I serve on the board of editors of Regional Science and Urban Economics. Papers published in RSUE are usually quite good but they rarely make the national news. The Mankiw and Weil paper from long ago arguing that the aging of the baby boomers would lead to falling home prices was an exception. But perhaps, here is a new one by colleage Stuart Gabriel and our USC friends.

Who says that UCLA and USC are rivals? We are all working together to make LA great.


http://www.bloomberg.com/apps/news?pid=20601103&sid=a1ua7J7AYpxM&refer=news
U.S. Growth Will Be Hurt More by Homes Than Stocks, Study Says

By Daniel Taub
Enlarge Image/Details

Oct. 29 (Bloomberg) -- Plunging home prices will cut economic growth in the U.S. more than the drop in stock prices this year, economists at the University of Southern California and the University of California, Los Angeles, said.

A 10 percent decline in housing wealth results in a $105 billion, or 1.2 percent, reduction in personal spending, according to the three-year study by economists at the USC Lusk Center for Real Estate and the UCLA Ziman Center for Real Estate. Consumer spending accounts for about 70 percent of GDP, so that drop would result in a reduction in real GDP growth of 1 percentage point, the study said.

Rising home prices fueled the surge in consumer spending during the first half of the decade. Now, falling values are a drag on GDP growth, the study suggests. Rising or falling home values has triple the effect on consumer spending of any increase or decrease in financial wealth, including stock holdings, according to the study.

``The reason, I believe, the effects are smaller for financial wealth than for housing wealth is that people tend to view those changes in housing wealth as more permanent,'' Gary Painter, director of research at the USC Lusk Center and one of the study's three authors, said in an interview. ``Consumption will be impacted by the decline in housing wealth for a while.''

The median price of an existing U.S. home dropped 9 percent to $191,600 in September from a year earlier, according to the National Association of Realtors in Chicago. The median price in September was down 17 percent from a record of $230,200 in July 2006.

Extended Slump

Economists expect home prices to fall further before they begin to recover, said Stuart Gabriel, director of the UCLA Ziman Center and one of the study's authors. The Standard & Poor's 500 Index has fallen 35 percent this year through yesterday.

``Even if the stock market were to unexpectedly bounce back over the near term, those effects could be potentially offset due to ongoing declines in house values,'' Gabriel said in an interview. ``For every 10 percent decline in house prices nationally, our study suggests a 1 percentage point decline in real GDP growth.''

U.S. GDP probably contracted at a 0.5 percent annual rate from July to September, the biggest drop since the 2001 recession, according to the median estimate in a Bloomberg News survey ahead of Commerce Department figures being released Oct. 30. Consumer spending probably dropped by the most in almost two decades as job losses mounted, stock prices sank and property values declined.

Academic Journal

The study by Painter, Gabriel and Raphael Bostic, associate director of the USC Lusk Center, is scheduled to be published next year in Regional Science and Urban Economics, an academic journal focused on issues related to housing and labor markets, transportation and local economies.

The study used data on household consumption and finances from the Federal Reserve's Survey of Consumer Finances, which tracks income and net worth for U.S. families, and the Bureau of Labor Statistics' Consumer Expenditure Survey, which provides information on the buying habits of American consumers.

To contact the reporter on this story: Daniel Taub in Los Angeles at dtaub@bloomberg.net.
Last Updated: October 29, 2008 00:01 EDT

Will the current banking chaos reduce innovation in the green tech sector such as solar panels and hydrogen cars? Is there a new green technology that would have been developed sooner had the current financial crisis not taken place? Some in California are making claims that there are new startup firms with positive expected PDV of their investments but these firms face high fixed costs for entering the field and have no ability to borrow. If these new firms are liquidity constrained, then will economic efficiency and environmental progress suffer due to the Wall Street crisis? It would be a shame if a guy had a great idea for improving energy efficiency and reducing GHG emissions but couldn't make it happen because he has no capital to finance his ideas.

An obvious substitute for borrowing from banks is to sell a piece of your firm to a venture capitalist. The usual issues will arise here concerning valuing the risky asset and agreeing on a price. I have read that Google has $14 billion of cash lying around. It would interest me if the smart guys there are thinking hard about bundling a bunch of these firms and purchasing them or purchasing a fraction of these startups. It would also interest me if Google's gurus are any good at "picking winners". They have a great search engine but does success there translate into success on strategies to mitigate GHG? Do you believe in the 1 factor model of ability?

It is an interesting question how you evaluate the future profitability of a startup but afterall Google was once a startup. Perhaps if UCLA and Stanford paid their faculty more, they would have more after tax income to give to invest in their star graduate students' new firms?

Don't we faculty have the best information about our PHD students concerning their talent and non-cognitive skills at becoming the next Google?

So Hank Paulson should give the West Coast faculty and perhaps MIT's faculty the $100 billion to invest and we would finance the next generation of green firms.

I spent the morning at the Beverly Hills Hotel attending the Milken Institute's "State of the State". (see http://www.milkeninstitute.org/events/events.taf?function=detail&ID=230&eventid=SOS08&cat=sos)

In a big ballroom there were roughly 500 people listening to two panels; one on the real estate market and one on alternative energy. Treasury Secretary Hank Paulson (HP) would have lost his remaining hair if he had heard what
Bobby Turner, Managing Partner, Canyon Capital Advisors LLC
had to say about him. If I heard Mr. Turner correctly, he claimed that HP chose to bail out those Wall Street firms that had close ties to Goldman Sachs. So Turner believes that Paulson has subverted the public interest to protect his cronies. Strong stuff.

