observed migration flows are due to economic arbitrage (seeking out higher $ in destination cities) or because environmental shocks push people away from places they wanted to keep living in.

An interesting self selection issue arises, when an environmental shock such as a hurricane takes place --- who leaves? My guess is that it is the skilled and able and motivated. If the right tail of the ability/motivation distribution exits as environmental refugees; then the remaining folks on average will be the “slugs”. Any growth model with human capital would predict that such an area will grow more slowly after the shock if it loses its best people.

Blogs and Academic Research: Complements or Substitutes?

Can a good blog help a young researcher gain tenure by improving her academic writing? Given our time budget constraint, you might assume that blogging and doing research are substitutes. But could the two activities be complements? The Becker-Posner blog provides one model. These prominent academics receive many thoughtful comments and Gary often responds to the better points and highlights how his own thinking on a specific issue has been affected by the comments.

While my blog receives no where near the number of comments that these superstars receive, I have learned from folks who have posted comments and I’ve sometimes been disappointed that they have been posted anonymously so I can’t contact the writer to start a discussion on the topic.

But suppose that a blogger received no feedback at all, could this activity improve one’s research? Given the “open source” nature of the web, I have sometimes been reluctant to write out some of my preliminary “half baked” ideas on my blog. I fear both being viewed as a fool for my silly ideas and being “robbed” of my good ideas. Thus, there is a selection issue of what serious academics actually choose to post. As I have said in the past, too much economic blogging is too close to day to day current events. The Economics Roundtable often reads like an extension of the Economist Magazine.

Returning to my core point, a good blog could help its young author gain tenure if it helped the author focus on what are core questions that people care about. From my site meter, I can see specific patterns of what interests people on “environmental and urban” topics and what people don’t care about. If journal editors are people (and they certainly are), then the site meter could actually be used as a leading indicator of what research questions to focus on at the margin.

Blogging improves one’s writing ability and this leads to better intros and conclusions of research papers. In attempting to grab folks’ attention, the blogger is forced to be clear and concise. This can’t be a bad thing for an academic.

If blogging is addictive, if bloggers use it as a procrastination tool then of course it will displace research.

Sunday, October 09, 2005

Limits to Growth --- Cut Off the Water!

Urban economists have recently examined how housing supply regulation affects home prices. In particular, supply side restrictions especially when implemented in highly desirable locations drive up home prices (see For empiricists, the tricky thing is how to identify a “supply side” restriction. The New York Times today provides a clear example!

One Town Stops Time by Turning Off the Water By FRED A. BERNSTEIN Bolinas, Calif.

“BLESSED with a quaint downtown and some of the most impressive scenery on the Pacific coast, this town is largely unknown even in San Francisco, just 20 miles south. To keep that from changing, residents have a habit of tearing down highway signs that so much as mention Bolinas.The same urge to remain pristine has led to one of the most extreme anti-growth policies in the nation. For more than 30 years, Bolinas has refused to authorize a single new water meter, needed for hooking up to the town water supply. There are now 580 meters - the same as in November 1971, when the moratorium began.

That has made water meters the most valuable currency in town. And so late last month, a water meter was auctioned for $310,000. For that, the buyer didn't get a house, or even land on which to build a house - just the right to hook up to the municipal water supply, which comes from the Arroyo Honda, a spring-fed creek about five miles north of town.”

The auction might seem to be an example of profiteering, except that it was conducted by the nonprofit Bolinas Community Land Trust, which received the meter when the county condemned a house in town. The group has promised to use the money to finish turning an old service station in the center of town into affordable housing.
But if Bolinas is a place where in many ways time has stood still, real estate prices have not. According to B. G. Bates, a real estate broker, the seven houses on the market right now range in price from $920,000 to $8 million. The $920,000 property is a 1,200-square-foot cottage on less than one-fifth of an acre.

Even the likelihood that a house will fall into the ocean doesn't deter buyers. A house on an escarpment that geologists say is likely to collapse within the next 10 years just sold for $650,000, according to Ms. Bates. The buyer bought a separate plot of land, in another part of town. That way, if the house becomes uninhabitable, he'll have a place to connect his water meter.

