Wednesday, October 29, 2008

UCLA and USC: No Longer Rivals

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.
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
Last Updated: October 29, 2008 00:01 EDT

Venture Capital and "Green" Investment

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.

Tuesday, October 28, 2008

Diary of a Strange Day

I spent the morning at the Beverly Hills Hotel attending the Milken Institute's "State of the State". (see

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.

Monday, October 27, 2008

Putting on a Jacket and Tie

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


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


Lewis Feldman, Partner, Goodwin Procter LLP


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


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


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


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.

Friday, October 24, 2008

Intellectual Property

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.

Concerned about Al Gore's Meat Diet?

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.
"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. "

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

“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.

Thursday, October 23, 2008

Barriers to Entry

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

Confessions of a Radical White Gentrifier
By Andrew Lyubarsky

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.

TAGS: Activism, Gentrification, liberal guilt complex, racism

Beat the Clock: Can Tom Friedman Outrace Jim Hansen?

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!

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 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[*] (, 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.

[*]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.

Wednesday, October 22, 2008

Harvard Prepares for Tougher $ Days Ahead

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
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

—Staff writer Christian B. Flow can be reached at

Tuesday, October 21, 2008

Too Many Economists in One Photo?

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.”

Is Investment in Renewable Energy Risky?

Under what scenarios is investment in renewable energy a bad (ex-post) investment? Falling prices for fossil fuels don't help. I find this a real interesting test
of cob-web theories of expectations, that our best guess of future fossil fuel prices is what happened yesterday, versus random walk thinkers --- that today's price is our best guess of the future versus peak oilers --- we are running out of exhaustible natural resources and growing demand in China and India and in other hungry LDCs will cause demand to rise so price will rise so in the medium to long term these renewable investments will pay for themselves. What % of the population believes in each of these 3 models? Clearly, if we anticipate "peak oil" we will see more investment in green capital today but how many of us hold this world view and what "moves" your expectations of the future? Now that gas is $3.50 a gallon have you been lulled? This matters because if the private sector is not investing then there will be ongoing demands for the public sector to engage in a green "big push" to subsidize these industries. Whether government can "pick winners" remains an open question.

October 21, 2008
Alternative Energy Suddenly Faces Headwinds

HOUSTON — For all the support that the presidential candidates are expressing for renewable energy, alternative energies like wind and solar are facing big new challenges because of the credit freeze and the plunge in oil and natural gas prices.

Shares of alternative energy companies have fallen even more sharply than the rest of the stock market in recent months. The struggles of financial institutions are raising fears that investment capital for big renewable energy projects is likely to get tighter.

Advocates are concerned that if the prices for oil and gas keep falling, the incentive for utilities and consumers to buy expensive renewable energy will shrink. That is what happened in the 1980s when a decade of advances for alternative energy collapsed amid falling prices for conventional fuels.

“Everyone is in shock about what the new world is going to be,” said V. John White, executive director of the Center for Energy Efficiency and Renewable Technology, a California advocacy group. “Surely, renewable energy projects and new technologies are at risk because of their capital intensity.”

Senator Barack Obama and Senator John McCain both promise ambitious programs to develop various kinds of alternative energy to combat global warming and achieve energy independence.

Mr. Obama talks of creating five million new jobs in renewable energy and nearly tripling the percentage of the nation’s electricity supplied by renewables by 2025. Mr. McCain has run television advertisements showing wind turbines and has pledged to make the United States the “leader in a new international green economy.”

But after years of rapid growth, the sudden headwinds facing renewables point to slowing momentum and greater dependence on government subsidies, mandates and research financing, at a time when Washington is overloaded with economic problems.

John Woolard, chief executive officer of BrightSource Energy, a solar company, said he believed the long-term future for renewables remained promising, though “right now we are looking at tumultuous and unpredictable capital markets.”

Venture capital financing for some advanced solar projects and for experimental biofuels, like ethanol made from plant wastes, is drying up, according to analysts who track investment flows.

At least two wind energy companies have had to delay projects in recent days because of trouble raising capital. Several corn ethanol projects have been delayed for lack of financing in Iowa and Oklahoma since last month, and one plant operator in Ohio filed for bankruptcy protection last week.

