Thursday, June 28, 2007

Beauty in Wealthy Cities: Nature or Nurture?

I was wondering why everyone looks so good in Los Angeles? Is it selection? Attractive people move here to try to make it big in various entertainment industries? Or is it treatment? This article below emphasizes the second theory. The treatment isn't the sun and fresh air! Instead, the treatment is every piece of specialized investment one could make to look young and fresh. Adam Smith should forget the boring pin factory and study specialization and the extent of the market in the "beauty production" industry. Note that these highly specialized fields could only be offered in a rich, large city that can guarantee high expected demand for such services.

Note that the article doesn't quote any dudes. Could guys really be investing zero in beauty upkeep? I see a lot of dudes with perfect white teeth and full heads of hair in Los Angeles? I must again --- selection or treatment?

It is true that this article is published in the fashion section of the Times and most dudes don't read this section but I'm looking for "fair and balanced" coverage in my newspaper!

Economists seem to care less about their physical appearance than other people. Maybe we are wrong -- maybe we have the wrong status function valuing general journal publications much more than being thin? We write down signaling models but many of us are sending some funky signals about our priorities. I'm now thinking of doing some situps!

June 28, 2007
Skin Deep
Beauty Regimens Reach for the Gold Standard


IN a city that considers 25-year-old actresses aged and those over 45 practically ready for pasture, a woman who spends 10 hours and $1,000 a week on beauty treatments to maintain her looks does not view herself as unusual.

“I get my hair blown out every two days, I get a manicure every week and I have just started this new electrical-current thing twice a week for my thighs,” said Ginger Grace, a real estate agent here who was having her hair colored last month at The Salon by Maxime on North Rodeo Drive.

Tall, blond and toned, Ms. Grace, 40, said her maintenance routine also includes frequent facials, eyebrow waxing, a personal trainer, a hiking coach and the occasional Botox injection or tanning parlor session, a beauty program that she considers to be minimalist by local standards. “I am probably the only person in Los Angeles who doesn’t see a chiropractor, an acupuncturist or a nutritionist, but it’s so youth-driven here that maybe I should.”

For a coterie of professionals like Ms. Grace in major cities across the country, the standards of upper-middle-class beauty upkeep are moving stratospherically higher. Although women have long engaged in grooming activities to attract romantic partners and to compete in the work force, the increased availability of nonsurgical options like wrinkle injections and skin-smoothing devices — along with the explosive proliferation of nail salons and spas — has shifted the beauty norms, making grooming routines more elaborate, more time-consuming and more expensive.

“We have more procedures than we did 10 years ago to help you maintain your appearance and to undo some of the damage you did to yourself by sitting in the sun,” said Dr. Flor A. Mayoral, a dermatologist in South Miami. Dr. Mayoral said that she asks every new patient the size of her yearly beauty budget and works within the limits. She estimated that many of her patients spend $2,400 a year on facial injections and $2,000 a year on hair coloring.

Lisa Oliver, the head colorist at The Salon by Maxime, calculated that her clients spend even more on grooming.

“Depending on how much Botox and the pricier stuff you get done, when you add in hair care, nails, face and body, it’s got to be between $2,000 to $3,500 a month,” Ms. Oliver said. In Los Angeles, she added, such grooming is considered basic maintenance.

“If you are high maintenance, you could spend a lot more money,” Ms. Oliver said. “I can think of a couple of people where $3,500 a month might be low.”

It may seem shocking that some women are prepared to spend as much — or more — a month to try to keep the physical signs of age at bay as other Americans spend on rent. But beauty spending is not limited to business executives.

In a survey conducted for her forthcoming book, “Going Gray,” to be published in September, Anne Kreamer found that women who earned $25,000 to $50,000 a year spent an average of $60 a month just on hair color.

Manisha Thakor, a financial analyst and co-author of “On My Own Two Feet: A Modern Girl’s Guide to Personal Finance,” said that because beauty treatments are intangible purchases — they don’t stack up in the closet like shoes — women may not notice them mounting.

“If you took that $100 a month you are spending on manicures and pedicures and invested it starting at age 25 in stocks that went up 10 percent a year, you would have over $500,000 by the time you were 65,” Ms. Thakor said. “That makes the monthly $100 look like phenomenally expensive manicures.”

But Dr. Mayoral in Miami said that, for many professional women, beauty upkeep is a business expense.

“Some women feel that they can’t look older and unkempt, that they have to look groomed,” she said. “You are competing with other women who are doing exactly the same thing.”

Following is a sampling of women in different cities who agreed to share their beauty regimens.

Ginger Grace Before Ms. Grace moved to Santa Monica from New Mexico 17 years ago, her beauty routine involved no more than coloring her hair every six weeks. Now she says she has several facials a month, a weekly manicure and twice-weekly eyebrow grooming.

“L.A. is very ageist and very beauty-driven,” she said. “I think anybody here would do anything to look young.”

Sitting under a dryer last month at The Salon by Maxime in Beverly Hills with her hair sectioned off in foil, Ms. Grace calculated that she now frequently spends 10 hours and $1,000 a week on personal grooming.

She is not just driven by social pressure, she said. Beauty treatments like Botox and hair color help her maintain an advantage as a real estate broker.

“My field is highly competitive,” Ms. Grace said. “Clients pick you more or less for your style and appearance.”

The facials and thigh treatments help boost self-confidence, but it is the thrice-weekly hair blow outs that are nonnegotiable, she said.

“If I have a client I’m showing a lot of houses or if I am in escrow, I will drop all the beauty stuff except for the blow out, which I will get no matter what,” she said.

Ms. Grace said her immaculately kept hair, skin and nails are intended to convey to clients that she is well groomed but not high maintenance.

“I try to appear like I am not trying too hard, to look like a relaxed natural,” Ms. Grace said. “But of course, I am trying very hard.”

Maria Eugenia Blanco For Ms. Blanco, 47, an architect from Coral Gables, Fla., who designs high-end homes, Miami is a city with high expectations for physical appearance.

“In other cities, winter is wonderful because you wear a big coat and a hat and a sweater and nobody knows whether you are overweight because all they can see is your eyes,” Ms. Blanco said. “In Miami, there are a lot of Latin women who are very concerned about how they look, and there are a lot of beaches and bathing suits and you are naked half of the year.”

Running from one construction site to another, Ms. Blanco said, she does not have time for an elaborate beauty routine that involves a lot of different weekly appointments.

And her work environment, which leaves her splattered with mud and paint samples, does not require a glossy self-image, she said. But when she turned 45 and noticed her face begin to change, she found herself at Dr. Mayoral’s office for nonsurgical cosmetic procedures.

“After you hit 45, things start changing from one day to the next,” Ms. Blanco said. “It is like an avalanche you never expected.”

She now opts for the occasional dermatological treatment like Botox injections and Thermage, a radio frequency device that is supposed to tighten the skin, she said.

Ms. Blanco said the treatments help maintain her self-confidence.

“I want to look healthy and feel good about myself,” she said. “I want to look refreshed, but not in an exaggerated way.”

Amy Krakow Twice a week, Ms. Krakow, 57, who owns a public relations company in New York that specializes in design and food, visits a sports medicine clinic on the Upper East Side for a 30-minute session in a hyperbaric oxygen chamber.

She believes the oxygen inhalation treatment, originally developed for deep-sea divers with decompression sickness, helps keeps her skin baby soft, she said.

“I’m convinced that the hyperbaric chamber is better than an oxygen facial because the oxygen is going internally,” she said last week as she clambered into a hard-sided blue capsule that resembled a coffin. “It also speeds up your metabolism so you lose weight faster.”

Ms. Krakow said treatments like the hyperbaric chamber, along with plastic surgery procedures that she underwent on her face and torso, help her stay competitive in a youth-driven profession.

“I am in an image business,” said Ms. Krakow, a petite blonde with an eclectic style that embraces both Fendi handbags and Yohji Yamamoto backward jeans. “Plus I am up against people a lot younger than me, and that is critical.”

To make time for manicures, hair straightening and Botox injections, she gets up daily by 6 a.m., she said.

Expenses for the treatments can add up.

“I just spent $411, an astounding sum of money, on a facial and skin care products, but my skin looks spectacular,” she said. “I have nice skin, so why not keep it that way?”

Ms. Krakow said the effects of the procedures have been noticed.

“It’s nice to have a guy in his 40s tell you you look hot, because you don’t necessarily feel that way as you get older,” she said.

