Saturday, November 29, 2008

The Politics of Chicken Poop and Pre-Emption in New York City

Several sets of economists have written papers on the unintended consequences of the Endangered Species Act . These papers document that land owners crush the "natural capital" before the Act seizes (without compensation) their land. This preemption protects the land owner but depletes the environment. Today the New York Times documents that this same dynamic is playing out in New York City. Land owners who want to demolish an old building to build a "Don Trump" like tower anticipate that the New York City Landmark Preservation Commission may designate their property as a historic landmark. Land Owners lose development rights when this occurs (just like with the Endangered Species Act) and respond to this by demolishing the building early so that there is nothing left to preserve.


Switching gears and turning to chicken poop. The NYT also has an interesting
article
on the production of Chicken Poop in Maryland. What interests me here is public health consequences of economic growth at the agricultural/suburban spatial border. As suburbia grows, there are more people and more rich people living closer to agricultural areas. If a byproduct of agriculture is nitrogen fertilizer runoff and this gets dumped into the water and air, then public health issues arise.

How the Coase Theorem plays out here is an open question. The first issue of course is property rights. Do the farmers have the right to use any amount of chicken poop that they please? How much do the downwind suburban victims suffer from these private profit maximizing actions?

This is a very interesting excerpt of the article;

"Storm runoff from urban areas, lawn fertilizers and pollution from cars and sewage treatment plants also play major roles in polluting the bay. But Environmental Protection Agency officials say that agriculture is the largest single source of pollutants and sediment in the Chesapeake Bay, accounting for over 40 percent of the nitrogen and phosphorous and over 70 percent of the sediment.

State officials say that animal manure produces more phosphorus and nearly the same amount of nitrogen pollution as all human wastewater from treatment plants in the state.

Although the dairy and hog industry in states near the bay produce more pounds of manure, poultry waste has more than twice the concentration of pollutants per pound. Reducing pollution from agriculture is also about a tenth as costly as it is to achieve the same reductions from urban development, state and federal environmental officials say.

“The reason to focus on poultry,” said Tom Simpson, executive director of Water Stewardship, an environmental nonprofit agency, “is that sewage treatment plants have already been required to reduce their pollution and storm water runoff from cities and large dairy and hog farms have permits that can be used to limit their water pollution.”

But in the past two decades, the poultry industry has carved a special role for itself in terms of the oversight it receives, and it has twice defeated state efforts to impose permits."

Friday, November 28, 2008

Rick Byrd Speaks at UCLA

Around UCLA, there are some very successful people living and working nearby. Some are connected to the "Hollywood" industry. Rick Byrd is one of them. He has played a key role on Alter Eco on TV with his buddy Adrian Grenier. On Wednesday, Rick gave a talk at UCLA. One of my students arranged his visit. He gave a great talk blending humor, business wisdom and his vision of how to market green products to a wider range of people than merely "hippies".


"Throughout the season, Adrian Grenier and the crew of Alter Eco has shown viewers how to be hip and green at the same time. Now, with the help of Byrd Development, they can display their ultimate achievement: the house in Los Feliz, California, has received LEED Platinum certification from the U.S. Green Building Council."

"In renovating the Los Feliz house, the goal was to blend style and function with the latest in green technology and building techniques. Rick Byrd, CEO of Byrd Developments, explained that "On the surface it's exactly what you expect to see in a traditional home, but the energy bills happen to be only $50 a month. We want to show people that you don't have to compromise the integrity of the house to be environmentally friendly and healthy." This accomplishment was rewarded with the USGBC's highest rating, making the Los Feliz house the first deconstructed house in California, and only the second in the state, to receive this honor."


Rick Byrd's Profile


While Rick may have thought that I'm a nerd, we did have a good discussion on the following point. He told me that thousands of people have visited his green certified LEED home in Los Feliz. I suggested to him that if he could track who visits his house (signup sheet) and then survey them afterwards, he could learn about how "experience" with touring a LEED home affects attitudes and perceptions of these homes ex-post. If people have a positive experience, this is likely to increase their demand for such homes and this should raise Byrd's profits.

Since "green products" are new unknown, guinea pigs need to see them to realize their strengths. Now there is a selection issue that Rick is attracting the self select sample of people who are interested in seeing and touring green homes but economists have not done enough marketing work on how "experience" with a new product affects demand.

Thursday, November 27, 2008

The Recession Reduces Demand for Academic Economists

Obama is hiring but other demanders of academic economists' efforts are substituting to some other input. This new webpage clearly signals that there are many schools who expected that they could hire new blood who then received the "new news" from the Deans that their search would not be authorized.

Real Business Cycle theory would say that this is a great time for us to play some golf and watch some NFL football (leisure). On the other hand, a great poet once said; learning begets learning, Skill begets skill. I'm thinking of investing in my skills to upgrade myself as I wait for the next boom.

Will This Recession Crowd Out the "Green Big Push"?

Do recessions have a "chilling" effect on reallocating resources towards more productive sectors of the economy? Or because the opportunity cost is low, recessions are the exact right time for key reallocations? This has been a topic of esoteric macro (see http://econ-www.mit.edu/files/138) but now this issues has arisen in environmental policy. In a nutshell, will the world give up on trying to mitigate carbon emissions as they focus on the recession? Or, is there a triple win for the Obama Dream Team of simultaneously bundling; a Green New Deal that gets us out of the recession, helps to decarbonize the economy and reduces our imports of foreign oil?

As I said on my NPR appearance on tuesday, I have a few concerns with the sketch I have seen of the Obama Green Plan.