Tesla Motors, the maker of battery-powered cars, recently announced it had been forced to delay production of its all-electric Model S sedan, close two offices and lay off workers.

Investment analysts say initial and secondary stock offerings by clean energy companies across global markets have slowed to a crawl since the spring, and for the full year could total less than half of the record $25.4 billion for 2007.

Worldwide project financings for new construction of wind, solar, biofuels and other alternative energy projects this year fell to $17.8 billion in the third quarter, from $23.2 billion in the second quarter, according to New Energy Finance, a research firm in London. The slide is expected to be sharper in the fourth quarter and next year.

In the United States, financing for new projects and venture capital and private equity investments in renewable energy this year might still top last year’s results because so much money was in the pipeline at the beginning of the year, but the pace has slowed sharply in the last month.

The next presidential administration, to make good on campaign rhetoric and continue supporting renewables, will have to choose alternative energy over other programs at a time of ballooning deficits. Analysts say that is no sure thing.

“Government funding for renewables is now going to have to compete with levels of government funding in other areas that were unimaginable six months ago,” Mark Flannery, an energy analyst for Credit Suisse, said.

The central questions facing renewables now, experts say, are how long credit will be tight and how low oil and natural gas prices will fall. Oil and gas are still relatively expensive by historical standards, but the prices have fallen by half since July. Some economists expect further declines as the economy weakens.

Wall Street analysts say most utilities and other builders can profitably choose big wind projects over gas-fired plants only when gas prices are $8 per thousand cubic feet or higher. Natural gas settled Monday at about $6.79 per thousand cubic feet, down from about $13.58 on July 3.

“Natural gas at $6 makes wind look like a questionable idea and solar power unfathomably expensive,” said Kevin Book, a senior vice president at FBR Capital Markets.

Government mandates already on the books, including state rules requiring renewable power generation and federal requirements for production of ethanol, ensure that to some degree, alternative energy markets will continue to exist no matter how low oil and gas prices go. But the credit crisis means some companies that would like to build facilities to meet that demand are going to have problems. “If you can’t borrow money, you can’t develop renewables,” Mr. Book said.

Renewable energy now meets 7 percent of the nation’s energy needs, and public subsidies have promoted a leap for several alternative energy sources in recent years.

Ethanol is sold nationwide as a gasoline additive, and federal legislation aims to replace a major share of the oil now imported into the United States with domestically produced biofuels in the next 15 years. Enough new wind power was installed in the United States to serve the equivalent of 4.5 million households in 2007, the third year in a row the country led all nations in new wind power.

Renewable energy has become a big business worldwide, with total investment increasing to $148.4 billion last year, from $33.4 billion in 2004, according to Ethan Zindler, head of North American research at New Energy Finance. Mr. Zindler said the upward momentum had halted, and that total investment this year was likely to be lower than last.

In the 1970s, just as in recent years, high prices for fossil fuels led to rising interest in renewables. But when oil prices collapsed in the 1980s, the nascent market for renewable energy fell apart, too. Congress eliminated tax credits for solar energy, ethanol could not compete with cheap gasoline and a wind farm boomlet in California failed to catch on in the rest of the country.

The epicenter of investment and development moved to Europe, with its strong government support for renewables, and began shifting back only when heating oil and natural gas prices shot up again in recent years.

There are some differences this time. Coal, another major competitor of renewables, remains expensive and is facing increasing scrutiny over environmental concerns.

Most important, renewable energy entrepreneurs and experts say, is the growing government and public backing for renewable energy in the United States.

“What is driving the market this time is that we’re at war and this is a security issue,” said Arnold R. Klann, chief executive of BlueFire Ethanol, a California company that is planning to make ethanol out of garbage with the help of $40 million in financing from the Energy Department.

In its recent financial rescue package, Congress provided $17 billion in tax credits to promote various forms of clean power, for everything from plug-in electric vehicles to projects that will capture and store carbon dioxide from coal-burning power plants. Production and investment tax credits were extended for wind energy for one year, geothermal energy for two years and for solar energy for a full eight years.

Meanwhile more than 30 states have enacted standards demanding that utilities generate a minimum proportion — typically 10 to 20 percent — of their power from renewable sources in the next 5 to 10 years.