Ms. Krakow said that she stopped getting artificial nail tips a few years ago because she found them too time-consuming to maintain. But she is considering other beauty treatments.

“I’m thinking seriously of tooth veneers,” she said. “I think that’s next.”

Tuesday, June 26, 2007

Berkeley Energy Conference "Summer Camp"

I am in Berkeley at an energy conference at the UC Energy Institute. The 5 day meetings are called a "summer camp" and the weather and group spirit makes it feel this way. The meetings are making me feel mildly youthful and enthusiastic about this subject matter. Given the importance of energy issues, it is surprising that not more economists have been working on the topic.

Some top economists such as Severin Borenstein, Michael Greenstone and Frank Wolak have been participating and it has been great to talk to these guys about energy issues. In addition, this conference has attracted many young stars presenting their current work. This camp is a little bit like the NBER Summer insitute but its scale is smaller and everyone is focused on energy issues while the NBER meetings are intellectually sprawled across many subjects even within a specific category such as "Labor Studies" or "Aging".

On friday, I will speak for 20 minutes about a new paper of mine melding some ideas from behavioral economics with some work on energy consumption. I'm ready to take my beating because this idea is clever!

What do People Do all Day in the Modern Downtown City?

In the good old days, all jobs were downtown and all people lived downtown close to the jobs because transportation costs were too high to allow people to live further from employment centers and enjoy cheaper land. This society would have a small ecological footprint but its residents would be exposed to plenty of air, water and noise pollution and risk of disease from contagion. Transportation innovations allowed population to suburbanize. Information technology innovations have allowed major chunks of firms to suburbanize. In an age of google and other companies located in suburban campuses and hedge funds based in the suburbs, who must work downtown? Why does it matter if high amenity downtowns such as Vancouver's transition to being all residential homes?

One serious answer to this question is that people won't be able to walk and bike to work if they live downtowns and their jobs are in the suburbs but concerns about the sustainability impacts of such job trends can be addressed through congestion pricing and encouraging a greener vehicle fleet.

Somehow, not everyone agrees. Here is a blogger who thinks that some of my ideas come from my rump!

This gentleman would have to explain to me what is the negative externality (that threatens Vancouver's quality of life) that is exacerbated by more condo growth? What are the urban benefits from subsidizing commercial activity? In New York City, does Goldman Sachs or the New York Yankees really need a subsidy to stay at their current location?

Why is this dude afraid to live in a "consumer city" that celebrates its identity and doesn't pretend to be an epi-center of any specific industry such as car making or movie making or oil refining?

Saturday, June 23, 2007

LA to Vancouver to Berkeley

Last Wednesday morning I left Los Angeles to fly up to Vancouver. The flight was easy but when I was in the Vancouver airport trying to pass through customs I got stuck in a 2000 person line. Apparently, it is cruise ship season and every person trying to take the Love Boat to Alaska was there with me. How did I respond to this congestion? I called my wife and asked her to read me my email over the phone. She was more than happy to do this because I think she was looking for an opportunity (and my password) to see what silly stuff I receive in the mail. Unfortunately for her, she found my inbox filled with boring stuff. Fortunately for me, the crowd of people waiting to clear customs was getting angry like a crazy mob. Finally, they added many more customs agents and I got through.

On wednesday night in Robson Square in downtown Vancouver, I participated in a 200 person event that featured Will Strange, myself and Brent Toderian. Brent is an important guy. he is Vancouver's director of planning. I told him the truth that my mother had always hoped that I would be a city planner and perhaps become Newark New Jersey's head planner. I guess I haven't lived up to her hopes.

To Brent's credit he made a number of reasonable points at our debate. The debate was about the question of what Vancouver's downtown should look like in 20 years. Does it matter if people love to live and play with Vancouver but that there are few employers downtown? In this age of employment suburbanization and reverse commuting should commercial employers receive rent discounts and special zoning to keep them downtown?

Brent thinks the answer is yes and I think that the answer is no. I was shocked by the statistics people were quoting that 60% of downtown vancouver people walk to work. That's pretty green!

The next day I participated in a 2 day urban/real estate conference at UBC. Some of the world's best urban researchers were there and it was great to see them and to receive comments on a new crazy paper of mine.

That night, I went out to West Vancouver and saw a great new house that my friend Jack has built at the base of a mountain. Jack and I went to the LSE together 20 years ago and were in the same econometrics study group. He told me that the Vancouver housing market has experienced so much appreciation that many guys have quit their jobs to work 100% of the time on upgrading their homes since this earns a higher rate of return than merely working for the man!

After the conference, I have now flown to Berkeley. Like Berkeley, Vancouver is proud to be a "nuclear free zone". I'm not sure what that means but it is good to be here. The figs I bought at the farmer's market were a lot fresher than what you can buy for twice the price at Whole Foods!

Why am I telling you all of this extraneous detail? (and why are you reading this?)
I view this as a diary that I'm hoping my son will read when he is older and I'm too senile to remember any of this stuff that I saw and did. I wish my father had kept a blog but he is a key doctor in new york city and his time was better spent taking
care of patients rather than scribbling.

Tuesday, June 19, 2007

A First Time for Everything: My News Radio Debut

As a young man, I was on Wall Street Journal Asia's Television channel being interviewed on how New York City's ban on smoking would affect the flow of asian tourists to NYC. Today, I made my radio debut on Vancouver's In truth, when I was a student at Hamilton College I was a DJ playing classical music and sometimes classic rock at WHCL in Clinton but I didn't talk much on the air. I just played the albums assuming that nobody lived within 25 miles of Hamilton College and even if they did live there --- they weren't listening to my groovy show.

Tonight, I was interviewed by a smart guy named Michael Smyth. He must be a versatle thinker because he has to jump from topic to topic. Once he was done talking to me about condos versus commercial land use in downtown Vancouver he had to do a segment on the murder of a local popular athlete.

A friend of mine at UCLA's media office has asked me to consider doing some television media segments but if you could see me you'd know why I prefer radio as my medium!

Three Cheers for the Vancouver Sun

I have a new favorite newspaper. My only regret in this article is that I didn't do a good job discussing "Superstar" cities and San Francisco. Even I know that San Francisco's middle class is being hollowed out by gentrification. You would have to be quite open minded about what the words "upper middle class" mean below.

Tonight at 8pm pacific time, I'll be on
The World Today & Nightline BC CKNW NewTalk 980

to discuss these issues. I have a face for radio ---- let's see if I make any sense!

Get ready for a new-look downtown
Sauder Business School arranges 'Condos versus offices' debate

Frances Bula
Vancouver Sun

Tuesday, June 19, 2007

Vancouver's 19th-century downtown is on the way out.

Instead, the city's 21st-century downtown is very likely to be a mix of residences for highly skilled local professionals and second homes for rich people from elsewhere, along with a tight core of office space for high-end dealmakers and a scattering of services for all those groups of people.

That's the provocative future UCLA economist Matthew Kahn is going to discuss this week in a debate the University of B.C.'s Sauder School of Business has put together on the controversial question of "condos versus offices" in downtown Vancouver.

"There's certainly a possibility that there's been a resortification in Vancouver," said Kahn, in an interview from San Francisco. "But why is that bad?"

The city currently has a moratorium on residential development in part of the downtown next to the central business district that was put in place after rising concern from business groups and commercial brokers that office space was under threat.

But Kahn said Vancouver could be evolving into what San Francisco already is -- an attractive downtown that is largely a home to the upper middle class.

"In San Francisco, no one is worried about its health."

He also pointed out that Vancouver is experiencing the same trends that have been documented in other North American cities. As the price of land goes up, firms leave their deal-makers downtown but move the bulk of their back-office work out to the suburbs.

Some cities, like San Francisco or New York or Vancouver, are then able to attract people to live in their "consumer downtowns."

And there's nothing wrong with that, says Kahn.

From an urban economist's point of view, it's an advantage to be able to attract skilled professional people to your downtown. Those people will then either accept slightly lower wages in order to work close to where they live, and firms that can save money on wages will be willing to spend it on the cost of space downtown. Or they will reverse commute to the suburbs.

From a public-finance economist's point of view, having about 15 per cent of residential space downtown taken up by second homes for wealthy people from elsewhere is also a benefit.

"It's a free lunch, with these people moving in, paying taxes, and demanding no services at all."

The businesses that remain downtown will be those that can survive with a minimum of space or the ones that keep their high-ranking people downtown while the rest of the work moves out to the suburbs.