A surprising feature of the morning sessions was the focus on "Keynesian" government spending. I thought that Mike Milken is a free market guy? His Institute's staff appears to be big fans of increased government spending on road infrastructure, alternative energy subsidies and all sorts of other government programs. Personally I would like to see UCLA receive more government funding.

The alternative energy panel I attended made it clear that they need more government intervention to survive. They want tax credits and improved transmission capacity for the solar panels they build to get the electrons to the urban customers. They must be praying for an Obama win.

The Milken Institute should try to make their panels a more intellectual experience. Led by Ed Leamer, the UCLA Anderson Forecast does a better job of conveying key "regional trend" insights about the economy.

Knowing that I had a Noon meeting at UCLA, I walked out of the Beverly Hills Hilton in my dress jacket in the 90 degree heat and proceeded to walk more than 2 miles to UCLA. People who passed me on Wilshire Ave must have thought that I was a bum; perhaps the new Nick Nolte in Down and Out in Beverly Hills.

At UCLA, I attended two hours of meetings. I then answered random emails from students who want to take my classes even though they haven't taken the pre-requisites.

I then retired to the faculty club to drink some coffee and to get some research work done while siting outside. If you want some peace and quiet in your life, Go to the faculty club at 230pm and sit in the courtyard.

Tomorrow I will attend the morning sessions of the Milken Institute's Big Annual Conference: California: The State of the State . Can professors sit quietly and learn? I doubt it.


If you want to meet me, I will attend this one;

Panel Detail:

Tuesday, October 28, 2008
8:30 AM - 9:30 AM

Real Estate: Where Is the Capital to Create a Turnaround?

General Session



Speakers:

Ross DeVol, Director of Regional Economics, Milken Institute

Robert Satnick, Chairman, California Mortgage Bankers Association

Bobby Turner, Managing Partner, Canyon Capital Advisors LLC

Kevork Zoryan, Executive Director, Morgan Stanley Merchant Banking


Moderator:

Lewis Feldman, Partner, Goodwin Procter LLP


Summary:

Real estate — especially residential housing — has always been vital to California's prosperity. The ever-expanding number of homeowners has greatly added to the state's overall wealth in recent decades, but the current downturn in the mortgage market and housing prices has had a devastating impact on California's budget and its overall economy. This panel will examine both the residential and commercial real estate markets, looking for signs of a recovery. How severe will the correction be? Have we finally reached bottom? How quickly will the market come back? What's the fallout in other industries and the economy as a whole? Will the recent decline force lasting changes in this sector? This panel of experts will analyze the future of California's real estate industry.


Panel Detail:

Tuesday, October 28, 2008
9:35 AM - 10:35 AM

Alternative Energy: Seizing the Moment to Secure California's Future

General Session



Speakers:

John Chiang, California State Controller

Randy Goldstein, CEO, OptiSolar Inc.

Jeffrey Jacobs, Vice President, Biofuels & Hydrogen, Chevron Technology Ventures

Perry Wong, Senior Managing Economist, Milken Institute


Moderator:

Nancy McFadden, Senior Vice President, Public Affairs, PG&E Corporation


Summary:

There's no doubt that California leads the nation in the burgeoning alternative-energy industry, which is full of innovative entrepreneurs. Some of the nation's most promising companies began in California, and investor funding and enthusiasm continues to grow. But enthusiasm alone may not be enough to keep the industry thriving here. Already, some states (most notably Texas) are taking aggressive approaches and gaining ground on California. Billions of dollars in economic output are at stake, along with thousands of high-paying jobs. What does California need to do to nurture this industry and shore up its leadership position?


See, I am trying to be part of the Los Angeles community. I must admit that I'm surprised that the Milken Institute didn't invite me to give 3 of the presentations.

To protest this snub, we have stopped going to the Santa Monica Farmer's Market. I miss walking past the Milken Institute building. On the side of the building, there is a great photo of Gary Becker and Ken Arrow laughing at something Mike Milken has said at a big public conference. I look at Gary and I smile.

But, we no longer go there. The Beverly Hills Market is closer, less crowded, fewer bums, and has more variety of stuff.

Are you Against Intellectual Monopoly? UCLA has some new patents to offer to the world; New Intellectual Property from UCLA . It looks like the Economics Department is under-represented on the patent page.

I tried to do a google search on patents held by economists but I have failed. I used to hold a patent on OLS estimation but I didn't renew it.

This theme that Al Gore is a carbon hypocrite seems to work people up. Last year, people seized upon the facts that his big houses used a lot of electricity relative to Joe Plummer. Now they are talking about Big Al's love of bacon.
http://www.businessweek.com/innovate/NussbaumOnDesign/archives/2007/02/gores_carbon_fo.html
"Last August (2006) alone, Gore burned through 22,619 kWh—guzzling more than twice the electricity in one month than an average American family uses in an entire year. As a result of his energy consumption, Gore’s average monthly electric bill topped $1,359. "

Opinion
Al Gore’s Inconvenient Diet
Why is the world’s foremost environmental crusader not a vegetarian?
Published On 10/23/2008 11:20:41 PM
By LEWIS E. BOLLARD

“The rule of reason,” Al Gore ’69 declared to a packed Tercentenary Theater a Wednesday, “must dictate our actions towards the environment.” His speech pushed this theme, urging listeners to take drastic actions now for “the survival of our human civilization.”

As the world faces the existential threat of climate change, the former Vice President has embarked on an admirable quest to reform carbon-heavy habits. Yet despite his talk of making inconvenient choices, Mr. Gore continues to indulge in one of the most environmentally irrational habits of all: eating meat.