But some analysts say the government supports may not be enough to propel continued growth for renewables, noting that several states have already relaxed their goals.

“When they can’t meet their targets,” Mr. Book said, “they change them.”

Monday, October 20, 2008

Does Carbon Regulation Cause Job Creation?

In today's New York Times Business section there is a short article on page D2 about a new study arguing that California Energy Efficiency Regulation creates jobs . To my surprise the article didn't provide a link to the real academic study. In the name of public goods provision, I have used by vast "googling" skills to provide this link to David Roland-Holst's new Study .

I suggest that we read this study and then debate its merits.

Thursday, October 16, 2008

The Los Angeles Lifestyle and Second Guessing Bernanke

What do UCLA faculty do all day? We go to 7 year olds birthday parties and eat cupcakes near the pool. Here is Exhibit A. In case you didn't figure it out, I'm the old guy in the upper left of the picture.

Ben Bernanke may not want to visit UCLA soon. Smart people here are saying that Bernanke may have caused our current troubles with his "excessive" doom and gloom.

Here is the story;

1. A month ago, the Chairman convinced himself that the Wall Street banks needed a massive capital injection from Congress.

2. To persuade the sketpical Congress that "Main Street should bail out Wall Street" he needed to sketch a nasty depressionish counter-factual of what would happen in the absence of a bailout.

3. Step #2 achieved his goal of getting Congress and the lame duck president to act but had the unintended consequence of spooking the American people.

4. People have in mind an asymmetric information story. The man on Main Street says to himself, everything looks pretty good from my vantage point but if the smart bald guy at the Fed is very nervous --- he must know something that I don't . I think I will scale back my consumption, my hiring and perhaps sell some stocks and hunker down until this chaos passes.

5. Step #4 when aggregated up yields us today despite the fact that the "real fundamentals" aren't so bad.

There is a fascinating economics literature on how politicians speak to two different constitutencies. You should read this Glaeser paper.

Bernanke may have been a bit naive thinking that he could speak bluntly to Congress without the American people hearing him and reacting.

Tuesday, October 14, 2008

Can a Book About Hedonics Be a Bestseller?

Are there too many edited volumes in academic economics? Does their existence increase or decrease the stock of academic knowledge? There appears to be an uncountable number of them being written and published at any point in time. An optimistic would say that the "safe" (no rejection letters) setting offered by a conference volume encourages authors to play less golf and consult a pinch less as people try to write a new paper. A pessimist would ask about opportunity cost and would encourage folks to focus their efforts on publishing in the rigorous peer review process.

The Next Freakonomics?

Hedonic Methods in Housing Markets Pricing Environmental Amenities and Segregation

Publisher Springer New York
DOI 10.1007/978-0-387-76815-1
Copyright 2008
ISBN 978-0-387-76814-4 (Print) 978-0-387-76815-1 (Online)

Editorial View Condensed List View Expanded List View
11 Chapters
Front Matter
PDF (284.5 KB)

Andrea Baranzini, José V. Ramirez, Caroline Schaerer and Philippe Thalmann
PDF (249.8 KB)
Theoretical Foundations and Empirical Developments in Hedonic Modeling
Laura O. Taylor
PDF (332.0 KB)
Hedonic Modeling of the Home Selling Process
John R. Knight
PDF (320.0 KB)
Applications to Urban Environment Issues

Hedonic Property Value Studies of Transportation Noise: Aircraft and Road Traffic
Jon P. Nelson
PDF (327.4 KB)
Pricing the Homebuyer’s Countryside View
Jean Cavailhès, Thierry Brossard, Mohamed Hilal, Daniel Joly, François-Pierre Tourneux, Céline Tritz and Pierre Wavresky
PDF (278.2 KB)
Semi-Parametric Tools for Spatial Hedonic Models: An Introduction to Mixed Geographically Weighted Regression and Geoadditive Models
Ghislain Geniaux and Claude Napoléone
PDF (470.1 KB)
Estimating Hedonic Models of Consumer Demand with an Application to Urban Sprawl
Patrick Bajari and Matthew E. Kahn
PDF (280.8 KB)
Applications to Segregation and Discrimination Issues