1. We need the Obama team to get a Carbon Price enacted by the Congress. Cap & Trade at around $25 per ton of CO2, this would be a credible incentive to get the ball rolling. Will the Obama team use its political capital to fight for this, or are they worried that this will be their "gays in the military back to 1993 with the first Clinton"?


2. The Boston Big Dig was a financial mess. The project's final cost ($17 billion was over 4 times what was ex-ante expected). How will the Smart Obama team guarantee that there will be accountability such that their Green Public Works project do not end up leading to millions of new Green Newmans from the television show Seinfeld? Newman wasn't working hard and the taxpayers were helping him to have a pretty good life. Was he an outlier or a glimpse of the future?

A good contract theorist would say that he can write down an optimal pay for performance contract such that the government will get good roads and green infrastructure per dollar we pay in the green big push. I hope this is true.

3. An alternative vision for the Green Big Push is more government investment at the NSF and the national labs in basic research. This will take years for the nerds to create a new "google" that trickles down but i know that this would be money well spent.

4. An alternative vision would be to sponsor innovation tournaments http://www.xprize.org/

5. We need some signal from the Republicans that they care about mitigating carbon. Is carbon mitigation a bipartisan issue or a Democratic issue? To send credible signals to the private investment sector we need them to believe that regardless of who controls the White House and Congress that carbon regulation is here to stay. That would be credible! If future Republican Presidents may renege on carbon pledges, then this creates time consistency issues and political business cycle issues and we will see very different green investment profiles relative to what we would have observed had there been bipartisanship on this issue.

November 27, 2008
New York Times Editorial

Save the Economy, and the Planet

Environment ministers preparing for next week’s talks on global warming in Poznan, Poland, have been sounding decidedly downbeat. From Paris to Beijing, the refrain is the same: This is no time to pursue ambitious plans to stop global warming. We can’t deal with a financial crisis and reduce emissions at the same time.

There is a very different message coming from this country. President-elect Barack Obama is arguing that there is no better time than the present to invest heavily in clean energy technologies. Such investment, he says, would confront the threat of unchecked warming, reduce the country’s dependence on foreign oil and help revive the American economy.

Call it what you will: a climate policy wrapped inside an energy policy wrapped inside an economic policy. By any name, it is a radical shift from the defeatism and denial that marked President Bush’s eight years in office. If Mr. Obama follows through on his commitments, this country will at last provide the global leadership that is essential for addressing the dangers of climate change.

In his first six months in office, Mr. Bush reneged on a campaign promise to regulate carbon dioxide and walked away from the Kyoto Protocol, a modest first effort to control global greenhouse gas emissions.

Still two months from the White House, Mr. Obama has convincingly reaffirmed his main climate related promises.

One is to impose (Congress willing) a mandatory cap on emissions aimed at reducing America’s output of greenhouses gas by 80 percent by midcentury. According to mainstream scientists, that is the minimum necessary to stabilize atmospheric concentrations of carbon dioxide and avoid the worst consequences of global warming. Mr. Obama’s second pledge is to invest $15 billion a year to build a clean economy that cuts fuel costs and creates thousands of green jobs. That includes investments in solar power, wind power, clean coal (plants capable of capturing and storing carbon emissions) and, as part of any bailout, helping Detroit retool assembly lines to build a new generation of more fuel-efficient vehicles.

Mr. Obama has surrounded himself with like-minded people who have spent years immersed in the complexities of energy policy.

His transition chief, John Podesta, was an early advocate of assisting the automakers and of finding low-carbon alternatives to gasoline. Peter Orszag, his choice to run the Office of Management and Budget (where environmental initiatives went to die during the Bush years) is an expert on cap-and-trade programs to limit industrial emissions of greenhouse gases.

Success is not guaranteed. Last year, a far more modest climate-change bill fell well short of a simple majority in the Senate. At least on the surface, it seems counterintuitive to impose new regulations (and, in the short term anyway, higher energy costs) on a struggling economy. Mr. Obama will need all his oratorical power to make the opposite case.

The historical landscape from Richard Nixon onward is littered with bold and unfulfilled promises to wean the nation from fossil fuels, especially imported oil. What is different now is the need to deal with the clear and present threat of global warming. What is also different is that the country has elected a president who believes that meeting the challenge of climate change is essential to the health of the planet and to America’s economic future.

Wednesday, November 26, 2008

California's AB32 Climate Change Economic Scoping Plan: External Economist Give Their Verdict

California is the green guinea pig. We are setting the climate change mitigation agenda. AB32 is the key piece of legislation attempting to sharply reduce this state's greenhouse gas emissions. Economists are now debating what are likely to be the "macro state wide" impacts of this regulation.

I recently participated in this debate over how we conduct ex-ante evaluation of a policy that hasn't been implemented yet. How risky is this well meaning regulation? What will be its unintended consequences?

You are free to download all of the documents.

Air Resources Board's New Economics Page

My report is one of the "big six".

The Six Referee Reports on the AB32 Scoping Plan Economic Analysis

The Future of Cross-National "Macro" Comparisons

There are a large number of papers making cross-national comparisons. Can we compare these apples to the oranges? Is the U.S still richer than China? Is the gap narrowing? This may be an important paper http://www.nber.org/papers/w14499.