A 2006 report by the U.N. Food and Agriculture Organization found that meat production generates almost a fifth of all human-induced greenhouse gas emissions—more than the world’s cars, planes, and trucks combined. Moreover, the report cited meat production as a primary cause of land degradation, air pollution, water shortage, water pollution, and lost biodiversity. The scientists concluded “the livestock sector emerges as one of the top two or three most significant contributors to environmental problems, at every scale from local to global.”

To put this in perspective, a University of Chicago study concluded that an individual American can do more to reduce global warming by going vegetarian than by driving a Prius.

Mr. Gore, a Prius driver, spoke at length on Wednesday about achieving energy independence. But one third of America’s fossil fuel consumption is used solely to raise animals for meat, according to the estimate of E, an environmental magazine.

Moreover, factory farms emit large quantities of methane and nitrous oxide—pollutants with, respectively, 23 times and 296 times the global warming potential of carbon dioxide. That’s why the organizers of the Live Earth concerts—at which Mr. Gore spoke—wrote in the Live Earth Global Warming Survival Handbook that “refusing meat” is “the single most effective thing you can do to reduce global warming.”

It might seem odd that Al Gore’s bacon and eggs breakfast could have more impact on the environment than his choice to avoid SUV’s. But meat production’s inherent inefficiency creates its large carbon footprint.

Feeding animals for meat production requires growing ten times as many crops as producing directly for a plant-based diet. The land needed for these crops contributes to deforestation—a major cause of global warming. In 2006, Greenpeace unveiled a “KFC: Amazon Criminal” banner across the Brazilian rainforest to highlight the effect KFC’s huge demand for chicken feed has in deforesting the Amazon Basin.

So why is Al Gore not a vegetarian?

Mr. Gore’s spokespeople have consistently denied media requests to answer this question, but a few brave acolytes have tried to defend him. Their answers fall back on two points: that Mr. Gore’s unique messenger status means it is his political actions, not his personal choices, that matter; and that his summit-filled lifestyle would make it hard to be a vegetarian.

Yet Mr. Gore’s credibility hangs on embodying his political beliefs in his own lifestyle. Dr Rajendra Pachauri, who as Chair of the Intergovernmental Panel on Climate Change shared the Nobel Peace Prize with Mr. Gore, is a vegetarian. Citing studies showing that producing 2.2 pounds of meat causes the emissions equivalent of 80 pounds of carbon dioxide, Dr Pachauri has publicly stated that the two best things an individual can do to fight global warming are to drive less and adopt a vegetarian diet.

But even if Mr. Gore finds it uniquely hard to go vegetarian, why does it matter? “An Inconvenient Truth” stresses that individuals must make bold changes to combat global warming. And on Wednesday, Mr. Gore spoke movingly of the need to approach the environment with “questions of fact, not questions of power.” Today, the powers of custom and convenience support eating meat. The facts suggest that adopting a vegetarian diet is the single most powerful step an individual can take to combat climate change.

For the sake of the planet and his own credibility, Mr. Gore should follow those facts.

Lewis E. Bollard ’09 is a social studies concentrator in Kirkland House. His column appears on alternate Fridays.

http://www.thecrimson.com/article.aspx?ref=524846

Funny stuff, he should read Dan O'Flaherty's City Economics at least twice.

Confessions of a Radical White Gentrifier
By Andrew Lyubarsky
http://www.columbiaspectator.com/node/56396
PUBLISHED OCTOBER 23, 2008

On paper, it seems like I’ve done everything right. I attend regular protests on 125th Street, I can cite Huey P. Newton, and I recite compellingly how American urban policy has ravaged communities of color since the halcyon days of Robert Moses. Marathon readings of Manhattanville documents are my idea of a fun time. But no matter how many man-hours I put in working for affordable housing, it is impossible to mask the obvious. If I decide to move to Harlem and be a white person in a non-white urban space, I cannot help but be an agent of gentrification.

The standard account of neighborhood change that has transformed New York City community by community is familiar by now. Young people with little money and a lot of creative energy move into an economically depressed area of the city. With an ideology that inclines toward cultural resistance against a mainstream concerned primarily with profit-making and an identification with the working-class population, a neighborhood that has been historically resource-starved and disadvantaged becomes “gritty” and “authentic.” A developing counter-cultural scene piques the interest of those outside the community, with the presence of white faces in a zone formerly coded as non-white leading to higher-end development. This eventually pushes up rents and leads to the displacement of both the working-class inhabitants and the bohemians that started the process. A process of “imperialist nostalgia” sets in where one begins to mourn the “lost soul” of the neighborhood, when it is the subculture’s presence that led to its own disappearance.

The alternative identity, which I share, can only be defined against a certain “other.” This is the mainstream yuppie, stereotyped as a culturally uninteresting consumerist who has no problems reproducing the existing social order. However, as Richard Lloyd argues in his book on the new bohemia in post-industrial cities, the class interests and tastes of supposedly “radical” and “subcultural” groups have more in common with the yuppie “class enemy” than with the people of color that embody “authenticity” in their imaginations. While many of the original residents do take advantage of new businesses and institutions archetypal of gentrifying neighborhoods, the scene constructed by the newcomers is usually far more successful at attracting more people from outside the community than forming genuine links within it.

In my experience, identification with locals can turn into an ideological illusion given the cultural divides between middle-class bohemians and working-class people of color. At worst, people of color can become exotic scenery in the bohemian imagination, in which case casual street interaction and commercial exchanges become stand-ins for a more profound integration. At best, there can be a genuine striving for authentic and well-intentioned engagement with the neighborhood, but even this does not remove the problematic nature of one’s structural role in the real estate market.