Conceptual and Operational Issues in Incorporating Segregation Measurements in Hedonic Price Modeling
David W. S. Wong
PDF (350.7 KB)
Using Hedonic Models to Measure Racial Discrimination and Prejudice in the U.S. Housing Market
Jeffrey E. Zabel
PDF (295.2 KB)
The Problem with Environmental Justice Studies (And How Hedonics Can Help)
Diane Hite
PDF (314.7 KB)
Distinguishing Racial Preferences in the Housing Market: Theory and Evidence
Patrick Bayer and Robert McMillan
PDF (400.9 KB)
Back Matter
PDF (392.1 KB)
11 Chapters

Monday, October 13, 2008

Glaeser Salutes Krugman's Prize

Ed Glaeser's New York Times Blog Entry

Krugman and The Nobel/New York Times Double Punch

Will the new Nobel Laureate receive more words from the Times on the OP-ED page? Will he leave them to write for the NY Post?

While I know that it is bad form to recycle old blog posts, please take a look at
My Krugman Pick in 2007 I saw the future but was a year early.

You'll note that my entry is cynical. I claim that the Swedes were attempting to achieve two objectives with one choice.

Sunday, October 12, 2008

A Political Endorsement for Bob Blumenfield

Bob Blumenfield is seeking to be elected to the California State Assembly (AD #40). I went to High School with Bob 25 years ago. This last sentence doesn't sound good to a "young guy" like me but it is true. I hadn't seen Bob for 25 years but we were reunited this Saturday at a great event in Bel Air. I took one look at him and recognized him. My mother has a powerful eye for faces. She can spot celebrities in crowds and people she hasn't seen for years. I have inherited this "gift" and it leads to funny social interactions. Bob was a bit surprised when I told him what High School he attended long ago. I think he recognized me. Do I look the same as I did 25 years ago?
You can go to my webpage to see an old picture to judge for yourself.

I'm excited that a smart guy like Bob is actively engaged in politics and I'm hoping to help him get elected. I would ask you, my readers, to go to his website and get involved.

Perhaps I should quote some JFK and Ted Sorenson line now;

"Let the word go forth from this time and place, to friend and foe alike, that the torch has been passed to a new generation of Americans - born in this century, tempered by war, disciplined by a hard and bitter peace."

John F. Kennedy

Friday, October 10, 2008

A Green Infomercial

I will be at Legoland this weekend. I'm hoping the food and the toliets are made of lego. How can you believe that capitalism is washed up when we have efforts like:

Unfortunately, I will miss out on the exciting opportunity sketched below. Reading through it, it is mildly interesting.

"Tony Tracy, Chairman and CEO of the environmentally responsible company, Perf Go Green (PGG) is on a mission to promote his green product line of recycled and biodegradable plastic products as a practical and viable solution to eliminating plastic waste from the world environment.

You can see Tony discussing his initiative in the award-winning documentary, FUEL, which premiers in Los Angeles on October 12. FUEL was the winner of the 2008 Sundance Film Festival for Best Documentary.

Tracy definitely doesn’t fit the typical CEO profile- he’s an entrepreneur, a former actor, wrestler, and designer of 15 patented household, exercise equipment and grooming products. He’s a unique guy, to say the least…

The MAG BAR™, a total body isometric apparatus sold on Home Shopping Network
Instrumental in the design of the AB ROLLER ™
Le Scoop ™ and Le Slice ™ allows the user to slice a bagel without injury to fingers & hands and to “scoop” out fat calories. A letter of praise from the Editor of Prevention Magazine elicited thousands of orders. Both products have been endorsed by Weight Watchers and sold successfully at William Sonoma, Crate & Barrel, Fortunoff, Linen and Things, Bloomingdales, Gracious Homes, Wal-Mart, Shoprite, and Bed Bath & Beyond.
Supra Liners™, the automatic trash bag dispenser, sold at Wal-Mart , Wakefern, Shop-Rite, Albertson’s.
PERF Go Green™ 100% Biodegradable Plastic Products is launching in Q1, 2008 with five product categories.
Tony worked as an actor for many years. As a member of the Screen Actor’s Guild and A.F.T.R.A., he appeared in a number of films and did stunt work in several. On television he appeared in in “One Life To Live” (ABC), “Ryan’s Hope” (ABC), “Miami Vice” (NBC), “Wise Guy” and others. He did a number of commercials, including a national campaign for Miller Lite and Diet Pepsi.
Tony is a member of Fashion Group International since 1996

Tony Tracy was recently interview on Fox Business Channel on September 24.