As in many upscale American communities, workers - including teachers, firefighters and police officers - say they can't afford to live among the people they serve. Mr. Tremp said the price established by the water meter auction is a stark reminder of the affordability gap. "There aren't too many jobs in Bolinas that will let you buy a half a million dollar water meter," he said. "It's very unfortunate."

On the other hand, "if there weren't growth controls, this would be just another huge suburb," said his wife, Lauren Pollak, a local elementary school teacher. She added: "It's a huge dilemma."

Saturday, October 08, 2005

Is the Nobel Prize Overrated?

Suppose that Kahn won the Nobel Prize, I would love to be handed a million dollar check and receive a nice write up in the New York Times praising my past research. For one day, my mother would be quite proud of me. But think about it, why is this Prize so prized? Why do academic economists get so excited about this prize announcement each October?

The typical winner has been a tenured faculty member at a leading research institution for 30+ years. He knows that he has made a major contribution to research and he probably made this contribution a long time ago. He knows that his colleagues know that he is a heavyweight. So, why do these guys yearn for a “pulse” to remind everyone of what they already knew? Are neo-classical economists really “keeping up with the Joneses” envious people such that we need to remind everyone how smart and special we are?

Do economists yearn to win this prize to impress their friends who are not economists? To increase their consulting fees? To rub their academic enemies faces in the mud and get the last laugh with respect to old unsettled debates? To remind the next generation of economists who may have heard of the Winner but has never actually read any of his papers of his continued greatness?

Winning this prize can actually distract you from continuing on with your current mundane research agenda. The Nobel Prize winners are viewed as having an IQ = 300 and thus can comment on any issue. Forget comparative advantage.

Does the Nobel offer immortality? As the stock of winners converges to infinity this seems less likely.

Who are these Swedes who actually makes the decision concerning who merits a Nobel Prize? Vague information is provided at this website.

Contrast this mysterious process with how the Clark Medal is Determined. Here is the current Committee that determines Awards and Honors.

Avinash Dixit, Chair Chuck Manski
Lars Peter Hansen Andrew Postlewaite Kenneth S. Rogoff
David K. Levine James Poterba Christina Romer

This looks like an all star cast of relatively young active researchers. Each of them are major stars in their sub-fields. For some reason, the Clark Medal merits almost zero coverage while folks go gaga over the Nobel Prize.

The real reason that we celebrate the Nobel Prize is because we know it is a salient event. It is the one day a year when "regular joes" think about academic economics. This is our one day a year where we can actually teach people some of the big ideas of economics by fleshing out the contributions of the New Laureates. This is what I do in class and what I talk to my parents about.

Thursday, October 06, 2005

Harvard Budgets for an Expensive Winter of Heating

How will New England's middle class and poorer families change their spending patterns this winter when heating bills are higher than usual? These families could follow Harvard and increase their budget allotment to such costly fuels.

"In the wake of rising natural gas and oil prices magnified by Hurricane Katrina, Harvard has raised its budget for heating for the upcoming winter to $3.4 million, compared with $3.1 million budgeted last year.

According to Faculty of Arts and Sciences (FAS) Assistant Dean for Physical Resources Michael Lichten, the College went over budget last year and actually spent $3.3 million on heating, so the actual cost this winter might be even higher.

“We are in the process of looking at how the various rate increases in natural gas and oil will affect our budget,” Lichten said.

"Lichten suggested that students keep windows closed when the heat is on, turn off lights, computer monitors, and computers when not being used, and take shorter showers."

THIS LAST paragraph is midly interesting. These students face a zero marginal cost of using such lights and electricity and water. They have no financial incentive to conserve. The Deans do not give them a tuition discount if they consume less. Will these kids consume less? If consumption is done in public then in environmentalist dorm communities, shame could be used to encourage conservation.

Wednesday, October 05, 2005

The Environmental Benefits of Competition

The New York Times Editorial Page usually focuses on saying something critical about President Bush. Today the Times was kind enough to focus on the environmental benefits of competition, corporate experimentation and avoiding "group think".

October 5, 2005 Running on Empty (New York Times Editorial)

"For years critics have been saying that a reliance on gas-guzzling but profitable sport-utility vehicles could not keep American car manufacturers afloat forever. On Monday, sales figures for the month of September came out, suggesting that the day of reckoning may be at hand. Large S.U.V. sales were down 43 percent last month from a year earlier. Automakers, of course, pointed a finger at Hurricane Katrina's effect on gas prices. But the explanation is really larger - a total failure of long-term planning.