And that is the point—no matter how successful an individual is at bridging cultural barriers, forming friendships, and working for a good cause, his or her presence can still contribute to making a neighborhood less affordable. Consider West Philadelphia, an interesting case study of a primarily African-American community which, even during the era of disinvestment and neglect, always boasted a sizable community of progressive and radical white people. Groups of anarchists squatted in abandoned buildings, organized co-ops in houses that they owned, and operated several collective centers that housed political discussions and small action groups. Although their group was unusually politically conscious and made attempts to link up with community groups of color, its presence made the area more accessible for wealthier people seeking accommodations more spacious than what they could afford in the downtown. Although there might be a fierce conflict of ideology and lifestyle between them and the anarchists, the anarchists were not viewed as “dangerous” in the way that low-income people of color are in our racialized society. The road to Williamsburg, so to speak, is paved with good intentions.

As relatively privileged Columbia students, many of us find ourselves in this situation. But let’s stay away from the liberal guilt complex. It is unreasonable to place blame on individuals for what is functionally a structural problem in the free-market approach to urban planning. The answers to spiraling rents are economic and political and cannot be expected to come from some kids who, after all, are just trying to get by themselves.

Far from guilt, our responsibility is to become self-aware. We need to understand that we live bounded by class and race, and claims to alterity cannot transcend that. This self-awareness gives us a responsibility to make a critical intervention in this reality, lest we allow ourselves to be manipulated by forces larger than ourselves for ends that we oppose. The worst thing that we can do is to serve as uncritical cogs in the urban redevelopment machine that grinds people down—it is our duty to understand the processes that condition our existence and assert our own agency. This is why I’ve concerned myself with the ways that Columbia has exploited its economic power and political clout to push its narrow vision of expansion against the wishes of the surrounding communities. I, and most of my fellow activists, know that we do not come from this community, but we have listened to its many voices and paid heed to their wisdom.

Andrew Lyubarsky is a Columbia College senior majoring in Hispanic studies. Cliche Guevara runs alternate Thursdays. Opinion@columbiaspectator.com

TAGS: Activism, Gentrification, liberal guilt complex, racism

My parents have signed me up for the New Yorker and the New York Review of Books. I guess that they believe that a tenured professor should be a well read intellectual. While I prefer to write rather than read, I do read these things and sometimes actually learn.

Bill McKibben is arguing that we don't have enough time for "green capitalism" to react and respond to avert the climate crisis. This raises the fascinating issue of how quickly capitalism does adapt. BM sounds pessimistic arguing that our free market Titanic will hit the iceberg even though we are now incentivized and awake and trying to avoid it!


http://www.nybooks.com/articles/22027?email

The New York Book Review
Volume 55, Number 17 · November 6, 2008
Green Fantasia
By Bill McKibben

Hot, Flat, and Crowded: Why We Need a Green Revolution—and How It Can Renew America
by Thomas L. Friedman
Farrar, Straus and Giroux, 438 pp., $27.95

Thomas Friedman is the prime leading indicator of the conventional wisdom, always positioned just far enough ahead of the curve to give readers the sense that they're in-the-know, but never far enough to cause deep mental unease. He performs a useful service as a kind of political GPS unit, telling us where the country is, and could reasonably be expected to go. And this is his best book, more nuanced than his last, the best-selling The Earth Is Flat. But it needs to be viewed as a snapshot of the current dilemmas of policy, not as the oracle that it often aspires to be.

By this point, even casual readers of t he New York Times Op-Ed page are familiar with the arguments in his book, because he's rehearsed most of them several times. Post–September 11 America, he writes, is in danger for a pair of overarching reasons: fear of terrorism has caused the country to throw up walls even as the rest of the planet becomes more open—thus we don't get to take full advantage of the new "flatness" that technologies like the Web are yielding. And a hangover of triumphalism from our cold war success has left us unfocused—our politics have slipped into rancorous and petty division that prevents Washington from going to work to fix very real problems like Social Security's huge deficits or our strained and overpriced health care system. "We've become a subprime nation that thinks it can just borrow its way to prosperity—putting nothing down and making no payments...." He calls this "dumb as we wanna be" politics, and says nothing better exemplifies it than the demand last spring, from both Hillary Clinton and John McCain, for a "gas tax holiday" in the face of rising fuel prices. (Barack Obama opposed it.)


Against our fearfulness and flabbiness, we retain a single saving grace: a legion of innovators and small entrepreneurs who are engaged in what Friedman calls "nation-building at home." (His slogan-coining twitch has never been more in evidence than in this volume.) "Every week I hear from people with their new ideas for making clean energy, or with new approaches to education, or with new thoughts about how to repair something in our country that desperately needs repairing," enough to convince him that America is still "bursting with vitality from below."

Thus armed analytically, he sallies forth against what he sees—rightly, I think—as the most severe of our challenges, and hence the greatest of our opportunities: the need to rapidly transform our energy system away from fossil fuel, so that we can head off climate change and free ourselves from the grip of "petro-dictators." He calls his program "Code Green," and argues that just as we invented ourselves as the world's leading industrial power and then its greatest information society, so now America must become the world's "greenest country." Where once we sought to best the Soviets or to put a man on the moon within a decade, now we need a new, overarching national project, to become an America

where inventing a source of abundant, clean, reliable, cheap electrons, which could enable the whole planet to grow in a way that doesn't destroy its remaining natural habitats, becomes the goal of this generation.
His basic policy guidelines, and most of his specific suggestions, for managing this crucial transition are sound. He really does get globalization, in a way only ceaseless travelers can—he's transfixed, for instance, by the rapid growth of Asian cities, and manages to convey how impressive it is to watch cities like Dalian in northeastern China and Hyderabad in southern India grow by millions of people in a year or two. "The Dalian I knew already had a mini-Manhattan. But when I returned I saw that it had given birth to another," with a convention center "bigger, more luxurious, and more whiz-bang modern than any convention center I've ever visited."