Please find below a press release which details the FUEL documentary. We hope that you find the information provided as a potential to share with your audience. For more information, please visit:

If I can be of further assistance, please don’t hesitate to contact me directly.

Best regards,

Kit Manougian


Contact: Kit Manougian

Westin Rinehart


Green Advocate Tony Tracy Walks Down the “GREEN” Carpet at FUEL Premier- the 2008 Sundance Film Festival’s Winning Documentary

Los Angeles, Calif. – October 12, 2008 – Today, Green business advocate, Tony Tracy, Chairman of the New York-based biodegradable plastic company, Perf Go Green (PGG) will be among the many celebrities and proponents whose contributions in the fight for less fuel-dependent, cleaner, and less wasteful alternative environmental strategies have been documented in Josh Tickell’s FUEL. FUEL, the successor to Fields of Fuel won Best Documentary at this year’s 2008 Sundance Film Festival. FUEL premiers at The Crest Theater at 2:00 p.m.

Tickell, the film’s producer, uses film as a platform to explore and expose the connection between the world’s energy needs, oil prices, global warming, and government’s involvement to aid or in many cases thwart progress with regard to utilizing alternative, viable energy solutions.

Selected cast members also include: Richard Branson, Robert Kennedy, Jr., President Carter, and actors Larry David, Woody Harrelson, Julia Roberts, singers Neil Young and Cheryl Crow, among others.

In the documentary, Tracy is shown on the beaches of Santa Monica talking about the impetus that prompted him to become environmentally proactive and conscious - his daughter. Specifically, a conversation the two had about the long-term effects that producing plastic can have on the planet. “I wanted to create a product that would directly impact the way we live- from industry to end-consumer” said Tracy. “And, I knew that meant investigating sustainable production and manufacturing practices that would impact industry for the long haul”. Tracy set out to change the nature of how plastics are developed and broken down within the waste disposal industry.

Tracy launched Perf Go Green in 2007. The product line premiered at the March 2008 International Home and Housewares Show in Chicago, where its products received an honor for their design quality and innovation. The line’s current offerings include: kitchen trash bags, lawn/leaf bags, biodegradable drop cloths, cat pan liners, doggie duty bags, and commercial trash bags.

PGG is the first company to offer and market biodegradable plastic bags made from recycled materials- they are 100% ECO-friendly, non-toxic, and food-contact-compliant. The bags are Oxo-biodegradable. This is possible through pro-degradant, an additive that breaks down plastics into a compostable biomass. Oxo-biodegradable plastics degrade leaving behind no fragments, no methane, and no harmful residues- unlike hydro plastics, which create methane gases as they biodegrade.

From a cost/manufacturing standpoint, there is little or no additional cost involved in products made with this technology, which can be made with the same machinery and workforce as conventional plastic products. Oxo-bio is made from a byproduct of oil refining which is used for waste- thereby importing extra oil for production is not required- which is the entire focus behind FUEL.

While conventional plastic remains a familiar component of modern living, used in myriad packaging, household and commercial applications, the very strength and durability which make plastic such a useful and economic material, is creating long-term and irreversible damage when disposal is required. Perf Go Green is doing their part to introduce recycled and biodegradable plastic products as a practical and viable solution to eliminating waste through solution-driven product offerings and through education.

The company’s foundation, Go Green 21.0, will foster and promote green education initiatives around the world with the help of schools, communities, and individuals wanting to make a difference. For more information, visit:

About Perf Go Green

Perf Go Green (OTCBB: PGOG; is engaged in the creation and global marketing of 100% eco-friendly, non-toxic, food-contact-compliant, biodegradable plastic products. All Perf Go Green products are made from recycled plastics and completely break down in landfill within two years, leaving no toxic or visible residue, as compared to other plastics that take hundreds of years. Perf Go Green's corporate name reflects its "Go Green" mission to develop, market and distribute biodegradable plastic products as a practical and viable solution to eliminating plastic waste from the world environment.