Toyota's strategists and engineers had no idea what the 2005 weather would bring when they started working on a "21st century vehicle" in 1994. But they certainly realized that a more fuel-efficient car might be one way to succeed in a competitive market. They dedicated the resources and rolled out their first hybrid in 1997. The company spent a reported $800 million developing the Prius, ending up with roughly 650 patents on the technology. It took a little while to catch on, but Toyota nurtured and improved its product until the moment came when the new idea would finally take off. The moment has come. Prius sales were up 90 percent in September.

It's important not to fall back on stereotypes of "good" Toyota with its Prius, and "bad" General Motors with its Hummer. Toyota is a business and not an environmental charity. It sells Land Cruisers and Sequoia S.U.V.'s, both of which suffered right along with American behemoths last month, when consumers turned their backs on oversize vehicles. But Toyota had diversified with a large bet that a new product could be profitable.

G.M. says it will introduce hybrids next year. Ford expects to produce just over 20,000 hybrids this year, and plans to build 250,000 annually by the end of the decade. Meanwhile, Toyota is already doing it."

OIL DRUM and other "peak oilers" assert that a day of recokoning is approaching because we haven't taken self protective actions to economize on fuel consumption. For profits such as these companies are making these investments and if the Times is right Toyota is making money from their daring investment.

Urban Quality of Life and Crime in NYC

Here are some data from the New York Times documenting crime progress in New York City in recent years. The data also shows that NYC compares quite well with other major U.S cities. Detroit is the "Murder Capital" of the U.S with a murder rate over 5 times as high as NYC.

One of the freakonomics authors wrote a very nice paper on the consequences of crime This paper documents that educated people "vote with their feet" and suburbanize when urban crime is high. So, the reverse is also true. As crime declines in this major city, the rich and the skilled want to live there. This is a major reason why New York University and Columbia's faculty recruiting rates have increased recently. I was wrong about the long run consequences of 9/11/2001 -- I thought this shock would reduce the skilled's demand for living in such high population density.

With crime low, with the educated eager to live and work there, home prices have soared. Quality restaurants and cultural amenities have an incentive to invest in quality upgrades knowing that high income consumers could be lured. This "virtuous cycle" only improves the city's quality of life. The only "losers" from this cycle are the middle class who will feel the squeeze of rising rents caused by gentrification.

Tuesday, October 04, 2005

Columbia University’s Rise: The Role of Urban Quality of Life and Power Couple Co-location

New York Magazine has a great article about the recent success of Columbia’s Economics Department

The article highlights the hard work of the Department Chair and the commitment of resources by the University to fund the Economics Department. The article stresses the co-ordination problem that great economists want to be in departments with other great economists so a school with lots of money but few great economists will have trouble initializing the process.

In exploring Columbia’s rebound: the article under-emphasized:

1. The co-location problem --- it looks to me that almost all of their hires had major co-location problems and big cities solve the co-location problem. Read my paper Power Couples, The Locational Choice of the College Educated 1940-1990 (joint with Dora Costa) , Quarterly Journal of Economics, 115(4) November 2000, 1287-1315.

2. The role of quality of life --- unlike in the 1970s and 1980s, people now want to live in New York City. The issues were the public schools and crime. Crime is down and Columbia is trying to address the school issue by building its own kids schools.

3. Note that the article does not have a “control group”. NYU is such a control group and the place is booming. Based on this data sample of N=2, all rich schools in NYC are experiencing sharp improvements in their economics departments.

4. The article does not mention competition. When NYU got Tom Sargent and this initialized their process of recruitment and expansion, did this “scare” Columbia into investing more in economics?

The challenge such a department will face is that it is “not organic”. These folks have been brought in together at the same time and whether they have good chemistry across their research groups remains to be seen.

Monday, October 03, 2005

The Environmental Benefits of Population Growth?

Gary Becker has posted a concise optimistic statement on his blog that all “Oil Drummers” should read.