In a world marked by that kind of dynamism, it is as pragmatically useless as it is morally lame for Americans to tell the Chinese, or anyone else, to go without. "We invented that system. We exported it. Others are entitled to it every bit as much as we are," he writes.

We Americans are in no position to lecture anyone. But we are in a position to know better. We are in a position to set a different example of growth. We are in a position to use our resources and know-how to invent the renewable, clean power sources and energy efficiency systems that can make growth greener.
Among his specific recommendations:

• The replacement of liquid fuels and coal ("fuels from hell") with renewable sources like wind and sun ("fuels from heaven"). He understands that the key here is electrifying the economy—indeed this section of the book reads like a gloss on Al Gore's highly important early summer speech when he called for the conversion of our economic base to renewable electricity inside of a decade. Crucially, Friedman understands that while some "eureka breakthroughs" would be nice, most of the technologies we need are already "hiding in plain sight" and could rapidly drive down costs if they were put into commercial use.

• The fast conversion of the car industry to hybrid electric vehicles that will plug in to numerous outlets, PHEVs, which are scheduled to go on sale with the advent of the Chevy Volt in model year 2010 (i.e., in the fall of 2009), are indeed a big deal, as Friedman insists. Unlike today's hybrids, which use a relatively small gas motor with electric power as a supplement, the plug-ins will run primarily on electricity, with the gas kicking in only if you drive more than, say, forty miles. For most trips, that is, they'll use electrons, not gallons. That means that we'll need to convert the underlying electric grid—which now depends on fossil fuels to run turbines—to clean sources, which will be hard, but not as hard as figuring out some other low-carbon replacement for liquid fuels. And in fact, plug-in hybrids should help with the inherent problem in using sun and wind, which is their intermittency. Friedman quotes Felix Kramer, the California innovator who has done the most to promote the new vehicles: their widespread adoption, he says, will give "utilities what they have never had—the potential for distributed energy storage, using all of our car batteries."

• As we electrify more of our lives, we'll need a smart energy grid to make the most efficient use of power. Your basement, he says, should eventually house a Smart Black Box, which will track the energy use of every appliance in the home—all of which

can now be programmed to run at lower levels when demand for electricity on the grid is highest and electrons are most expensive, and they can be instructed to run at fuller power during the night—or, in the case of your electric car, to charge and store energy at night, when electricity demand is lowest and power is cheapest.
Indeed, the whole grid will be similarly intelligent—you'll be able to sign up for a service that lets the black box—"the utility"—automatically tell your water heater or your fridge to cycle off for short periods of time, "so short that you don't even notice."

• "Bottom line: America needs an energy technology bubble just like the information technology bubble. In order to get that, though, the government needs to make it an absolute no-brainer to invest in renewable energy." The federal government, he says, should intervene in markets in a few crucial ways, first by making sure that carbon remains expensive. Friedman favors either a cap-and-trade system that would make energy companies buy permits for carbon, or a more straightforward carbon tax—or maybe a "floor price." The latter idea is new, and interesting: it's hard, he notes, for politicians to tax $50-a-barrel crude oil so its price rises to $100. But once it's $140, it's politically easier to say that we won't let it fall back below $100—and that kind of guaranteed long-term price would help spur innovation, letting companies build and install new technologies without worrying that the price of conventional energy is going to collapse. So would a national renewable energy mandate, much like the ones that several states have adopted in recent years. In Colorado, for instance, where the state is forcing all utilities to generate 20 percent of their power from renewable energy by 2020, the biggest power producer—Xcel Energy—recently announced plans to shut down two coal plants and replace them with concentrated solar power stations. And Friedman calls as well for a "feed-in tariff" like the ones that Germany and Japan have used; by rewarding individuals with guaranteed good prices for energy they produce from, say, solar panels on their roofs, they have turned those two not-very-sunny nations into solar pioneers.

Friedman knows that innovation in the financial services industry will be almost as important as progress in engineering. Since a house retrofitted with good insulation saves energy, and hence dollars, at a predictable rate, banks should be able to figure out how to fill your walls with fiberglass and both pay for the cost of the job and turn a profit by taking half of the resulting stream of savings. So far this has proven an elusive goal—but surely an industry that was capable of relentlessly bundling subprime mortgages for sale could address itself to generating profits from the homes people still own. As Friedman argues, "the cash flow from all these efficiency deals is very predictable," so they should be able to sell them to investment banks, "which turn them into green savings bonds."

Friedman even comes up with one idea that I think will be new to many readers of the energy literature, as it was to me: to turn many existing office or institutional buildings into "dual-use" facilities (his example involves turning school kitchens into Domino's Pizza bakeries during idle hours). You could go farther still, and note that most American suburbs and rural areas already have a mass transit system—it's just painted yellow and goes nowhere on weekends.

In short, he delivers a very hopeful and fairly persuasive pep talk. He's chipper—because we've got big problems, we've got even bigger opportunities. "There is a Chinese proverb that says, 'When the wind changes directions, there are those who build walls and those who build windmills.'" Instead of more walls around our embassies, and more tariffs around our products, and more trade barriers to protect our aging economy, he opts for windmills. And he does it with the kind of high-flown rhetoric that sounds like it could come from the podium of a Democratic convention:

In such an America, birds will surely fly again—in every sense of that term: Our air will be cleaner, our environment will be healthier, our young people will see their idealism mirrored in their own government.... That is also an America that will have its identity back, not to mention its self-confidence, because it will again be leading the world on the most important strategic mission and values issue of the day.
When he writes "So I say we build windmills. I say we lead," you can almost see the balloons dropping. I'd vote for him in a minute—he might make an honest and courageous politician. This is as good as the conventional wisdom gets.