"There's still a demand to be downtown for the power lunch," says Kahn. As well, there will be many jobs in the arts, culture and retail sectors that serve that downtown community.

Along with Kahn, others debating the future of Vancouver's downtown will be UBC professor Robert Helsley and Vancouver's planning director, Brent Toderian. It will be held Wednesday at UBC's Robson Square campus from 5 p.m to 7:30 p.m.

Tsur Somerville, the UBC professor who organized the panel, said he decided to tackle the topic because "people are concerned about what the downtown is going to look like." However, at the moment, the debate has been limited mostly to business groups arguing for more office space and residential developers arguing for more room to build condos.

"Urban economics tend to have a long view and a different perspective."

© The Vancouver Sun 2007

Copyright © 2007 CanWest Interactive, a division of CanWest MediaWorks Publications, Inc.. All rights reserved.

Monday, June 18, 2007

Political Business Cycles and Green Investment Delays Due to Uncertainty

Suppose that investments in renewable energy plants such as wind power or solar is costly requiring large sunk upfront investments (think of wind turbines). Would a profit seeking business person make such an investment if she is unsure about who will win the 2008 Presidential election? To make things simple, suppose that the business person is sure that if a Democrat wins the Presidency in 2008 that there will be "green subsidies" while if a Republican wins in 2008 that there won't be subsidies for renewables in 2008.

You don't have to be Dixit or Pindyck to predict that firms will delay investing until the uncertainty has been resolved. Are their social consequences to such individually rational delay? Would renewable progress and learning by doing have been greater had government sent clear signals to energy sector executives contemplating what investments to make?

As an empiricist, I don't know how to test this conjecture so I figured I should simply blog about it. The key counter-factual concerns; "would there have been greater green investments in renewables now if business thought that incentives for green power would be offered by the federal government consistently over the next 25 years?"

June 18, 2007
Democrats Press Plan to Channel Billions in Oil Subsidies to Renewable Fuels
WASHINGTON, June 16 — Senate Democrats are seeking a major reversal of energy tax policies that would take billions of dollars in tax breaks and other benefits from the oil industry to underwrite renewable fuels.

The tax increases would reverse incentives passed as recently as three years ago to increase domestic exploration and production of oil and gas. The change reflects a shift from the Republican focus on expanding oil production to the Democratic concern about reducing global warming.

On Tuesday, the Senate Finance Committee will take up a bill that would raise about $14 billion from oil companies over 10 years and would give about the same amount of money on new incentives for solar power, wind power, cellulosic ethanol and numerous other renewable energy sources. The bill is one of the signature issues this year for Democrats, along with immigration and the war in Iraq, and one in which they hope to clearly distinguish themselves from the Republicans.

But Senate Democrats are expected to go beyond the $14 billion in tax changes in the draft bill. Democratic officials said the committee is all but certain to adopt a proposal by Senator Jeff Bingaman of New Mexico that would raise $10 billion from companies that drill for oil and gas in federal waters but do not currently pay royalties to the government.

“We are cutting back subsidies for the oil and gas industry and using that money to finance the development of new and cleaner sources of energy,” said Mr. Bingaman, who plans to attach the entire tax package to the energy bill on the Senate floor next week.

It is unclear how much President Bush or Republicans in Congress will fight the proposed tax shift. The ranking Republican on the Senate Finance Committee, Senator Charles Grassley of Iowa, has already endorsed the $14 billion package.

But the plan could easily founder because of opposition to any one of many hotly disputed provisions in the broader energy bill. Just last week, a threatened filibuster by Republicans forced Democrats to postpone a floor vote on requiring electric utilities to produce 15 percent of their power from renewable fuels. The White House, meanwhile, has threatened to veto the bill if lawmakers do not drop a provision intended to prosecute what Democrats call “unconscionably excessive” gasoline prices.

Senator Charles E. Schumer of New York has proposed that oil companies be prohibited from using an accounting method called “last in, first out” for inventories that saves them as much as $5 billion in taxes a year.

Because Senate Democrats want to offset the cost of any new tax breaks with tax increases elsewhere, many lawmakers are pushing for even more tax raises from oil companies.

Oil executives are protesting loudly, saying that the proposed changes would take money away from exploring and drilling in the United States and increase the nation’s dependence on imported foreign oil.

“They talk about our companies as if they’re owned by space aliens,” said John Felmy, chief economist at the American Petroleum Institute, a trade association. “They talk about energy security, but these provisions could have the opposite effect in terms of reducing our production here and increasing our imports.”

The oil industry has ample reason to worry. With consumers seething about gasoline prices increasing to more than $3 a gallon and oil profits reaching record highs, oil companies would be short of friends in Congress regardless of the party in power.

Beyond the immediate jockeying, however, lies a bigger question: Is Congress putting taxpayers at risk by funneling billions of dollars in subsidies into alternative fuels that are still a long way from being profitable?

Indeed, industry experts said the Senate bill greatly understated the true cost of incentives for renewable fuels. Most of the incentives are set to expire at the end of 2009 or 2010, but Democrats in both the House and Senate have called for an increase in the production of such fuels by 2022. As a practical matter, the vast majority of “temporary” tax breaks are routinely extended once they are passed for the first time.

In addition to higher taxes for oil companies, House and Senate Democrats are hitting at the oil industry in other ways. The Senate bill would give the federal government more power to prosecute companies that engage in “price gouging” on gasoline prices, which is broadly defined in the bill as charging “unconscionably excessive” prices that reflect “unfair leverage.” A similar measure is moving through the House.

Separately, the House Natural Resources Committee passed a bill last week that would, among other things, crack down on companies that cheat on royalties they pay for oil and gas pumped on publicly owned land.

In effect, the various bills would transfer billions of dollars from oil companies to producers of renewable fuels.

The Senate bill would offer $5.6 billion in tax credits over the next three years for companies that produce electricity from renewable fuels like wind and geothermal power. It would offer tax-free bonds for new power plants with renewable or clean energy. It would offer tax credits totaling about a dollar a gallon to producers of cellulosic ethanol, and even bigger tax credits for “biodiesel” fuel. It would extend and expand tax breaks for plug-in electric cars and other vehicles that use alternative energy sources, and it would provide tax breaks for gas stations that offer renewable fuels.

In a nod to the politically powerful coal industry, the bill would also provide $1.5 billion in tax-free “clean coal bonds” for advanced coal-fired electricity plants and $332 million in tax credits for plants that make diesel fuel from coal.

Democrats in the House are moving with similar legislation. The House passed a bill earlier this year that would raise about $14 billion over 10 years from oil companies, and the House Ways and Means Committee is expected to mark up a new tax bill that would offer rich incentives for alternative fuels and increased efficiency.

The Democratic bill contrasts sharply with the energy bill that the Republican-led Congress passed in 2005. The Senate bill offers less than $1 billion in incentives for coal, no tax breaks for nuclear power and tax hikes for oil. But two years ago, Congress approved $11 billion in additional tax breaks, of which $7 billion went to oil, coal and nuclear power.

“It is a dramatic change in policy, targeted at the big oil companies,” said Senator Ron Wyden, Democrat of Oregon. “It will show the country the kind of things we can do by taking away subsidies for fossil fuels and putting the money into new sources of energy.”

Privately, some Democrats say it is payback time: the oil industry’s political contributions have overwhelmingly gone to Republican lawmakers and President Bush, and many Democrats say they have little sympathy for the industry now.

It is unclear whether Republicans or Mr. Bush plan to protect the industry.

In stinging criticism earlier this month, the White House Office of Management and Budget said the proposed price-gouging measure amounted to price regulation that would jeopardize investment in oil production and ultimately hurt consumers.

In 2005, Mr. Bush threatened to veto a one-year measure that blocked oil companies from using the “last in, first out” accounting method for inventories. The Bush administration, echoing charges by the oil industry, said the measure amounted to a one-year windfall profits tax that would frighten investors by raising the prospect of further tax raises whenever oil prices jumped sharply.

Mr. Schumer’s proposal is similar to the 2005 proposal, except that his measure would be permanent.

The oil industry still has persuasive clout in Washington. Exxon, Shell and trade groups like the American Petroleum Institute have hired former Democratic lawmakers and Democratic lobbyists to help press their case.

They have carefully positioned themselves, picking their fights on selected issues that attract fairly little popular interest but affect potentially large amounts of money.