Understanding PPPs and PPP-based national accounts

Angus Deaton, Alan Heston

NBER Working Paper No. 14499
Issued in November 2008


---- Abstract -----

PPP-based national accounts have become an important part of the database for macroeconomists, development economists, and economic historians. Frequently used global data come from the Penn World Table (PWT) and the World Bank's World Development Indicators; a substantial fraction of the world is also covered in the PPP accounts produced by the OECD and the European Union. This paper provides an overview of how these data are constructed, and discusses both the theory and the practical problems of implementing it. All of these data are underpinned by the International Comparison Program (ICP), which collects data on prices worldwide. The most recent round of the ICP was for 2005 with final results published in early 2008; version 7.0 of the Penn World Table will soon incorporate these results. The 2005 ICP, like earlier rounds, involved substantial revisions to previous data, most notably revising downwards the size of the Chinese (40 percent smaller) and Indian (36 percent) economies. We discuss the reasons for the revisions, and assess their plausibility. We focus on four important areas: how to handle international differences in quality, the treatment of urban and rural areas of large countries such as China, India, and Brazil, how to estimate prices for government services, health, and education, and the effects of the regional structure of the ICP. All of these affect the interpretation of previous data, as well as the current revisions. We discuss previous revisions of the PWT, and their effects on various kinds of econometric analysis. The paper concludes with health warnings that should be kept in mind when using these data, which are not always suitable for the purposes to which they are put. Some international comparisons are close to impossible, even in theory, and in others, the practical difficulties make comparison exceedingly hazardous.

This paper is available as PDF (252 K) or via email.

Tuesday, November 25, 2008

Diary of a Morning NPR Interview

I woke up at 520am this morning and jumped into a 6am cab. I knew the street address in West Hollywood where the recording studio is and I assumed that it would be a commercial building. To my surprise, the cab pulled up in front of a nice house on a residential block. A Mercedes was parked in the driveway. I panicked for half a second wondering in the dark of morning, "where am I"? I called a number on the sheet of paper that NPR's producer had sent me and a woman told me that I was at the right place but that I should go to Starbucks and return in 20 minutes.

This sounded reasonable to me so I asked her where it is. She said on Melrose. I asked "where is Melrose?" She said, one block north of where you are standing. So, with those instructions I found the starbucks and saw a photo of Christina Romer on the front page of the LA Times.

I then returned to the now open recording studio where my sound engineer (Omar) told me a little bit about the garage I was sitting in. This recording studio was a garage but no longer is. It is now filled with insulated glass and expensive recording equipment. I asked Omar whether anyone important ever shows up. He said that celebrities come in to do "voice overs". He dropped some names such as Chris Rock and I was impressed and aware that I was lowering the average.

Finally 7am arrived and I was locked in a sound proof booth. The Boston NPR Producers explained to me what would happen.

Tom Ashcroft was the interviewer and I was his 3rd guest. You can listen here: The audio tape of my NPR Debut

The other guests were quite smart and I think the 3 of us together did a good job.

I don't know whey they have call in questions. Some of the questions were reasonable but they are wildcars that scatter the previous discussion.

My friend Mike Cragg was kind enough to email me that he was listening live but that was the only response I have received. So, based on this data --- I predict that 8 people were listening. I still thought it was a very interesting morning.

Monday, November 24, 2008

NPR Talk Radio: 10 AM Boston Time

I will make my NPR Radio Debut tomorrow morning. Wish me luck. Our general topic area will be President Obama's New Green Deal. Are recessions the right time to make fundamental changes to our economy's infrastructure? Have you noticed the full page ads in the New York Times taken out by IBM lobbying pretty convincingly for the need for a "Smart Energy Grid"? Can such large infrastructure projects be provided by the private sector? This seems unlikely. A new generation of private/public partnerships could help make this happen.
http://news.cnet.com/IBM-founds-coalition-for-smart-power-grids/2100-1012_3-6175261.html

Returning to my radio appearance tomorrow; here are the details; NPR Radio on 11-25-2008 at 10am Eastern Time . Please listen, I sometimes wonder whether I am just talking to myself!

Heterogeneous Expectations and "Good" Macro Outcomes

Shock therapy is back. Austan Goolsbee is quoted as saying "The point is to, kind of, get people back on track and startle the thing into submission.” Do new macro policies have this common "homogenous" treatment effect on individual expectations of the future? Can Joe the Plummer be convinced that 2009 will be a great year once Obama announces his economic "shock and awe"?

Implicit in the Goolsbee TV quote is a belief that there is a common "expectations function" such that if Government takes action X that EVERYONE believes that the probability of good events such as stabilized housing markets and rising stock market = Y. In English, if government spends 2.5 trillion bailing out Detroit, bailing out Citigroup, bailing out New York City that GNP growth will equal 2% in 2009 and that everyone will act as if this is true and take actions that help to realize this expectation.

But, we live in a diverse world where people differ with respect to tastes, talents, resources, and expectations of the future. The best thinkers in dynamic macro are now studying this. See Tom Sargent's AER Presidential Address and this The Communism of Rational Expectations Interview .

Suppose that the world is X% Keynesians and 1-X% Bob Barros. The Keynesians will take their stimulus package and buy and the Barros anticipating higher taxes in the future will save (dynamic balanced budget conditions). The net effect of this intervention hinges on what "X" equals. If X=.2, then this policy does little.

A major idea in economics since the 1970s has been commitment and time consistency. Now that the government has signaled its willingness to enter and bailout every market, key game theory issues arise and moral hazard issues arise. The "too big" to fail industries recognize the positive probability of a bailout and this affects their dynamic decisions along many margins. This encourages rent seeking by these firms as they lobby Washington and it encourages them to merge into bigger firms (i.e AIG and Citigroup) to increase their leverage if the bad states of the world are realized.

The costs of government activism haven't been fully discussed in the midst of all this excitement.