But it also makes you remember why we don't usually turn to politicians for deep thinking, or for writing that penetrates beyond the moment (Barack Obama being a possible exception). The conventional wisdom, even the ahead-of-the-curve, smart, progressive version of it, almost always has deep flaws, and those are in evidence here as well. Indeed, those flaws undermine parts of his argument in serious ways.

For one thing, he's a little late in recognizing what needs to be done. Friedman's earlier best sellers, The Lexus and the Olive Tree (1999) and The Earth Is Flat (2005), somehow managed to be all about globalization without seriously considering the single biggest change the earth is undergoing: widespread climate change. (There's one passing reference in The Earth Is Flat : he recommends that America embark on a program of energy independence, one side benefit of which would be to "improve its own standing in Europe by doing something huge to reduce global warming.") Those omissions struck me as odd when each book emerged. It's not that we didn't know about this problem at the time: by 1995 the Intergovernmental Panel on Climate Change (IPCC) had declared that we faced a serious problem, and the Kyoto treaty negotiations—given strong support by the Clinton administration—landed in between his two volumes. Most of the countries he often admires—the Western Europeans, the Japanese—were by 1999 hard at work on reducing carbon emissions.

But it seems to have been Hurricane Katrina, late in 2005, that woke Friedman from his nap, and even then it was a delayed reaction. In early 2007, he reports, he was "having lunch with my friend Nate Lewis...at the faculty club on the palm-tree-lined Caltech campus...and I could not resist asking Nate: 'Why was Katrina so unnerving?'" Nate sips his strawberry lemonade ("a specialty of the house") and answers with a question of his own: "Did we do that? Or did God do that?" At first, says Friedman, "I didn't understand—and then it clicked.... Have we introduced so much CO2 into nature's operating system that we no longer know where nature stops and we start in shaping today's weather?"

Well, indeed we have—and indeed many of us realized that a good long while ago. (I admit a personal stake here, having published this precise argument as The End of Nature in 1989, a book that appeared in twenty or so languages and that obscure journal The New Yorker.) Eight years ago, for instance, the environment minister in the last Tory government in Britain, John Gummer, said, "We talk of natural disasters, or acts of God, but they're the acts of human beings. We've changed nature." One can only wonder how much more useful Friedman's revelations would have been had they come earlier, in the period when few American politicians save Al Gore were willing to make this case. More relevant to this review, his late arrival to the question means that his interpretation of the science is a little off. Mostly he gets the scale of the problem right; thanks in part to interviews with indefatigable blogger Joseph Romm[*] (climateprogress.org), he understands that the IPCC projections of future warming are almost certainly severe underestimates, and that the potential scale of the looming disaster is large indeed—"biblical," to use his term.

But something seems to be missing from his mental graph—the axis of time. He bemoans the lack of "celebrity scientists" drawing attention to the problem, which is why his omission of James Hansen, the NASA climatologist, from this volume is puzzling. Hansen was the first to make the public case for global warming as a threat, way back in 1988 in congressional testimony that appeared, among a million other places, above the fold on the front page of The New York Times.

And Hansen has continued, in recent years, to offer the most useful projections of climate change, and the most outspoken interpretation of their meaning. Last December, in a paper delivered at the American Geophysical Union, he said that carbon concentrations in the atmosphere (currently 387 parts per million) were already above the safe line for preventing the possibility of the rapid rise of sea levels, shifts in monsoons, and other civilization-shaking disasters. We needed, he said, to take emergency action to push that number back below 350 parts per million. The only way to achieve that result, he added, was to close all coal-fired power plants in the next few decades, a truly monumental challenge.

This summer's rapid melt of Arctic ice has served only to underline the magnitude of Hansen's challenge, and indeed new data released in late September showed that carbon emissions have grown even faster than the most dire predictions of the IPCC. (The new numbers, ironically, came during the worst week so far of the Wall Street crisis, and the financial meltdown served to blot out any discussion of the meltdown meltdown.)

That kind of aggressive time scale appears not to be what Friedman has in mind. Though he doesn't mention it, the world's governments are now nearing a real deadline: December 2009, when a negotiation session in Copenhagen is supposed to produce a new climate treaty, the successor to the Kyoto protocols. Friedman says he's "not against global treaties," but thinks that they are unlikely to accomplish much. Instead, his plan is for America to become a green economy so that others will then "emulate us voluntarily." "A truly green America," he insists, "would be more valuable than fifty Kyoto Protocols. Emulation is always more effective than compulsion."

This is probably not the iron rule he postulates (indeed, he fantasizes at one point about turning America into China for a day, so that centralized power can compel us to turn green). And there's no good reason to think that the planet needs America alone to be in the lead position—the Europeans and the Japanese have already done far more, with technology and with policy, to limit global warming, and if you visit China you know that the hotels are already full of foreign consultants and advisers on global warming.

But the real problem is simply the timing. Let's say America commits to a strong buildup of renewable and efficient technology, and that a decade hence our economy has begun to look somewhat greener. That would mean a huge effort, involving both widespread conservation efforts and the rapid rollout of wind power, large-scale desert solar arrays, and the transmission lines to connect it all. (This is a dream that, frankly, looks even less likely in the wake of our recent financial mess—that $700 billion could have built a lot of windmills.) Under Friedman's scheme, China and India and the rest would then look up, notice, and begin the process of transition themselves.