The effort is mostly defensive — fending off tax increases — but also has offensive elements. Royal Dutch Shell and other big companies hope to be big players in coal-based liquid fuels. And the industry in general is still pushing for Congress to open up more areas on the outer continental shelf for deepwater drilling.

But industry executives hold out little hope for emerging unscathed.

Sunday, June 17, 2007

Green Hypocrisy? Self Interest and Opposition to Cape Cod Wind Power

This books sounds interesting. I've blogged before about the NIMBYism versus green power proponents going at it in Cape Cod. This book provides a detailed case study contradicting a pet theory of mine. Recently, I've grown interested in the idea that environmentalists are often "guinea pigs" for new green products. Their willingness to be the "first on the block" to try out a product offers social benefits in a world featuring learning by doing on the producer side and risk averse consumers on the buyer side. If there are enough green guinea pig buyers then producers can learn from their experience selling the 1st generation of the product to them (think of the first hybrid vehicles in 1999 versus today) and non-green consumers can wait and learn from observing the first generation of green products and reading "consumer reports" to see whether they are high quality.

In the case of wind power, Cape Cod could have been a leader demonstrating to the rest of the U.S the possibility of spreading this "green" option to other windy places but many Cape Cod residents are not interested in providing costly leadership here.

New York Times Book Review
June 17, 2007
Air Power

Money, Celebrity, Class, Politics, and the Battle for Our Energy Future on Nantucket Sound.

By Wendy Williams and Robert Whitcomb.

Illustrated. 326 pp. Public Affairs. $26.95.

If HBO is looking to develop a series based on environmental politics, then “Cape Wind: Money, Celebrity, Class, Politics, and the Battle for Our Energy Future on Nantucket Sound” is a natural for the option, with the Kennedys sitting in for the Sopranos, Nantucket Sound for the Meadowlands and phrases like “environmental impact statement” replacing “swimming with the fishes.” Cameos will include Elizabeth Taylor as the former wife of the anti-wind-farm Senator John Warner; Warner’s former mother-in-law Bunny Mellon, the nonagenarian Listerine heiress who decorated the Kennedy White House (behind the scenes) and helped establish the Oyster Harbors Club; and Walter Cronkite, who, as the co-authors Wendy Williams and Robert Whitcomb have it, starts out on the side of darkness only to turn toward the light, or in this case, the wind. The setting is Horseshoe Shoal, about five miles off the coast of Cape Cod, where, in 2001, an energy developer named Jim Gordon proposed what he still hopes will be America’s first offshore wind farm, an array of 130 turbines, 440 feet tall, that would create 468 megawatts of electrical energy, the only dangerous fumes being those emanating from the mad-as-hell multimillion-dollar homeowners on the Cape, Martha’s Vineyard and Nantucket.

Williams, a Cape Cod-based journalist, and Whitcomb, the editorial page editor of The Providence Journal, have set out to show the political machinations behind the gale-force resistance to the project. Offshore wind farming is not a particularly radical endeavor; like inner-city congestion pricing (to name another proposed measure that has raised a loud cry of opposition, in this case in New York City), offshore wind farms have been successfully implemented in Europe. In March, Spain managed to get 27 percent of its total energy supply from wind. Criticism of wind power has been mitigated by increasingly efficient turbines and more bird-sensitive placement. Considering the acid-rain-laced option of coal-fired energy and the lingering fear of nuclear power, wind would seem poised to become a major player in America’s alternative energy plans.

But not off Cape Cod, if the Alliance to Protect Nantucket Sound can help it. A great summer beach read about longtime summer beach communities, “Cape Wind” describes how the alliance managed to raise $4 million in one ballroom meeting at the Wianno Club, where the “grass-roots” campaign against the “industrial complex” of offshore “Cuisinarts” was kicked off by Douglas Yearley, a copper mining executive whose company was fined for killing birds in an acid runoff mishap in 2000, among other infractions. (With a 7,700-square-foot home on Nantucket Sound, Yearley, the 1993 Copper Man of the Year, was a sitting duck for wind-farm supporters when he praised “sustainable living” to a Massachusetts newspaper columnist.) Maneuvering quietly behind each anti-wind-farm maneuver, despite his often green legislation and his labor backers’ support of the energy project, is the senior senator from Massachusetts, who is accused of bogging down the wind farm in Congress, where today, having been approved by Massachusetts, Cape Wind is going through its last regulatory review hurdles. When told that the turbines would be only barely visible on the horizon from Hyannisport, Ted Kennedy is quoted (secondhand) as replying, “But don’t you realize, that’s where I sail.” Even Robert F. Kennedy Jr., a noted environmentalist, makes a bizarre appearance on a radio talk show, lumping the wind power proponents in with “polluters.” (If built, the wind farm could provide up to 79 percent of the energy for Cape Cod, Martha’s Vineyard and Nantucket, and cut down on the oil barges that have polluted the shores of Rhode Island.) The best the alliance can come up with are poorly disguised Nimby-isms that declare other places worthier of what the Martha’s Vineyard-based historian David McCullough calls “visual pollution.”

“Cape Wind” is less an argument for wind power than an indictment of our money-soaked political process, but the indictment suffers when Williams and Whitworth match the snarkiness of the alliance with snarkiness of their own. “It seemed as though the pastels crowd, normally adherents to the green-slacks-with-little-blue-fish craze, had dressed for war,” the authors note in describing an appearance by Mitt Romney, then the governor and now a Republican presidential candidate, at a press event in March 2005. Romney is portrayed as a tool of the alliance, a fallen would-be environmentalist who is hard on polluting power plants but ends up speechifying for the public’s beaches even though the beaches along Nantucket Sound are mostly private. Even for a wind book, there’s too much about Romney’s unrufflable hair.

And then there is their near-hagiographical portrait of Jim Gordon, the entrepreneur behind Cape Wind. “He would go for the sunshine, opt for the high road, take his case to the nation’s journalists and make sure everyone knew what was going on,” the authors gush. But painting the working-class, Boston-raised green power advocate too clean makes the reader wary, for no good reason. Besides, something about Gordon’s public relations strategy was obviously off, or maybe it’s a matter of public priorities. As The Boston Globe noted two years into the six-year (and counting) battle, the Danes brought in wind power as more of a public trust, with a farm just off Copenhagen’s harbor, the Danish government promoting it, subsidizing it, splitting ownership between the municipal utility and 8,500 individuals.

Scandinavians have also pointed out to the fossil-fuel-addicted public that wind power has been with us before, even in New York, where opposition is beginning to build to a wind farm on Long Island, off Jones Beach State Park. A few of the old windmills on Long Island are still there, antiques among the Hamptons’ over-air-conditioned mansions. There used to be one in Lower Manhattan too, on the site of what became the World Trade Center.

Robert Sullivan is the author of “Rats” and “Cross Country.”

Friday, June 15, 2007

The Future of Downtown Vancouver

Next wednesday there will be some real excitement in Vancouver. I'm coming to town to speak for at least 10 minutes on the broad issue of gentrification and the balance between residential land use and commercial land use in a "Superstar" city.

I hope to see you there.

Thursday, June 14, 2007

Pollution Havens, Asymmetric Information and Product Quality

Plenty of papers have been written about the rise of poor nations as pollution havens
as international trade grows. Less has been written about environmental problems suffered in richer importing nations if the products we import are of lower quality and can cause potential health problems because they of the materials used to make them.

Recently there was a scandal with pet food from China. If I remember correctly, the pet food that was imported by the U.S had dangerous chemicals in it. In this article below, children's play toys imported here have lead paint.

In both cases, the product maker in China knew that it is difficult for U.S consumers
to learn "the truth" about the product's quality. This asymmetric information provides an incentive for a business person to choose a low cost option. If lead paint is cheap, a business person may choose to use this input (rather than the higher cost safer paint) if he/she doesn't think she'll be held accountable.

The interesting issue here is whether in the pursuit of "low prices" have U.S consumers increased their exposure to low quality products that threaten their environmental health? If this is the case, what can government do to "protect" us?
Or is this task impossible to really do?

"Thomas and Friends" railway toys recalled Thu Jun 14, 10:28 AM ET

More than 1 million of the popular "Thomas & Friends" wooden railway toys made in China are being voluntarily recalled because some may contain lead paint, the U.S. Consumer Product Safety Commission said on Wednesday.