About FUEL

Josh Tickell’s Vegie Van Organization was selected by President Bill Clinton as an inaugural part of his Global Initiative on Climate Control. The organization serves to educate people about sustainable energy and provide pathways for integrating sustainable energy into homes, communities, cities, states, and ultimately nations. FUEL is a feature length documentary that was 11 years in the making. It was awarded Best Documentary, Sundance Film Festival 2008, and won the following awards: Sedona Film Festival; Best Screenwriting, Sedona Film Festival: Most Compelling Documentary, AFI Dallas Film Festival: Current Energy Environment Award, GAIA Film Festival: Audience Award for Best Documentary, Santa Cruz Film Festival: Producer’s Award, IVCA Clarion Award: Corporate Social Responsibility. For more information,

The Next Krugman?

It's a slipperly slope but Casey Mulligan has taken the first step to writing for a broader audience. Will his free market optimism catch on? Perhaps Hank Paulson should direct the $700 billion infusion to invest in the Milton Friedman Institute? That would delight John Cochrane's friends and we know that the money would be well spent there.

The New York Times
October 10, 2008
Op-Ed Contributor

An Economy You Can Bank On


THE Treasury Department is now thinking about using some of the $700 billion it has been given to rescue Wall Street to buy ownership stakes in American banks. The idea is that banking is so central to the American economy that the government is justified in virtually nationalizing much of the industry in order to save us from a potential depression.

There are two faulty assumptions here. First, saving America’s banks won’t save the economy. And second, the economy doesn’t really need saving. It’s stronger than we think.

Bear with me. I know that most everyone has been saying for a couple of weeks that something has to be done; a banking crisis could quickly become a wider crisis, pulling the rest of us down. For this reason, the Wall Street bailout is supposed to be better than no plan at all.

Too bad this line of thinking is seriously flawed. The non-financial sectors of our economy will not suffer much from even a prolonged banking crisis, because the general economic importance of banks has been highly exaggerated.

Although banks perform an essential economic function — bringing together investors and savers — they are not the only institutions that can do this. Pension funds, university endowments, venture capitalists and corporations all bring money to new investment projects without banks playing any essential role. The average corporation gets about a quarter of its investment funds from the profits it has after paying dividends — and could double or even triple that amount by cutting its dividend, if necessary.

What’s more, it’s not as if banking services are about to vanish. When a bank or a group of banks go under, the economywide demand for their services creates a strong profit motive for new banks to enter the marketplace and for existing banks to expand their operations. (Bank of America and J. P. Morgan Chase are already doing this.)

It’s important to keep in mind, too, that the financial sector has had a long history of fluctuating without any correlated fluctuations in the rest of the economy. The stock market crashed in 1987 — in 1929 proportions — but there was no decade-long Depression that followed. Economic research has repeatedly demonstrated that financial-sector gyrations like these are hardly connected to non-financial sector performance. Studies have shown that economic growth cannot be forecast by the expected rates of return on government bonds, stocks or savings deposits.

It turns out that John McCain, who was widely mocked for saying that “the fundamentals of our economy are strong,” was actually right. We’re in a financial crisis, not an economic crisis. We’re not entering a second Great Depression.

How do we know? Well, the economy outside the financial sector is healthier than it seems.

One important indicator is the profitability of non-financial capital, what economists call the marginal product of capital. It’s a measure of how much profit that each dollar of capital invested in the economy is producing during, say, a year. Some investments earn more than others, of course, but the marginal product of capital is a composite of all of them — a macroeconomic version of the price-to-earnings ratio followed in the financial markets.

When the profit per dollar of capital invested in the economy is higher than average, future rates of economic growth also tend to be above average. The same cannot be said about rates of return on the S.& P. 500, or any another measurement that commands attention on Wall Street.

Since World War II, the marginal product of capital, after taxes, has averaged 7 percent to 8 percent per year. (In other words, each dollar of capital invested in the economy earns, on average, 7 cents to 8 cents annually.) And what happened during 2007 and the first half of 2008, when the financial markets were already spooked by oil price spikes and housing price crashes? The marginal product was more than 10 percent per year, far above the historical average. The third-quarter earnings reports from some companies already suggest that America’s non-financial companies are still making plenty of money.