Making matters even worse, Bill Kristol thinks we economists are dumb. Kristol sounds like he wants to sell short the stock of academic macro economists.

The real issue here is non-stationarity. Economists are able to study stationary processes. We can reverse engineer what is generating the staionary data we see. Once we have reverse engineered the process , we can calcuate effeciency effects and conduct policy counter-factuals. As new products, such as ARM mortgages and financial products are introduced, we can't generate enough data to figure out the stochastic process before the world changes again. Slow down the world, and we can figure its dynamics out!


New York Times
November 24, 2008
Op-Ed Columnist
Admit We Don’t Know
By WILLIAM KRISTOL

“In my view it has to be between five and seven hundred billion dollars,” proclaimed Senator Charles Schumer Sunday on ABC’s “This Week.” The “it” is the economic stimulus package the new Congress intends to send to the new president, Barack Obama, in January.

The truth is, Schumer hasn’t a well-grounded view, or even a well-informed clue, as to how large the stimulus package “has to be.” I’d be amazed if he could give a coherent explanation of why it should be $500 billion to $700 billion instead of, say, $300 billion or $900 billion. On TV, he simply invoked the authority of “most economists,” who, according to Schumer, “say, to make this work, you need about 5 percent of G.D.P., which would be $700 billion.” Nor do I think Schumer could begin to explain why a demand-side stimulus package oriented toward employment, infrastructure and consumer spending will “work” in dealing with an economic crisis whose origins seem to be in the collapse of a housing bubble and the deleveraging of overstretched financial institutions.

Now I hasten to add — wait a second, Senator Schumer, put down the phone, no need to call me at home this early in the morning! — that I don’t mean to pick in any way on Chuck Schumer, who is surely among the more economically literate members of Congress. It’s not as if his colleagues have a better understanding of what has happened, or of what should be done. And it’s not as if the rest of us do.

In his interview, Schumer appealed to the authority of economists. Economists still do have considerable sway in our public life — even though it doesn’t seem that a large number of them have been particularly prescient in warning about, or strikingly persuasive in explaining, the current economic situation.

In any case, the Obama economic adviser Austan Goolsbee also weighed in Sunday on television and said: “I don’t know what the number is going to be, but it’s going to be a big number. It has to be. The point is to, kind of, get people back on track and startle the thing into submission.”

So a key member of Obama’s economic team hopes a big federal spending number will “startle the thing into submission.” That’s reassuring. On the other hand, it’s not as if the analysis of many conservative economists is much more persuasive. At least the liberals, being more or less Keynesians, tend to agree on what should be done. The more idiosyncratic conservatives tend to be all over the lot. But, basically, it seems to me, we’re all flying blind. The markets are spiraling down, and our leading experts don’t have much of a clue as to what to do.

Given that, one has to welcome the expected appointment to senior positions in the Obama administration of economists like Lawrence Summers, Timothy Geithner, Jason Furman, Peter Orszag, and Goolsbee himself. They’re sober and competent people who know we face a real crisis — and who, importantly, may be more willing than many of their colleagues to adjust their thinking early and often.

Indeed, one hopes they’re not too invested in the findings of the economics profession of which they’re such distinguished products — because one suspects many of the conventional answers of that profession aren’t much applicable to the current situation. After all, wasn’t it excessive confidence in complex economic models and sophisticated financial instruments on the part of people well educated in modern economics that helped get us into the current mess?

So I hope the best and the brightest who will be joining the new president will at least entertain the possibility that a lot of what they think they know is wrong. I trust they’ll remember that successful economic policies in the past have pulled together elements from unlikely sources, and that they’re as likely to find wisdom from reading political economists like Friedrich Hayek or Joseph Schumpeter, or Keynes himself, as from poring over the latest academic paper in a peer-refereed economics journal.

During his two years on the campaign trail, Barack Obama has often cited Abraham Lincoln. Well, it turns out Obama could be taking over the presidency at something more closely resembling (though still far short of) a Lincolnian moment than one would have expected. And it was Lincoln who wrote, in his second annual message to Congress, in December 1862: “The dogmas of the quiet past are inadequate to the stormy present. The occasion is piled high with difficulty, and we must rise with the occasion. As our case is new, so we must think anew, and act anew. We must disenthrall ourselves, and then we shall save our country.”

I’ve worked in government. It’s hard to do much thinking there at all, let alone thinking anew. But Obama and his team will have to think anew, and those on the outside who wish to help will have to think anew too, if we’re to have a chance of rising to this daunting occasion.

Paul Krugman is off today.

Sunday, November 23, 2008

Lessons for Detroit from the Steel Production Transition

President-Elect Obama must be concerned for Detroit's car makers and their workers. Today's New York Times has a "devil's advocate's" article about the benefits of bankruptcy based on the steel industry's experience. Recall that Rust Belt cities such as Pittsburgh were major steel makers. This created well paying unionized jobs, profit and pollution. International competition and inefficiency at the old steel mills led to a sharp contraction of this spatially concentrated industry in the 1970s and 1980s. The firms in the steel industry are heterogeneous see http://en.wikipedia.org/wiki/Steelworks also read 1995 New York Times Article on Steel Mini-Mills. Job destruction and job creation can simultaneously take place. While the Rust Belt shed steel jobs, southern steel jobs grew. If you are a data nerd, go get the data on SIC 33 here: http://www.econ.umd.edu/~haltiwan/download.htm

My point is that it is true that steel has made a comeback but the spatial distribution of these jobs is not random! Steel jobs have mushroomed in anti-union states where labor costs are lower.