About 1.5 million wooden vehicles, buildings and other train-set parts for young children are being recalled, the CPSC said in a statement. The toys were sold in the United States from January 2005 through June 2007, the statement said.

Lead is toxic and can pose a serious health risk to young children who often put objects in their mouths. Children under 6 are most at risk.

The CPSC and RC2 Corp., the Oak Brook, Illinois-based company that imports "Thomas & Friends" toys, said there had been no reports of illness or injuries linked to the recall.

The recall of toys made in China follows a series of health scandals in the United States involving food, drugs and other products imported from China, from poisoned cough syrup to tainted toothpaste and pet food.

"Consumers should take the recalled toys away from young children immediately and contact RC2 Corp. for a replacement toy," the CPSC said.

Wednesday, June 13, 2007

De-Industrialization Has Greened Big Cities

Summer is the right time to be an academic. During summer, academics have few excuses for why they can't referee papers or revise their own papers. Last week, I made the mistake of trying to draft something short for a well known monthly business publication. A past leader of this magazine has run for president. His signature issue was reforming the tax code. Can you guess who I'm referring to?

I was just notified by an editor there that my submission was "yesterday's news" and they aren't interested in publishing it. They may be right about this but I'm not sure. If you read on, you can judge for yourself. Perhaps the American Idol way of determining what is "great" should be adopted by the popular media and take the power away from sinecured editors? I'm not advocating this for the AER, JPE or QJE! I'm talking about the popular media!

De-Industrialization Has Greened Big Cities
Matthew E. Kahn

In 1969, 23% of the New York metropolitan area work force worked in manufacturing. By the year 2000, manufacturing’s share of the metro area’s total employment had shrunk to 8%. Over these years, the New York metropolitan area’s total job count grew by over 2 million but manufacturing employment shrunk by over 1 million jobs. New York is not alone. Similar patterns are observed in older cities such as Chicago, Philadelphia, and Pittsburgh. These three metropolitan areas lost 890,000 manufacturing jobs between 1969 and 2000. New York, Pennsylvania, Illinois, New Jersey and Ohio experienced a reduction of 2.9 million manufacturing jobs over this time period.

The deindustrialization of big Northeast and Rust Belt cities stands in contrast to the nation as a whole. Total employment in manufacturing barely changed between 1969 and 2000. In 1969, there were 20.5 million manufacturing jobs and in the year 2000 there were 19.1 million national manufacturing jobs.

If manufacturing continues to employ many people but it is rapidly declining in older big cities, where is it going? Between 1969 and 2000, there has been a net manufacturing job growth of 1.2 million jobs in Texas, Arizona, Minnesota, Georgia, Colorado, Arkansas, Washington, Utah, Kentucky and Oregon. These facts highlight that manufacturing is moving away from older, densely populated cities to newer, sprawled, cheaper areas. Economists have argued that manufacturing firms seek out locations featuring cheaper land, lower wages, and more lax labor and environmental standards. While some companies move abroad, the data highlight that firms are finding profitable domestic locations that are far from traditional manufacturing hubs.

Labor unions and displaced workers have stressed the costs of this long run trend. Unions lose members and displaced workers often suffer a $10 per hour drop in wages as they transition to low skill service sector jobs. Despite these costs, big city deindustrialization offers significant quality of life benefits for millions of urbanites.

Manufacturing activity increases local ambient air pollution, water pollution and increases the stock of toxic emissions released into the land. By degrading the local environment, such activity reduces local quality of life. Manufacturing plants often are major electricity consumers. Due to line losses, such plants purchase their power from nearby power plants. States such as Ohio feature some of the dirtiest electric power plants. A reduction in manufacturing activity in such areas reduces the utilization of such dirty power plants.

As Northeast and Rust Belt cities transition away from manufacturing, they must seek out their new competitive market niche. In the modern skills economy, a city that can attract footloose skilled workers, who want to live and work in the city, is more likely to grow in the future. Many older cities are reinventing themselves as “consumer cities”. At the same time as Clean Air Act regulation and de-industrialization have improved local environmental quality, crime has also been sharply declining in major cities (starting in the early 1990s). These synergistic trends encourage people to spend more time outside. Cities such as Boston are rediscovering their waterfronts. These areas are centers of new economic activity featuring new hotels, restaurants and shopping areas (i.e. Faneuil Hall in Boston or the South Street Seaport in New York City). Local governments are making large public investments in infrastructure such as the Boston Big Dig to enhance green space.

A critic might ask whether the growing manufacturing places, such as Texas, are domestic “pollution havens” experiencing a degradation of their environmental quality? Fortunately there are two reasons to discount this. Manufacturing migration is not a “zero sum” game. First, manufacturing plants cannot migrate across country. When a steel plant closes in Pittsburgh, that technology is no longer used. The Rust Belt featured many dirty industrial facilities such as steel factories that were built long ago. Many of these factories were “grandfathered” and thus did not face the stringent New Source Performance Standards (under the Clean Air Act) that new factories must adhere to. If steel production activity moves to the South, a new steel plant regulated under the New Source Performance Standards is built. This new plant will have much lower emissions than the older plant. In addition, manufacturing is migrating to lower population density areas where fewer “victims” are exposed to the pollution in the destination area relative to the millions of people who live in the densely populated North East and Rust Belt.

There is a certain irony here that “employment sprawl” offers substantial public health benefits for urbanites living in high density older U.S cities. Environmentalists often celebrate Manhattan’s compact urban form as it allows its residents to have a relatively small per-capita greenhouse gas impact as people use public transit, walk and avoid vehicle use. But the downside of compactness is too much physical proximity to public health threats. In a sense, manufacturing sprawl and improvements in transportation technology have created a “moat” allowing urbanites to gain the benefits of consuming finished manufacturing products without bearing the pollution costs that significantly degraded their quality of life in the past.

Matthew E. Kahn is a Professor at the Institute of the Environment at UCLA. He is the author of : Green Cities: Urban Growth and the Environment (Brookings Institution Press 2006).

Tuesday, June 12, 2007

Academics Who Leave Cambridge to Go West: A Growing Group

Where is the "epi-center" of academic economics these days? With the rise of blogs, webpages and .pdf files, does location matter less for one's productivity than in the past? Cambridge always has excellent graduate students and the next generation has plenty of energy, ambition and excitement for the subject. I look forward to heading back to Cambridge next month for the NBER meetings but at the tender age of 41, I don't feel the strong urge to live and work at "ground zero".

Clearly, I'm not alone. Stanford's gross faculty flows are high. They exported Athey and imported Caroline. Is that an even trade? I will let other bloggers debate that!


Star Economics Prof To Leave for Stanford

Hoxby announces decision after university extends tenure offer to husband, source says

Published On 6/11/2007 12:54:32 AM


Crimson Staff Writer

Caroline M. Hoxby '88, one of the foremost researchers of the economics of education and one of the Harvard Economics Department's most popular undergraduate teachers, will depart for Stanford this year, according to an e-mail obtained by The Crimson.

Hoxby, who has been a professor at Harvard for the past 13 years and has been tenured for the past 10, is the only black individual tenured in the Economics Department, and one of only two women. [SEE CORRECTION BELOW]

She is renowned for her pioneering—and controversial—research into the benefits of charter schools and school vouchers, and is often credited with employing novel methods to test whether increased competition among schools can raise student achievement.

Hoxby's decision came after her husband of 14 years, Associate Professor of History and Literature Blair G. Hoxby '88, received a tenure offer from Stanford, according to a Harvard economics professor.

Hoxby said in her e-mail to her Economics Department colleagues that she would miss Harvard, but that she is heading to Stanford with "great enthusiasm."

"You have not just been great colleagues, but the best possible colleagues," Hoxby wrote. "It has been an honor to work with people who are dedicated to economics, to advancing the field, and to training the best students anywhere on earth."

Hoxby could not be reached for comment on Sunday. The Crimson granted anonymity to the professor because the individual’s relationship with the Hoxbys would be compromised if the source were named.

In her e-mail, Hoxby praised the chairman of the Economics Department, James H. Stock, for "trying to ensure that the Harvard situation worked out for us," a possible reference to her husband's bid for tenure in the Faculty of Arts and Sciences (FAS).

"Many people in the department, other departments in the FAS, and other schools in the University have also been concerned about the situation and have expressed their concern to me and/or the administration in emails, in telephone calls, and in person," Hoxby wrote. "I am deeply grateful for the concern and the support we've been lent."