The marginal product has accurately reflected hard economic times in the past. From 1930 to 1933, for instance, the marginal product of capital averaged 0.5 percentage points per year less than the postwar average. The profit per dollar of capital was also below average in the year before the 1982 recession and the year before the 2001 recession. Sure, the financial industry has taken a hit, and so have cities like New York that depend on that industry. But the financial system is more resilient today than it has been in the past, because it’s a much easier industry for companies to enter than it was in the 1930s.

When banks failed during the Great Depression, there were not so many foreign investors that were cash-rich (or these days, oil-rich) and appreciative of how some of the bank assets, personnel and brand names in the United States could be used to earn profits in the future. And don’t worry about foreign ownership: Americans would benefit if foreigners brought money into our economy to enable banks to continue to lend.

And if it takes a while for banks and lenders to get up and running again, what’s the big deal? Saving and investment are themselves not essential to the economy in the short term. Businesses could postpone their investments for a few quarters with a fairly small effect on Americans’ living standards. How harmful would it be to wait nine more months for a new car or an addition to your house?

We can largely make up for this delay by extra investment when the banking sector reorganizes itself. Americans waited years during World War II to begin private-sector investment projects (when wartime production displaced private investment), and quickly brought the capital stock (housing and big-ticket consumer items) back to normal levels when the war ended.

So, if you are not employed by the financial industry (94 percent of you are not), don’t worry. The current unemployment rate of 6.1 percent is not alarming, and we should reconsider whether it is worth it to spend $700 billion to bring it down to 5.9 percent.

Casey B. Mulligan is a professor of economics at the University of Chicago.

Monday, October 06, 2008

Gib Metcalf Wants More Nuclear Power

Jim Heckman gave a rousing talk at UCLA today. There were only 250 slides in his presentation but he managed to show us all of them a couple of times as he toggled back and forth. In a nutshell, Jim is arguing that for too long we have all be too preoccupied with IQ. In Cambridge, I always sensed that there were many economists who believed in the vertical model of ability. It is ironic that economists wouldn't believe in comparative advantage and instead would celebrate absolute advantage. But, apparently there are other skills, softer skills, such as self control, concentration, etc. that help to determine our life outcomes. There is also comparative advantage. Some fields require pure IQ while others (economics?) require softer skills to succeed. Heckman is an optimist. He believes that early life interventions for poor kids can boost their non-cognitive skills and that this can improve later life outcomes. The problem is that his core production function of a quality human features dynamic complementarities. If you are invested in when you are age 2, your productivity gains at age 8 will be higher from greater investment and so on. The problem is that if you haven't been invested in by the time you are a teenager, it is too late and no GED or JTPA program is going to jump start you to greatness.

The really impressive part about Big Jim's talk is that he simultaneously was talking at the frontier of economics, and child psychology. I hope that the latter group of scholars have welcomed him to their field. Learning begets learning. Skill begets skill.

To learn more go here:

Switching Gears, Gib Metcalf gets a nice quote in today's new york times.

October 7, 2008
A Gift From the ’70s: Energy Lessons

The presidential candidates claim to see America’s energy future, but their competing visions have a certain vintage quality. They’ve revived that classic debate: the hard path versus the soft path.

The soft path, as Amory Lovins defined it in the 1970s, is energy conservation and power from the sun, wind and plants — the technologies that Senator Barack Obama emphasizes in his plan to reduce greenhouse emissions. Senator John McCain is more enthusiastic about building nuclear power plants, the quintessential hard path.

As a rule, it’s not a good idea to revive anything from the 1970s. But this debate is the exception, and not just because the threat of global warming has raised the stakes. The old lessons are as good a guide as any to the future, as William Tucker argues in “Terrestrial Energy,” his history of the hard-soft debate.

The initial debate over nuclear power seemed to end not long after the partial meltdown in 1979 of the reactor at Three Mile Island. Utilities canceled orders and stopped building reactors, partly because of public fears, but perhaps mainly because of rising costs. Mr. Lovins and his allies liked to say that nuclear power, once promoted as “too cheap to meter,” had now become “too expensive to matter.”