Detroit wants the automotive industry to boom in unionized Detroit. How many production plants has Toyota built in Detroit? Without knowing the facts, I'm 99% sure that they are producing in southern states with weaker union laws.

So , my big point relates to interest groups; place based politicians and older workers who do not want to migrate care about industry/state cells. They want cars in Detroit to boom. From a macroeconomic perspective, do we care?


New York Times
November 23, 2008
The Nation
Is Steel’s Revival a Model for Detroit?
By DAVID STREITFELD

A FEW years ago, an industry whose history and mythology were indelible parts of the American identity was dying. The great steel mills of Pennsylvania and the Midwest had literally built this country, but the twin burdens of competition and self-inflicted wounds had brought them to the edge of extinction.

If they were allowed to go under, their partisans warned, the consequences would ripple through the economy at a cost too high to bear. The old saying, “As steel goes, so goes the nation,” was as much a threat as a boast.

The Detroit automakers are using the same argument as they seek a $25 billion bailout from Congress. “What happens in the automotive industry affects each and every one of us,” a General Motors Web site declares, warning that the consequences of a shutdown would be “devastating.”

Yet steel’s savior was not the government bailouts it ardently sought but exactly what it so long tried to avoid: bankruptcy. Only when the companies failed were they successfully slimmed down and retooled into smaller but profitable ventures. As debate continues over what, if anything, should be done for G.M., Ford and Chrysler, the steel industry may offer a model.

The steel and auto industries are both capital-intensive enterprises that peaked a half-century ago and have been intermittently embattled ever since. Both secured peace with their unions by vastly expanding benefits, a bargain that eventually hobbled them. Both had entrenched layers of management that believed — despite all evidence — they could wish away change.

There are also key differences. Steel is essentially a straightforward commodity industry: the companies compete on price. Auto sales are often ruled by consumer perceptions. This has been a problem for Detroit. Many of its customers long ago fled for Toyota and Honda and a bankruptcy would scare away many more.

The steel industry was beginning its long stumble when it turned to Washington for help in the late 1970s. The Carter administration responded by committing $300 million in loan guarantees to five struggling companies. Nearly a third of the funds went to help Wisconsin Steel, a Chicago outfit that had been around since the previous century.

Thanks to a strike at a key customer, Wisconsin Steel promptly went under. The company locked its gates one winter day without even bothering to notify its 3,000 employees that their wages were history. So was most of the government’s money.

Despite this fiasco, Jimmy Carter’s successors tried to deliver on demands for relief. In 1984, Ronald Reagan imposed import quotas to stem the tide of cheap foreign steel. In 1999, Bill Clinton guaranteed $1 billion in loans to beleaguered producers, and the following year imposed punitive tariffs on some imports.

It was never enough, particularly after the rise of low-cost minimills. By late 2001, their industry reeling, the steel makers wanted more from Washington: further protection from imports; pressure on other countries to reduce their steel-making capacity; and billions of taxpayer dollars to relieve the burden of their employees’ retirement costs.

They got a temporary tariff from President Bush, but not much more. And so the steel industry — what was left of it — shuddered and collapsed.

Bethlehem Steel, whose steel was used in the Hoover Dam, the Chrysler building and the George Washington Bridge, filed for bankruptcy in October 2001. It was followed by National Steel, Weirton Steel, Georgetown Steel and many others. The pain was great.

And necessary, some say. “If the steel companies had gotten all they wanted in terms of loan guarantees and import quotas, they would never have gotten better,” said Richard Fruehan, director of the Sloan Study on Competitiveness in the Steel Industry. “The bankruptcies forced their hand.”

Over the decades the companies had shed employees to stay afloat. Soon retirees greatly outnumbered the actual workers. At Bethlehem, the ratio was six retirees for every worker. All these retirees had good pensions and good health care plans, which they thought were guaranteed. But these costs were a tremendous weight on the companies.

Bankruptcy changed the rules, allowing the steel makers to unload billions of dollars in pension obligations onto the government’s Pension Benefit Guaranty Corporation and to cut more than 200,000 workers from their supposedly guaranteed medical care.

The failures also allowed for the renegotiation of labor contracts, something Wilbur L. Ross Jr., a specialist in distressed assets, realized when he began looking at the moribund industry. The only bidder for the bankrupt LTV Steel, he proceeded to buy Bethlehem and other old-line companies, putting them together as International Steel Group. He cut more employees and revamped work rules, taking Bethlehem, for example, from eight layers of management to three.

Steel’s turn-around was dramatic. The 17 leading companies went from a combined loss of $1.1 billion in 2003 to an after-tax profit of $6.6 billion in 2004, according to an analysis done for an industry trade group. Ross sold International Steel to the Indian entrepreneur Lakshmi Mittal for $4.5 billion in 2005, earning a tremendous return.

Thanks to all of steel’s tribulations and consolidations — and, no doubt, a world economy that was booming until recently — the industry is relatively healthy.

If only the car companies could get to this sweet spot. They assert they are chopping operating costs but need a lifeline in the form of the $25 billion in loans. G.M., the weakest of the three, says that without the money it will soon run out of cash to operate. Chrysler says it would not be far behind.

The history of government bailouts, so often littered with disappointment, had a great success with a car company. Chrysler used its $1.5 billion in government loan guarantees in the early 1980s to stabilize itself and improve its product. The loans were paid off, with interest. That’s a precedent the auto industry might be happy to discuss, as long as you didn’t ask why Chrysler is once again pleading for government help.