Both Blair and Caroline Hoxby lived in Eliot House as undergraduates and attended Oxford on Rhodes scholarships. Blair Hoxby, who has spent most of his career at Yale, served as a fellow at the Stanford Humanities Center in the 2004-2005 academic year.

In 2005, Hoxby publicly announced that she was considering leaving Harvard to accept a tenure offer at Stanford. Her announcement came in the middle of a tense time for the University as professors, including Hoxby, criticized former University President Lawrence H. Summers' management of Harvard. Hoxby, a member of the Faculty of Arts and Sciences' highest governing body, the Faculty Council, and one of the few critics of Summers in the Economics Department, said at the time that the academic environment at Harvard—not the president's remarks—would influence her decision to stay or leave.

Since Hoxby first arrived at Harvard in the fall of 1984, she has spent virtually her entire adult life in Cambridge. She received her doctorate from MIT in 1994, four years after returning from Oxford, and was immediately hired by Harvard as an assistant professor.

Over the past 13 years, Hoxby has left a wide trail at Harvard.
She has published very influential research on the benefits of school choice, arguing through technical empirical papers that schools perform better if parents have viable alternatives to which they can send their children. This research has made her a star in the economics profession and a darling to many conservative supporters of charter schools and vouchers, even though her own father served in the Carter administration.

Despite Hoxby's stardom, or perhaps because of it, one of her most important papers became the subject of a vitriolic academic dispute two years ago when an assistant professor of economics at Princeton, Jesse M. Rothstein '95, accused Hoxby of making a number of programming errors in her research that he said undermined her results. Hoxby disputed Rothstein's findings, calling the criticisms entirely baseless and suggesting that they were motivated by "race and gender bias."

In addition to her research, Hoxby has also emerged as one of the Economics Department's most sought-after teachers. Students must apply to her often over-subscribed course on the economics of education, and this past year, the course received a 4.5 out of 5 in the CUE guide, while Hoxby received a 4.9 out of 5 for her teaching performance. In 2005, Hoxby was named a Harvard College professor—a distinction earned for undergraduate instruction—and in 2006, she won the Phi Betta Kappa Prize for Excellence in Teaching.

—Staff writer Paras D. Bhayani can be reached at

CORRECTION: The June 11 online story "Star Economics Prof To Leave for Stanford" incorrectly stated that Caroline M. Hoxby '88 was one of two tenured women in the Economics Department. In fact, Hoxby is one of three—the other two are Lee Professor of Economics Claudia Goldin and Professor of Economics Susan C. Athey, who arrived in 2006. Hoxby was the second woman to be tenured in the department.

Saturday, June 09, 2007

Some Comments on Roland Fryer's work on "Incentive Pay" for Students

I greatly admire how Professor Fryer is blending serious academic research with social activism. Many field experiments look "low stakes" to me. His field experiment (to offer urban kids $ bonuses for scoring high on school exams) strikes me as "high stakes" and potentially important.

Permit me to pose a few questions:

1. Will the $ bonus make studying "cool"? I haven't spoken to Roland about his work but I'm guessing that following Gary Becker's work on bandwaggon effects he views student labor supply (i.e hours studying) as an increasing function of; A. the immediate return to studying , B. the long run human capital return to studying, C. Whether your peer group is engaging in this activity. Roland must be hoping that his new incentive will boost up A and C here. Such a "social multiplier" effect ---- if it is real, could have a huge effect on raising student achievement in inner-city public schools.

2. Is this case of heterogeneous treatment effects? Jim Heckman's recent work has highlighted the importance of recognizing that the same treatment (offering a cash bonus in this case) can affect different people differently. Who is the marginal student in Roland's experiment? Could his incentive increase minority test score inequality as the motivated students "take the bait" while the slackers reject it?

3. How will the teachers unions respond to the increased effort by their students? A complements model would say that they would work harder perhaps because they would be less burned out and feel refreshed to have hard working kids in the room. A moral hazard model might posit that they would shirk more and try less hard if the kids are studying hard. I'm not sure I believe this latter story.

4. If Fryer's intervention succeeds in the short run, does this mean that the "treated" students will gain more human capital in the long run? By studying for the test will "learning beget learning"? Will "skill beget skill"? Could this "commodification" of education backfire in the long run?

5. Fryer will face a tricky issue of evaluating his own programs. Private fat cat donors are more likely to give him more $ for future bonuses for students if his programs are succeeding in raising test scores. Ideally, a 3rd party with no links to him would conduct the evaluation to see if his past experiments have been effective.

June 9, 2007
A Plan to Pay for Top Scores on Some Tests Gains Ground

Roland G. Fryer, a 30-year-old Harvard economist known for his study of racial inequality in schools, is back in New York to again promote a big idea: Pay students cash for high scores on standardized tests and their performance might improve. And he has captured the attention of Schools Chancellor Joel I. Klein and Mayor Michael R. Bloomberg.

Across the country, educators have been experimenting with cash incentives. A program in Chelsea, Mass., gave children $25 for perfect attendance. Some Dallas schools pay children $2 for each book they read.

But the idea is controversial. Many educators maintain, among other objections, that children have to learn for the love of it, not for cash.

Until now, Professor Fryer’s idea of cash for performance has had no serious takers. Three years ago, he tried to implement a pilot program in New York City charter schools that would have given students cash in exchange for good test scores.

“They kicked us out,” Professor Fryer said of the schools that first considered the program. And some Department of Education officials were not enthusiastic, either, he said. “They laughed in my face.”

But Mr. Bloomberg has recently shown interest in using payments, raised from the private sector, as a way to change behavior and reduce poverty.

In September, he proposed giving cash to poor adults to encourage them to do everything from keeping their children in school to seeking preventive medical care. And so, he said yesterday at a news conference, he was receptive to Professor Fryer’s idea. “If we aren’t looking at everything,” he said, “shame on us.”

This week, Professor Fryer met with a group of school principals who are considering participating in his incentives program. Information about the program was first reported yesterday in The Daily News.

Education Department officials said that putting the program into effect has a long way to go. “We are still at a preliminary stage,” Debra Wexler, a department spokeswoman, said yesterday. “Neither the mayor nor the chancellor have approved any program details.”

Professor Fryer said that under his program, fourth graders and seventh graders who take the new round of mandatory standardized tests that the city is introducing in the fall would be rewarded with at least $5. They would get more money for high scores, with a cap of $25 for fourth graders and $50 for seventh graders. In addition, each participating school would receive $5,000.

Money for the payments will come from private backers, Professor Fryer said, because there would be no public money available for them.

The prospect of cash introduced into the classroom has made some local educators uneasy.

“It makes me really nervous,” said Maggie Siena, the principal of Public School 150 in TriBeCa. “I suspect paying kids for achievement in any way tends not to work.”

Ernest Logan, the president of the principals’ union, also expressed concerns. “We are troubled by additional pressure being placed on children to achieve perfection,” he said. “What really matters in education is continued student progress, not perfect test scores.”

Professor Fryer and other educational scholars have argued that some children, especially those from impoverished backgrounds, lack the foresight and role models to be self-motivated.

“The fundamental problem with education and motivating kids to learn what they need to learn is that the payoffs are so distant,” said Tom Loveless, a senior fellow at the Brookings Institution, a left-leaning research organization. “So it’s very hard to motivate students to do well. Good students get that motivation from somewhere — from peers, their parents, how they’re raised — but the kids who are unmotivated have a very hard time understanding that what they do today pays off decades from now.”

Eric Nadelstern, the chief executive of the school system’s empowerment initiative — which gives principals more autonomy to run their schools — lauded Professor Fryer in a recent e-mail message to principals. “He has my enthusiastic support,” Mr. Nadelstern said. “I encourage you to give the program serious consideration.”

Professor Fryer, who is black, has explored racial issues in education extensively. He has written studies on the gap in test scores between black children and white children, the economic effect of “acting white,” how the mental ability of young children differs by race, and the causes and consequences of attending historically black colleges and universities.

Professor Fryer, on his Web site,, calls the program “Incentivising: An Experiment in NYC Public Schools.”

In a near-empty cafeteria at Frank Sinatra High School of the Arts in Queens on Wednesday, Professor Fryer promoted the plan to a dozen principals with an informal speech about poverty, the test score gap, his professional experience and personal history and his grandmother’s suggestions for the plan.

He persuaded at least one principal to change her mind about the program. “Prior to going into the meeting, I wasn’t in favor of it,” said Crystal Simmons, the principal of the Academy for Social Action in Harlem. “But now I think it could work if it is established in the right way. There should be some financial-literacy element, for instance.”