The soft path seemed to be the way to go, particularly when some of Mr. Lovins’s predictions about energy conservation came true. As Americans cut back in response to higher prices and new incentives, the growth in electricity demand slowed. Some public officials, most enthusiastically in California, told utilities to stop building large power plants. Instead, they subsidized wind farms and solar power, which were supposed to be cheap and plentiful alternatives once the technologies matured.

Instead, they remained so costly and scarce that Californians’ electricity rates were among the highest in America. They endured rolling blackouts in 2000 while paying astronomical prices for power from nuclear and fossil-fuel plants in other states. The crisis was attributed to price controls and Enron’s market manipulation, but the underlying problem was a shortage of power that forced the state to start building old-fashioned fossil-fuel plants for itself.

Meanwhile, there was a surprise on the hard path, too. Once utilities stopped building reactors, the share of electricity from nuclear power was projected to decline steadily as the oldest reactors were retired. But then several new “merchant energy” companies began assembling fleets of reactors sold off by local utilities. The new owners standardized operations, retrained workers and brought in human-factor engineers to redesign the famously indecipherable control panels.

Under the old owners, the reactors were balky white elephants operating only 60 percent of the time. By improving maintenance and preventing mistakes, the new owners kept them running 90 percent of the time and won permission to upgrade their capacities. So even as the nuclear industry was shrinking in the last two decades as the oldest reactors shut down, the remaining ones were profitably generating an increasing share of the country’s electricity.

Today about 20 percent of electricity in America is generated by nuclear power, which is about 20 times the contribution from solar and wind power. Nuclear power also costs less, according to Gilbert Metcalf, an economist at Tufts University. After estimating the costs and factoring out the hefty tax breaks for different forms of low-carbon energy, he estimates that new nuclear plants could produce electricity more cheaply than windmills, solar power or “clean coal” plants.

The outlook could change, of course, if new nuclear plants turn out to be more expensive than expected, or if engineers make breakthroughs in other technologies. (To debate these possibilities, go to Given the uncertainties, Dr. Metcalf cautions, it would be risky to bet everything on nuclear power as the answer to global warming.

But it seems even riskier to bet on just the soft path, as so many greens are doing, either by flatly opposing nuclear power or by setting so many conditions that no plants could be built for decades, if ever. (Mr. Obama says nuclear power is necessary but should not be expanded until security and safety issues are addressed.)

“The nuclear debate is still stuck back in the 1980s,” says Mr. Tucker, the author of “Terrestrial Energy,” the new brand he’s trying to affix to nuclear power. If people started associating nuclear plants with natural radioactive processes in the Earth instead of atomic bombs, he says, they might be persuaded that it’s the most environmentally benign form of energy, particularly compared with wind farms that cover scenic ridges and the vast solar arrays proposed for “empty” land in deserts.

Mr. Tucker, a journalist who has been debunking environmental alarms for decades, says he has come around to Al Gore’s view on the danger of global warming, and he’d like environmentalists to rethink their views, too.

“Even when greens give grudging support to nuclear power,” he says, “they add the caveat, ‘But first we have to make sure the plants are absolutely safe’ — as if reactors haven’t been operating safely for 25 years. Nobody recognizes the complete overhaul that has occurred in the industry or how it’s now pumping out twice as much electricity from the same plants with a vastly improved safety record.”

By scaring people about the tiny levels of radiation emitted during the normal operation of a nuclear plant, Mr. Tucker says, greens have effectively encouraged the construction of coal plants that actually release more radiation because of the traces of uranium in coal dust. He argues that the risks of terrorist attacks and nuclear waste have been exaggerated, particularly by the environmentalists who objected when the Yucca Mountain nuclear-waste depository was being designed to guarantee a level of safety for only 10,000 years.

They successfully sued to enforce a safety standard extending one million years — which, in an ideal world, would be a very nice standard. But if you believe global warming is a planetary crisis that must be addressed immediately, should you really be obsessing about hypothetical dangers near one mountain in A.D. 1,000,000? If there’s already a proven technology that doesn’t spew carbon dioxide into the atmosphere, why fiddle while coal burns?