“Neo-Malthusians who fear larger populations typically stress the effects on pollution and on the demand for non-renewable resources, like oil and natural gas. Clearly, the demand for fossil fuels and other non-renewable resources grows with population as well as with economic development. However, during the past 150 years, the real price of fossil fuels like coal and oil fell rather than increased as world population exploded, and additional economies prospered. More efficient use of fossil fuels and discoveries of new reserves of these fuels, and innovations that produce alternate sources of energy, like nuclear power, explain why prices of fossil fuels did not rise along with population and industrialization. Larger populations stimulated the search for new resources and new sources of energy because they increased the market for these discoveries (for the reasons I gave earlier about the positive effect of larger populations on incentives to innovate). That is, while larger populations use up fossil fuels, they also stimulate the effective supply of these fuels and of substitutes.

Obviously, given per capita incomes, larger populations also tend to produce greater pollution both locally and globally as more cars are driven, industrial output rises, and more homes burn fuels. Yet it is well documented that local pollution eventually begins to fall rapidly as countries develop and their populations increase because of new discoveries that reduce pollution, and also because a larger share of the incomes of richer countries is spent on controlling the output of pollutants.

I believe the same will happen to the risk from global warming. Not only will countries impose greater restrictions on output of greenhouse gases, as in the emission trading system of the European Union, but probably even more important will be the development of new ways to absorb C02 and other gases from the atmosphere.”

MY one caveat with Gary’s statement concerns the obvious point that most of the population growth is taking place in poorer nations and that these folks are “trapped” in these nations because of immigration restrictions. I would want to ask Gary, “Would you be less optimistic if population growth took place in a poor nation whose population has little prospect of receiving a good basic science focused education?” In this case, these new people will not have the purchasing power to stimulate new R&D. In addition, such a nation would be less likely to produce an Einstein. Finally, such a large uneducated population would increase the scale of consumption that environmentalists fear so much. He would probably respond that if these poor nations adopt secure property rights and reduce the size of the state and foster competition that these nations would experience per-capita income growth and then their population growth would offer environmental benefits for the reasons he sketches above.

Saturday, October 01, 2005

A "Kuznets Curve" for NYC Deaths From Fires 1947 to 2000

Many environmental economists are fascinated by the Environmental Kuznets Curve hypothesis. This idea claims that economic development is "foe" and "friend" of urban environmental quality. For environmental indicators such as indoor air pollution or ambient lead concentrations, urban development first leads to environmental degradation but beyond some turning point this theory claims that further development leads to environmental progress.

How could there be such a non-linear relationship between economic development and urban environmental quality? Go read chapter 3 of my new book; "Green Cities: Urban Growth and the Environment" available for a low price in .pdf form at

What I want to say here is that I found another suggestive example of EKC evidence for a distinct "environmental" indicator. In this case, deaths from fire in New York City over the years 1947 to 2000. Note the non-linear relationship with the rise and fall.

Why has fire deaths followed this pattern? Improved 911 response times? Improved building materials? Better fire fighting techniques?

The Decline in the Percent of Employment in Manufacturing

This week's Economist Magazine has a piece on recent trends in manufacturing. In richer nations, a declining share of workers are employed in this sector. Is this good or bad?

To cite one good blog; " It's not clear to me that a shift of employment from manufacturing to services makes all workers better off, so I'm not willing to follow The Economist and conclude it is necessarily a good thing."

1. This blogger is setting a very high hurdle for determining what is "good". Usually economists use a hicksian pareto optimality criteria which says that a shock (such as a decline in manufacturing) is "good" if the winners from the change win more than the losers lose. In this case, in theory, the winners could compensate the losers for their losses and everyone could be made better off.

2. My read of the Economist and Mark Thoma's blog is that both ignored an important externality benefit of this sectoral shift. Environmental quality improves as manufacturing declines. Within the manufacturing sector, some industries such as steel and chemicals are dirtier than others but on average service sector creates less air, water pollution than manufacturing.

As manufacturing declines, I predict that the oldest least productive plants are closed first. These production plants tend to be the dirtiest plants because their technological vintage is old and they are often grandfathered by regulation that treats "new sources" differently than pre-existing pollution sources.

3. Many labor economists have documented that manufacturing jobs pay better than service jobs and this distributional effect should be accounted for when judging whether this sectoral transition is "good"

As economists, our job is to focus on efficiency --- urban manufacturing decline is a "good thing" because it sharply reduces urban pollution externalities in densely populated places where millions of potential "victims" live nearby.