After the meeting, Professor Fryer said in an e-mail message to the principals that more than half the available spots in the proposed incentive program had been filled.

Mr. Loveless of Brookings said that though cash-incentive programs tend to make people uneasy, he believed the proposal was worth considering. “I would take it seriously,” he said. “I don’t think we should let our queasiness over directly awarding kids with cash prevent us from experimenting. We need to find out if this works or not.”

Friday, June 08, 2007

Terrorism and Cross-Elasticities

Undergraduate micro teachers are always looking for ways to spice up their material. Students wake up a pinch if you talk about the unintended consequences of seatbelts or "morning after" pills. Today's New York Times offers a spatial eye-opener related to "cross-elasticities". Terrorist threats implicitly raise the price of doing business in NYC. Nobody wants a dirty bomb to explode a mile away from where they work just before their lunch break. Those who fear such low probability events can self protect by migrating somewhere --- but where? North East Pennsyvlvania is trying to cash in on such fears and substitution. This is a pinch tacky but maybe it makes sense?

June 8, 2007

Pennsylvania Tries to Sell Itself as Backup for Wall Street During a Disaster

Hoping to capitalize on fears of the chaos another terrorist attack might cause in New York’s financial industry, Pennsylvania officials are promoting a corner of their state as Wall Street West.

They maintain that since the region is about 100 miles west of Manhattan, it is outside New York City’s theoretical nuclear blast zone. It is ideally situated, they say, to be a safe retreat from the metropolis, but close enough to be linked directly to the computers that run the banking and trading systems.

“We think we’re uniquely positioned,” said Catherine A. Bolton, project director of the Wall Street West consortium, whose goal is to lure financial companies based in New York to put backup facilities in a nine-county region in northeast Pennsylvania. “There are places in New Jersey, but they’re not outside the blast zone.”

Yesterday, Gov. Edward G. Rendell of Pennsylvania was in New York announcing plans to build a critical connection: a $24 million network of fiber optic cables to carry data from Manhattan to the Poconos. Among the missing links, though, is any sign of serious interest from firms in the real Wall Street area.

So far, none of the big banks, investment banks or insurance companies based in the city have made commitments to putting data backup centers in that part of Pennsylvania.

Instead, they have been spreading out within the metropolitan area to give themselves the flexibility to react to crises ranging from power failures to natural disasters and terrorism.

A few months ago, Goldman Sachs, the big investment bank, took over the lease on office space in Greenwich, Conn., which had housed a hedge fund that shut down. Goldman officials see that space, which is just 25 miles north of Manhattan, as a potential backup trading floor if their headquarters near Wall Street is damaged or becomes disconnected.

Since the Sept. 11 attack, financial companies have given priority to developing backup systems and disaster-recovery plans. In the immediate aftermath, federal regulators and elected officials issued some bold pronouncements about separating primary and backup systems.

Richard A. Grasso, the former chairman of the New York Stock Exchange, used the phrase “nuclear distance” in describing where the exchange was considering putting its secondary trading floor. Banking regulators discussed the need to have the backup sites outside a “blast zone” with a radius of 50 miles or more.

Those statements confounded Wall Street executives because backup centers could not reliably capture trading data instantaneously — known as synchronous data storage — if they were much more than 100 miles away. They eventually persuaded the regulators to restrain their rhetoric.

In May 2003, federal banking regulators clarified their security recommendations, leaving much of the judgment to company officials. They did not specify a distance but said backup facilities where financial firms set up computers to copy information on all their trading and banking transactions could stay “within the current range limit of synchronous data storage technology.”

A point emphasized by the advocates of the Wall Street West region is that it sits just inside that 100-mile limit. But first, there has to be a high-speed data link to Manhattan.

Mr. Rendell announced yesterday that the consortium had chosen Level 3 Communications to build the fiber optic network that would complete the connection.

“We’re now ready to go,” Mr. Rendell said. “We have everything in line.”

So far, the project has received a $15 million grant from the federal Department of Labor to train local workers for the jobs that Wall Street West hopes to attract. Mr. Rendell said he thought the project could get $4 million to $5 million more from Washington. But he said the public investment would not go beyond about $25 million unless the financial industry embraced the idea.

Level 3 has agreed to spend $8 million toward the cost of building the local loops of wires and splice them into the existing networks running westward from New York City, said Raouf Abdel, president of the business markets group at Level 3 in Broomfield, Colo. Public coffers would pay the balance of the bill.

Mr. Abdel said that the entire network could be built within 18 months and that Wall Street firms could be operating data centers in the area by early 2009. But first, Level 3 executives and Pennsylvania officials must persuade some companies to be pioneers in the Poconos.

Level 3 does not plan to start building the network until it has signed up customers who, as a group, will pay it at least $625,000 every three months to provide telecommunications service, Mr. Abdel said. No contracts have been signed yet, but, he said, “We are seeing interest.”

There may be places in New York, New Jersey and Connecticut that are suitable alternatives for Wall Street’s backup sites, but most of them are considerably more costly than northeast Pennsylvania, Mr. Abdel said.

“There is a need for large data center space measured in tens of thousands of square feet, and cheap real estate helps,” he said.

Mr. Rendell admitted that developing Wall Street West “is a little bit of a chicken and egg.”

Without the critical infrastructure, big financial companies will not seriously consider making the move. On the other hand, Mr. Rendell said, Pennsylvania is reluctant to spend too much money building up an area to appeal to a specific industry until it knows that there will be a payoff.

“If no one decides to come, we won’t build it,” Mr. Rendell said. “The sites that are under preparation, those are easily transferable to other uses.”

New York State officials, who are trying to lure the same financial companies to set up data centers upstate, said the benefits of Wall Street West might have been overstated.

“The infrastructure is not the total answer,” said Dan Gunderson, who is the chief economic development official for upstate New York. “The infrastructure can be found in many different locations.”

But Mr. Gunderson, who formerly was an economic development official in Pennsylvania, gave his competitors credit for trying.

“I think they’re serious about selling the product that they’re trying to develop,” he said.

Wednesday, June 06, 2007

Urban Density and Germs and Hand Washing by Toliet Users

I was just in a UCLA men's bathroom. A dude was sitting in a locked stoll. A toliet flushed and he walked out. Without washing his hands, he kept going and exited the bathroom. I was grossed out. As an economist, I'd like to know what would have been the private costs for him to have washed his hands? And, how large the social costs he imposes on the UCLA population by walking around and touching stuff with his dirty hands? As a social scientist, I'd like to know why he chose to be a bad citizen. He didn't look like he was in a rush. I saw him walk off with a lady friend as they strolled on together. Is he "passive aggressive"? Is he lazy?

He has private information about his actions. His germs cannot be traced back to him to achieve "day of shame" like in the Seinfeld episode with Pepe and the dirty pizza. It strikes me that there is a lot of trust in cities and dense places like college campuses. I may go out and get myself some gloves now that I have acquired this one ugly data point. Are you grossed out? Is this the tip of the iceberg or just an outlier?

Tuesday, June 05, 2007

USA Today: My new favorite newspaper

When I worked at Columbia Univ, my favorite newspaper was the New York Post. It had a large font I could read and it focused on simple ideas and topics that I could understand. In Boston, I liked the Boston Globe because of its sports section and long articles about the NFL New England Patriots. Now, in Los Angeles I have finally found a newspaper that fits my specific needs. Of course, I mean USA Today.

I always loved its color weather maps but in this article:

the author quotes some interesting academics from UCLA!

I'm now trying to write something smart for Forbes but it is hard work to do this right.

People here at UCLA are puzzled by this recent David Warsh column;
It ends on an overly negative note. As of June 2007, there is peace and agreement over at UCLA economics.

While UCLA has certainly lost some interesting people recently, I believe that
there is a "silver lining" to any loss. It allows a department to re-prioritize and
to get younger. There are plenty of interesting social scientists at UCLA and in the next couple of years those who can afford the housing will continue to sign up.
Don't feel sorry for us! It is beautiful here and intellectually quite stimulating and I would not trade places with anybody reading this.