In a G.M. bankruptcy, the number of product lines would be reduced, the management replaced and the investors wiped out. The enormous costs of its retirees could be off-loaded. It would be painful, just as it was with steel, but in the end someone could come in and pick up the pieces. Perhaps it would be one of the foreign carmakers, looking to expand. Perhaps it would be a distressed assets specialist, like Wilbur Ross.

Not so fast, said Mr. Ross. The investor who made a fortune off steel companies that were not bailed out is in favor of a G.M. bailout.

Mr. Ross doesn’t dispute that the auto companies are as bloated as the steel companies were, and certainly doesn’t think they should get a blank check. But he thinks the consequences of what he calls free-fall bankruptcies — ones without any government role — could be disastrous. G.M. would drag hundreds of suppliers down with it, and they would all have trouble getting back up again.

Furthermore, it’s a tremendously problematic time. The final collapse of the steel industry came when the economy was relatively healthy and could absorb the blow. The current economy is the weakest in decades.

“Bankruptcy will be a total mess, and may not produce anything of value at the end of it,” Mr. Ross said. Instead, he would like to see a 90-day government loan to keep G.M. afloat on the condition that all the stakeholders — including employees, management, bond-holders — agree on a restructuring. The government would be there essentially to crack heads and make sure everyone made concessions.

This, however, would give the government ultimate responsibility for the death of G.M., should that come to pass. “The government would have to have the fortitude to say, ‘We’re not going to keep pumping in money,’ and mean it,” Mr. Ross said.

Would government regulators have such fortitude? Mr. Ross was uncertain but said if they didn’t, “they should hang their heads in shame.”

Saturday, November 22, 2008

Chris Mayer's Senate Testimony

Do Washington politicians listen to academic economists? Are we influential? The blogs accelerate the "trickle down" of how we communicate with the public. Last week, Chris Mayer tutored the Senators on incentive theory in the housing market. I hope they were appreciative.

Testimony of Dr Christopher J. Mayer

November 19, 2008

--------------------------------------------------------------------------------

TESTIMONY OF CHRISTOPHER J. MAYER BEFORE THE COMMITIEE ON THE JUDICIARY UNITED STATES SENATE HEARING: HELPING FAMILIES SAVE THEIR HOMES: THE ROLE OF BANKRUPTCY LAW NOVEMBER 19, 2008

Good morning Chairman Leahy, Ranking Member Specter, Ac and Members of the Committee. Thank you for inviting me to speak today. My name is Christopher J. Mayer. I am the Paul Milstein Professor of Real Estate and Senior Vice Dean at Columbia Business School. I have spent the last 16 years studying housing markets and credit while working at the Federal Reserve Bank of Boston and serving on the faculties of Columbia Business School, the University of Michigan Business School, and the Wharton School of the University of Pennsylvania.

Preventing foreclosures is an important goal because of the human suffering from homeowners losing their homes and the spillover effect on local communities and governments. However, it is crucial to consider the broader context of the housing and foreclosure crisis. Reducing foreclosures through allowing judicial "strip-downs" comes with many risks, including likely increases in the future cost of borrowing (or reductions in the amount available to borrow) as well as the possibilities of many millions of additional bankruptcy filings and of substantially slowing down the recovery of the housing and mortgage markets. These negative consequences would impact nearly all Americans. In addition, in my view, there are quicker and more substantial policies available that could substantially reduce foreclosures by reducing the rate of house price declines as well as benefiting tens of millions of homeowners and potential homeowners. These policies would focus on reinvigorating the mortgage market and helping bridge the gap between house prices and mortgage values. My comments on judicial strip downs as well as suggestions for alternative policies are summarized below.

1) Risks and Problems with Judicial"Strip Downs" and existing legislation

a.While few studies exist, evidence suggests "strip-downs" or delays in foreclosures reduce the amount of available mortgage borrowing and may also increase mortgage rates.

Economists often point out that there is no such thing as a free lunch. Two or slower foreclosures reduce the amount of borrowing available. Karen Pence shows that loans sizes are 3 to 7 percent smaller in defaulter-friendly states. 1 Research by Adam Levitin and Joshua Goodman shows that loan-to-value ratios are almost 2.8 percent lower for the borrowers at the 80th percentile of the loan¬to-value distribution in their preferred specification within 6 months of allowing strip-downs (Table 4a).2 As well, the authors find increased mortgage rates at or below the median borrowing rate of between 0.15 and 0.27 percent within 6 months after allowing strip-downs (Table 2a). In addition, the Levitin and Goodman evidence might well underestimate the effect of allowing strip-downs on credit availability. Uncertainty across judicial districts at the time of those changes in federal judicial rulings suggests that lenders must have factored in some risk that the courts or legislators might eventually clarify the law to allow strip-downs in all states. The Pence results are based on more stable differences in state laws and find larger impacts of reduced creditor rights on mortgage credit availability.

Even beyond existing studies, common sense suggests lenders would be wary of lending in an environment in which rules change after the fact and creditor rights to collect on their collateral are reduced.

b.The current legislation provides disincentives to borrowers to negotiate under most existing private and FDIC-sponsored loan modification programs, likely delaying resolution of the housing crisis.i

The recently announced FDIC program to modify Indy Mac mortgages provides a possible benchmark for other private lenders and servicers to roll-out large-scale programs to quickly modify millions of troubled loans. The FDIC/Indy Mac program provides for reductions in both interest rates and forbearance on principal payments.4 While there are some problems with the incentives in the FDIC/Indy Mac program that encourage borrowers to miss payments in order to qualify for a loan modification, this program can be rolled-out in a large enough scale to make a significant dent in foreclosures over a short period of time and thus has significant benefits. The recently announced private effort by Jp Morgan/Chase uses a similar strategy of loan forbearance. Many of the Bank of America and Citigroup modifications to subprime loans involve interest rate reductions rather than principal reductions. Fannie Mae and Freddie Mac have rolled out their own programs.