Had we started on this process twenty years ago when we first learned about global warming (that is, had the conventional wisdom lined up behind it early on), this kind of approach might possibly have carried the day. But it can't now. If the Chinese continue building coal-fired power plants for another decade while we wait for America to construct a shiny green city on the hill, the carbon load from those Chinese plants will force us toward many of the dangerous tipping points that Hansen and other scientists have identified in recent years. In that world, the rising seas will be lapping at the bottom of the hill, and the city up on top will be spending most of its dwindling capital dealing with the damage.

There is, therefore, no escaping the need for politics, for a robust international agreement that, among other things, commits America to sharing the burden for helping China and India develop without burning their piles of coal; building wind farms in Mongolia is even more crucial than in Minnesota. The controlling metaphor here is not the Manhattan Project or the Apollo moonshot; it is a Marshall Plan for carbons by which the global north makes up some of the difference between cheap coal and more expensive renewable energy for the global south—another possibility that has probably grown less likely as our financial strains have increased. But if the conventional wisdom doesn't line up behind such a plan soon, before the Copenhagen talks, then the chance will pass. Consider the words of a scientist, Rajendra Pachauri, who last year accepted the Nobel Prize on behalf of the IPCC, which he heads: "If there's no action before 2012, that's too late. What we do in the next two to three years will determine our future. This is the defining moment."

Friedman can't easily deal with such analyses precisely because of the tenets of the conventional wisdom, American style, which is that fundamental change in direction is essentially impossible. The world is a growth machine and "nobody can turn it off." Everyone wants "an American style of life," and "their governments will not be able to deny" it to them. So the only option is to tinker with the American style of life to make it greener. Hence the longest soliloquy in the book, a hymn to the soon-to-be smart home, where the solar panel calls up to tell the "utility" when there's been a blackout, where the smart lights in your office are triggered by motion sensors, where you plug in your "Smart Card" ("sponsored by Visa and United Airlines Mileage Plus") into your Sun Ray computer terminal to start your workday. All this gear is so intelligent, in fact, that "when the sun is shining brightly and the wind is howling" (i.e., when your house is generating solar and wind power), your utility turns on your dryer to finish your laundry.

Does it ever occur to him, in the grip of a fantasia like this, that if the sun is shining brightly, or the breeze is blowing steadily, you could dry your clothes on a $14 piece of rope strung off your back deck, or for that matter on a foldable rack in the apartment hallway? And that since most of the world already knows how to do it, we might be smarter moving in their direction instead of insisting that they buy into our entire high-technology suburban dream?

There's one other odd thing about this book—it's out of date even before it's published. Though Friedman follows some trends right up through the summer of 2008 (he has reports from June of this year about trends in Egyptian television, for instance), he doesn't even mention the largest story of the year, and indeed the dominant new trendline of our time: the sharply rising cost of oil. Though recently off its peaks, the price of oil has risen fast enough to dramatically change the way Americans behave, and indeed how we think about the world. In his book he's still describing a world, completely consonant with his "flatness" metaphor, where the number of American airline passengers will double by 2025. But in the real world of expensive energy, the air carriers are shedding routes and parking planes—The New Republic reported in August on a new study that showed America might go from four hundred primary airports to as few as fifty by 2025, and traffic might fall by 40 percent.

Americans are driving less too, and the frictionless transport system that undergirded Friedman's flat world has begun to creak: the cost of shipping a container load has tripled since 2000, and some manufacturing jobs are beginning to come home. I suspect Friedman didn't include the most important news story of the year because he hasn't had time to process it—it undercuts the idea of a flat world. With higher oil prices, we live on what a slogan-coiner might call an Uphill Planet, and the grade between you and everywhere else increases as the cost of oil climbs. Friedman blames any shortages on a paucity of drilling rigs and tankers, the mendacity of oil regimes like Russia, and limits on offshore and Arctic drilling in the US and other Western nations. But the possibility that we're starting to run out seems not to have crossed his computer screen.

Friedman can't see these new probabilities because they conflict with the one great imperative of the conventional wisdom, which is optimism. Just as you can't run for commander-in-chief on any platform other than "Our best days are still ahead of us," so you can't run for pundit-in-chief either. But those instincts can get you in trouble. Friedman, after all, supported the war in Iraq with a similarly glib but upbeat forecast. The day of the invasion he weighed the two schools of thought: the Europeans were predicting "more terrorism, a dangerous precedent for preventive war, civilian casualties," while Bush was arguing "that it will be a game-changer—that it will spark reform throughout the Arab world and intimidate other tyrants who support terrorists."

He chose wrong there, and of course deplores it now; my guess is he'll rue his dismissal of international diplomacy, and of the possibility that the world should consider more fundamental shifts than technological change alone. Global warming, above all, should give one pause—after all, we are making our mark now in geological, not human, time. But pause doesn't seem to be one of his modes.



Notes
[*]See my review of his book The Hype About Hydrogen: Fact and Fiction in the Race to Save the Climate in The New York Review, June 10, 2004.

This would be a great year to hire new faculty. Even the richest universities are feeling the pain. The wise Dean would use endowment income to hire this year. I know that the UCLA Deans are wise and will follow my advise. It appears that several leading schools are cutting back this year and some top new talent will land at universities a pinch down the food chain.