Sunday, June 03, 2007

Los Angeles Offers Most Surfers a "Clean" Ride: Water Pollution Progress Despite Enormous Population Scale

I was in Malibu today. We weren't looking for celebrities. Instead, we went to Malibu Canyon State Park. It's a great place to hike around. On our way there, we almost ran over a surfer with our car. To our surprise, he ran across the highway with his surfboard. There was no walker crossing there or a traffic light. I respect his degree of "risk aversion". He survived but he got me thinking about surfers. Today's new york times provides some facts about surfer quality of life in Los Angeles. The article quotes my UCLA colleague Linwood P on his work on surfer exposure to pollution at the least and most polluted beaches in LA. The good news is that disease risk is low. But, there are so many people in Los Angeles that the total disease count sounds high. This article does a decent job sketching out the environmental engineering on how sewage causes the problem but they provide no facts on whether investments are being made to mitigate the problem and who is responsible for mitigating this problem.

On an unrelated note, David Warsh's Economics Principles column tomorrow will be about UCLA's economics department. The article tells about recent losses of some well known senior faculty. It also tells of some recent recruting triumphs such as hiring Dora Costa and Roza Matzkin. Dora and I are quite optimistic about UCLA's future. Los Angeles is a fantastic city. I've lived in Chicago, New York City, Boston, London and San Francisco and I can claim that Los Angeles is a higher quality of life city than any of them. This is why housing is so expensive. UCLA will need to find the right "power couples" who want to live and work in westwood because it takes 2 incomes (or old money) to be able to live here.

June 3, 2007
Surf’s Up, but the Water Is Brown

Los Angeles

TO the naked eye, Surfrider Beach in Malibu, Calif., couldn’t be lovelier: on a recent Friday, in 60-degree weather, the patch of the coastal mountains behind Malibu Pier was shrouded in morning fog. A flock of birds flew low over a sparse crowd of sunbathers, bobbing surfers and a lifeguard doing abdominals on a beach towel in front of his tower.

But Eric Gross, a 28-year-old creative director at his family’s graphic design studio who has been coming to Surfrider since childhood for its smooth, manicured wave, quickly shattered any postcard-quality impressions of this premier surfing beach.

Take the stench emanating from the nearby lagoon, where Malibu Creek meets the sea, he noted.

“You see discoloration and big brown blobs, like in a sewer,” Mr. Gross said of the days when the lagoon overflows and dumps untreated sewage on the waters he uses three to seven times a week. “Sometimes the water just stinks. You wash off in the shower and you’ve got this smell on you all day.”

Then there’s the taste. “Have you ever tasted bong water by accident?” he asked. “It’s just this muck.”

And the sore throats. “Sometimes you don’t know if you have a cold or you’re sick from the water,” Mr. Gross said. “Who knows what the long term effects are.”

If Los Angeles County conjures images of a warm paradise of curled waves and palm trees, the locals know better. They live along a coast with the dubious distinction of having 7 of the state’s 10 most polluted beaches, according to the latest report card from the environmental group Heal the Bay, which has given beaches like Surfrider a failing grade year after year.

Many Southern Californians find contentment just looking at the ocean from their sun decks, grateful for their views and the clean air. But there are those who persist in braving the water, never mind the historic counts of bacteria from fecal matter and other sources that can cause skin rashes, ear infections and gastrointestinal ailments, or the signs that spell out the dangers with warnings like “contact with ocean water at this location may increase risk of illness.”

So who are these people? Among the fearless: inlanders escaping the suffocating heat; tourists who don’t know any better; and die-hard surfers who try to protect themselves by taking vitamins, by making sure their hepatitis and tetanus vaccinations are up to date, and by rinsing body cavities with hydrogen peroxide.

“You get all your shots, you stay away certain times,” said Mr. Gross’s father, Paul, 60, another longtime surfer who comes out three to four times a week. He matter-of-factly detailed his post-surf regimen: “You take showers here and put hydrogen peroxide in your ears and gargle with hydrogen peroxide diluted with water.”

But many tourists come for the lifeguards, or at least settle for them. Gabriel Campos, a lifeguard for the last 35 summer seasons at the beach by the Santa Monica Municipal Pier, which is a perennial environmental underachiever, said the tourists want their pictures taken with a real-life model for “Baywatch.”

“I’ve done five shots with people today,” said Mr. Campos, 52. Residents often don’t bother with the water. Investigators studying beach attendance for the Santa Monica Bay Restoration Commission say the beaches of Santa Monica Bay — a 60-mile stretch from Malibu south to the Palos Verdes Peninsula — are drawing almost one million fewer visits each year, largely because of public apprehensions about the water.

Water quality typically plummets when it rains, with contaminated runoff from the street and storm drain systems ending up in the ocean.

This year’s Heal the Bay report card, released on May 23, found that the state as a whole had above-average water quality because of a drought over the last year, but a dramatic drop in quality in the Long Beach area meant that Los Angeles County retained its status as the state’s leading “beach bummer.” (Right before the Memorial Day weekend, about 5,000 gallons of sewage spilled into the waters off the Venice district of Los Angeles because of a blocked sewer line, prompting a two-day closure of several portions of two popular beaches.)

THOSE craving a dip can easily drive to cleaner beaches. Sometimes the closest clean beach is less than a mile away, and 57 percent of Los Angeles County’s beaches still score an “A” or “B” in dry weather. But many of the dirty beaches have their own storied appeal and social scenes. Last weekend, the beach by the Santa Monica Municipal Pier, which sits at the foot of luxury hotels and a bustling commercial district, was packed with the usual mix of tourists, cliques of young people and families, many of them working-class Latinos.

“I try not to swallow the water,” said a 26-year-old accountant from Pasadena after taking a dip.

The accountant, who adamantly refused to give his name, said he came to this beach to swim as often as twice a week in the summer because it was near restaurants and bars and he could “tan and go party.”

“It’s a hub,” he said. “Obviously you want to go where there are people.”

But Jameel Chahal, 22, a friend in the accountant’s group who was visiting from Canada, looked around almost in disgust. The water was brown and two dead sea lions had washed up, hardly an enticement to dip in as much as toe. (It was unclear what killed the animals, but a higher level of marine-mammal and seabird deaths this year has been linked to an increase in a naturally occurring toxin produced by algae.) “I’ve never seen this color,” Mr. Chahal said of the water. “If you look out 100 meters, you don’t see water that’s clear. Why jump in the water when it’s dirty like that?”

Many beachgoers come for everything but the water. Charlie and Lizette Figueroa said the temperature had reached 80 degrees by midmorning at their home in Ontario, 35 miles east of Los Angeles. They decided to pack up a cooler, shovels and buckets for their two children and drive one hour west to Santa Monica. On the beach, the children, ages 2 and 4, made a hole to bury their father while the couple sat on beach chairs fully dressed, enjoying the cool breeze.

No one was getting wet.

“We’re here just to relax and for the kids to play in the sand,” said Mrs. Figueroa, 23, a supervisor for a bus company. “My kids would rather go in the swimming pool. My son doesn’t want to go in here. He says that the water looks dirty.”

Linwood Pendleton, a professor in the school of public health at the University of California, Los Angeles, who is the principal investigator on the study on beach attendance, said that Southern Californians have become unnecessarily fearful of the ocean. He said that the area does a better job at testing water quality than elsewhere in the country, so public awareness of the issue is high.

“People should look around at all the beaches and choose the ones with the lowest risk, but don’t stay home,” he said. “The beach in Southern California is our Central Park, our open space.”

Mr. Pendleton is co-author of a study, released last year, that said as many as 1.5 million cases of sickness in Los Angeles and Orange Counties each year could be attributed to bacterial pollution in the ocean. Mr. Pendleton said that represented only a 1 percent chance of becoming sick. Even at the worst beaches, he said, the chance of becoming sick is relatively low, 5 to 15 percent.

State and county officials say that this area has the most polluted beaches because it is the state’s most populous region, noting that both development and people’s behavior — such as not cleaning up after their dogs — contributed to the problem. The county also is among the first in the state to collect samples directly in front of storm drains and creeks, where the water quality is worse.

But the officials said that cities are facing new requirements to limit bacteria at their beaches, and that $135 million in state bonds is going to cover the treatment of storm-related sewage problems at the worst sites.

“California is cleaning up its beaches,” said William L. Rukeyser, a spokesman for the State Water Resources Control Board.

Even Surfrider has been on a roll lately, with a string of passing grades in Heal the Bay’s weekly report card. For surfers like Eric and Paul Gross, forgoing the beach they consider home base is not an option.

“No matter what the dangers are,” the elder Mr. Gross said, “this is still one of the best breaks.”