Borrowers have little incentive to accept an offer from a lender of interest rate reductions or forbearance, when they can go to court and have a judge strip¬down their principal balance, leading to an eventual permanent reduction in the amount of money they owe on their mortgage. When house prices rise, as they eventually will, strip-downs eliminate the possibility that a lender will ever recover its losses on borrowing. Thus borrowers have incentives to hold out for a better deal than they are likely to be currently offered, potentially delaying the resolution of housing problems for years. It will require time for the courts to examine all the issues with various types of complex mortgages and to develop precedents and operating procedures for handling millions of bankruptcies. Evidence from the Japanese recession of the 1990s shows that delays in resolution are a poor way of dealing with credit problems.

Private lenders do not face legal restrictions with resolving their own loans, as servicers do, so they could choose write downs if they thought that write-downs were a more profitable way of resolving credit problems relative to forbearance. Thus a program of forcing strip-downs must surely lower. these lenders' recoveries, leading them to raise rates on future loans given the likelihood that judicial strip-downs might become the law for future loans as well.

Private lenders are now moving ahead with much more aggressive workout programs. These programs should be given time to work. To the extent that legal liabilities for servicers are delaying workouts for some pools, legislators might consider more explicit protections for servicers who attempt to maximize recoveries through applying the same loan modification program to their pools with third-party servicing as with their own pools. However, as described below, I believe that a program to share losses and move as many mortgages as possible out of troubled securitizations is the best policy.

c. The existing legislation is written quite broadly relative to the number of
One of the largest tragedies of the current subprime crisis is the fact that some borrowers were misled into getting mortgages that they did not understand and would eventually not be able to afford. Research by economists Brian Bucks and Karen Pence of the Federal Reserve Board shows that the most difficult to understand provisions of mortgages included the margin on adjustable rate mortgages and the possibility of future rate increases.5

The existing legislation includes all subprime loans, both fixed- and adjustable¬rate loans. Borrowers with fixed-rate mortgages would have surely received loans that they understood. While the payment-to-income ratios were high on some of these subprime loans, borrowers likely understood the benefits of making regular payments in order to allow them to build up their credit and refinance into a lower rate mortgage. As I discuss below, the most appropriate fix for these borrowers is to repair the mortgage market so responsible subprime borrowers who have made all their payments can refinance into a lower rate, conforming mortgage. Allowing fixed-rate borrowers with simple mortgages to strip-down their balance is unfair to the many other borrowers who took on mortgages and bought houses they could better afford.

As well, many adjustable-rate borrowers may now be in default even before they have faced an appreciable rate increase. If the major problem is the excesses associated with subprime lending, I would recommend that the legislation much more narrowly focus on two particular products that encompass the most toxic loans: i) subprime 2/28 or 3/27 mortgages-loans that are fixed for 2 or 3 years, and then adjust to a higher rate beyond the teaser rate; and ii) so-called "option ARMs" that allow mortgage balances to negatively amortize. To further limit a possible spurt of bankruptcy filings and to encourage quicker workouts, lenders should be able to obtain a "safe harbor" from bankruptcy filing by modifying the loan to ensure that rates on subprime 2/28 or 3/27 mortgages will not rise above the initial rate. The option-ARMs are more difficult to resolve, but lenders should be able to obtain a safe harbor by limiting the extent of negative amortization by writing down mortgage balances. It was for the group of option ARM borrowers that Bank of America agreed to forgive some negative amortization in the Countrywide settlement.

Limiting the legislation to a very specific group of likely misled borrowers allows for a much quicker resolution of existing cases, as well as sends a message to lenders that the legislated strip-downs are quite limited and thus might mitigate future mortgage rate increases from the legislation. After all, it is quite unlikely that lenders will again issue such toxic mortgage products in any scale. By contrast, applying strip-downs to fixed-rate mortgages sold to riskier borrowers sends a strong message to future lenders that they should be careful about lending to risky borrowers. This would likely appreciably reduce lending for exactly the type of mortgage loans for the riskiest borrowers that we would like to encourage in the future and set back much of the recent progress in providing funding to disadvantaged borrowers.

I should be clear: I believe it would be quite problematic to allow the judicial strip-downs proposed in this legislation as they inherently change the terms of existing lending contracts and inhibit the possibility of quicker large-scale resolutions of problem loans. However, limiting the classes of covered borrowers would mitigate the damage and there are some compelling arguments in favor of adjusting the terms of the most misleading and toxic contracts.

2)"Fix the Mortgage Market": The Hubbard-Mayer proposal for putting a floor on house price declines, cleaning up household balance sheets and preventing foreclosures by refinancing millions of homeowners into stable 30-year fixed rate mortgages6

a. The Problem: Higher mortgage rates lead to lower house prices
Even as the federal government has taken conservatorship of Fannie Mae and Freddie Mac, the spread between the interest rate on the average 30-year conforming mortgage and the 10-year Treasury bond has widened enormously. In fact, while the yield on the 10-year Treasury bond has fallen by nearly 1.5 percent in the past 2 years, the average rate on a conforming mortgage has fallen by about 0.5 percent. The increase in mortgage spreads has had catastrophic consequences for housing affordability and will surely drive house prices down well below what their fundamental value would be with a normally functioning mortgage market.