Faust Warns Faculty On Finance

Published On 10/22/2008 12:43:05 AM
By MAXWELL L. CHILD and CHRISTIAN B. FLOW
Crimson Staff Writer

University President Drew G. Faust began yesterday’s meeting of the Faculty of Arts and Sciences with a 10-minute address on the effects that the recent downturn in the financial markets might have on Harvard.

The remarks, moved up to occupy the spot in the meeting agenda normally reserved for the business of the Dean of the Faculty, emphasized that, despite being the world’s wealthiest institution of higher education, Harvard would not make it through the downturn completely unscathed.

Faust added that resources are being allocated to cope with the situation.

“This University has survived revolutions, [a] civil war, downturns, and depressions, for more than 370 years, and our endowment enables us to pursue our ambitions over the long term with great consistency,” Faust said. “But the world is enveloped in a serious financial crisis, and we are not an exception.”

Speaking from her seat at the head of the Faculty Room, flanked by the deans of the College, the Graduate School of Arts and Sciences, and the Faculty, Faust offered a sobering view of the state of the University’s financial performance during the present downturn.

“Like all investments, our endowment has been touched—blown in some ways—hit by widespread losses across the world in investment values,” Faust said, while her colleagues at the head table, many of whom appeared amused at other points in the meeting, sat grim-faced.

Harvard’s endowment grew 8.6 percent during the year ending in June 2008, outpacing industry benchmarks, but financial data from the past few months—which have seen some of the most precipitous economic declines in decades—have not been made available.

Faust said that the primary concerns about the situation were that the financial aid needs of students whose families are challenged by the crisis might increase, and that the woes on Wall Street might depress fundraising.

Harvard has been eyeing 2011 for the beginning of its next capital campaign, but University officials have said that the date may be pushed back if financial difficulties hamper fundraising efforts.

Faust cited efforts to ensure loan access for international students in her discussion of the University’s response to the crisis. Graduating students facing employment searches in a troubled economy will benefit from bolstered career counseling, she also said.

“We need to be alert to what the impact of the financial situation might be on those around us, and we need to be ready to help,” Faust said, calling for increased communication between Faculty members and the University in the coming days.

Judith L. Ryan, a professor of German and comparative literature, said after the meeting that she believed the Faculty responded well to Faust’s message and that decline of the markets has resonated even in the ivory tower.

“I would hope that they’re reassured by the fact that we’re paying attention and that we have our eyes on the issues,” Faust said in a brief interview after the meeting.

—Staff writer Maxwell L. Child can be reached at mchild@fas.harvard.edu.

—Staff writer Christian B. Flow can be reached at cflow@fas.harvard.edu.

http://www.thecrimson.com/article.aspx?ref=524781

Who says that economists aren't photogenic? Here are seven smart people talking at once at Columbia University on monday about the Presidential Election. It looks like Goolsbee spoke his mind.





Here is what the young people of Columbia Univ had to say.

Campaign Advisers Square Off On Economy
By Javonni Judd


Created 10/20/2008 - 7:41pm

The senior economic advisers to the two presidential candidates met Monday night in Roone Arledge auditorium to debate the merits of their candidates’ plans to salvage the American economy.

Sponsored by the Program for Economic Research and moderated by economics professor Donald Davis, the event allowed for Senator John McCain’s (R-Ariz.) Douglas Holtz-Eakin and Senator Barack Obama’s (D-Ill.) Austan Goolsbee to face off over spending, the bailout, and federal tax policy.

“With the election two weeks away, the economy is the number one issue on the minds of Americans,” University President Lee Bollinger said in his opening remarks. The candidates’ plans, he explained, were especially important in light of such new American perils as lower standards of living, joblessness, and even “a deficiency of basic human conditions.”

Goolsbee opened the debate with praise for Obama’s anticipation of the financial crisis, citing a speech the senator gave last September warning about the looming financial dangers. “This financial crisis has documented that he is calm and on top of the issues,” he said. He also stressed direct tax relief for the middle class and the need to invest in long-term infrastructure rather than focusing only on the current Wall Street crisis.

“Voters are faced with real choices,” Holtz-Eakin told the audience, “as they are manifested in the policies and characters of the candidates.” Despite his Republican affiliation, he described the Bush administration’s tenure as “eight years of spending hand over fist” and lauded the Balanced Budget Act passed by President Clinton and Congress in the 1990s.

McCain, he explained, hopes to encourage businesses to create jobs in America by lowering their operation costs. “If headquarters are here and research and development,” he said, “manufacturing will be here.”

The conversation shifted to the divergence in tax policy between the candidates, with Holtz-Eakin decrying health care costs as the largest impediment to keeping businesses competitive.

Goolsbee argued that McCain’s policies would increase the national deficit. “Eighty to 90 percent of the people in the country are facing a squeeze,” he said. “Regardless of what you may think the cause of that squeeze is, it’s undeniable and you do not use tax policy to pile on top of that squeeze.”

The debate had a few contentious moments. While Holtz-Eakin accused the Obama campaign of promising money to everyone they encountered on the campaign trail, Goolsbee sometimes openly mocked Holtz-Eakin’s positions. “And this part of the debate is brought to you by Aleve,” he said, “because every time I try to understand McCain’s positions, I get a headache.”

To Juan Aristi, Business ‘09, this was less than admirable. Goolsbee, Aristi said, came off as “a bit of a performer” who at times “got a little bit carried away.” But the overall debate, he said, went deeper into the issues than those between the presidential candidates.

Gregory Feldman, SEAS ‘12, found Goolsbee to be articulate and intelligent and agreed that the event was aimed at a more specialized audience than the national debates. It was, he said, “tailored to a specific audience of people who understand economics.”

news@columbiaspectator.com