The impact of this additional increase in the mortgage spread is quite large. Our calculations suggest that malfunctioning mortgage markets have reduced housing affordability by between 10 to 17 percent. These computations suggest an appreciable drop in demand associated with higher mortgage rates that could push house prices down far beyond where they should fall based on fundamentals. The combination of a deteriorating economy and malfunctioning mortgage market are leading house prices to spiral downward.

b. Higher mortgage rates and lower house prices lead to more foreclosures
Research at the Federal Reserve Bank of Boston and the Federal Reserve Board of Governors confirms that falling house prices are a major factor contributing to the rise in mortgage default rates.7 In my mind, the single most effective policy to reduce foreclosures would be to help put a floor on declining house prices and improve the mortgage market.

Some have argued that we are in a new downward spiral in which declining house prices cause greater foreclosures, which then lead to even further house price declines. Research has not clearly demonstrated that foreclosures really cause house prices to fall. Certainly neighborhoods that have a cluster of foreclosures are likely to see house prices fall in the short-run, but the best policy might be to help local communities fight crime and other negative externalities if it is not possible or efficient to prevent all foreclosures.

Finally, in addition to falling house prices, the mortgage market meltdown itself has likely led to additional foreclosures. Subprime borrowers who could otherwise afford a refinanced mortgage at 5.25 percent might not be able to afford a mortgage on the same home at the current 6.25 percent rate.

c. Solution: Lower mortgage rates and work out negative equity
We believe the appropriate course for policy is to re-establish "normal" lending terms for housing finance, while offering tools to resolve the millions of mortgages with negative homeowners' equity, preventing unnecessary foreclosures.8 The appropriate mortgage rate would be about 1.6 percent above the lO-year Treasury, which would lead current mortgage rates to be about 5.25 percent.

A second part of our plan is to create a modern equivalent of the Home Owners Loan Corporation. The modern HOLC would initially offer to help homeowners with negative equity refinance into a stable 3D-year fixed rate mortgage with a 95 percent loan-to-value ratio by helping to absorb negative equity that is currently freezing credit and housing markets. It could offer to owners and servicers the opportunity to split the losses evenly on refinancing a mortgage with the new agency. Servicers or lenders would have to agree to accept these refinancings on all mortgages or on none at all to avoid cherry-picking. In return for the government portion of the write-down, which would be paid in cash, the HOLC would take an equity position in the house so that the taxpayer-funded agency profits when the housing market turns around. The cash cost of this program would be $121 billion per year, but this would be partially offset by home equity gains as house prices stabilize and eventually start to rise.

We see two immediate beneficiaries of lower rates for 3D-year fixed rate mortgages: existing borrowers currently in adjustable rate mortgages with higher rates and complicated step-up provisions and new first-time home buyers. Getting more homeowners into easily understandable mortgages would surely provide large benefits by eliminating more complicated mortgage products that many consumers do not understand and that put these consumers at risk of large payment shocks. In addition, lower mortgage rates make housing more affordable. Moreover, a substantial intervention that benefits homeowners and the housing market will surely raise the confidence of buyers that an end to the downward spiral of house prices may be in sight.
d. Lower mortgage rates provide a stimulus of $118 billion per year

Allowing mortgage refinancing as we have described above would reduce mortgage payments for almost 20 million homeowners whose mortgage rates are currently 5.75 percent or higher and meet our other criteria.9 The typical borrower would reduce his or her principal and interest payments by about $350 dollars, a total reduction in mortgage interest payments of nearly $55 billion per year.

At the low end of our estimates, improved mortgage market operations would reduce house price declines by 10 percent. If we assume a relatively low consumption would rise by $63 billion relative to what would otherwise have occurred.

The current mortgage meltdown and housing crisis has led to serious repercussions to the economy and to our financial system. Reducing foreclosures is an essential part of the recovery process. Rather than using the bankruptcy courts, which might take years and lead to higher lending costs in the future, policymakers should consider focusing on the mortgage market. Helping consumers to refinance into new mortgages with lower rates and helping to address the negative equity problem will reduce foreclosures, help clean up consumer balance sheets, and provide an annual $118 billion stimulus. Economists believe that consumers are much more likely to spend permanent reductions in expenses than one-time stimulus funds. In addition, a well-publicized program to reduce mortgage rates helps instill confidence and improve affordability for potential new home buyers, who must eventually occupy the more than 2 million vacant houses. Finally, taxpayers have strong incentives to protect their nearly $6 trillion in mortgages and mortgage guarantees that now sit on the federal balance sheet. Without appropriate and prompt policy action, the problems in the housing market will just get worse with appreciable consequences for all Americans.


1 Pence, Karen M. 2006. "Foreclosing on Opportunity: State Laws and Mortgage Credit." Review of Economics and Statistics, 88:1,177-82.
2 Levitin, Adam J and Joshua Goodman. 2008. "The Effect of Bankruptcy Strip-Down on Mortgage Markets," Georgetown University Law Center, Business, Economics and Regulatory Policy Working Paper Series Research Paper No. 1087816.
3 See "Loan Modification Review" issued by RBS/Greenwich Capital on 11/14/2008 for a summary of the various loan modification programs.
4 Forbearance reduces the amount of principal that a lender applies interest to when computing monthly mortgage payments.
5 Bucks, Brian and Karen Pence. 2008. "Do borrowers know their mortgage terms?" Journal of Urban Economics, 64(2): 218-33.
6 More detail on the proposal is described in the paper "House Prices, Interest Rates, and the Mortgage Market Meltdown" by Christopher Mayer and R. Glenn Hubbard. The paper and an FAQ are available on the web at http://www4 .gsb. col u m b i a. ed u/ rea I estate/resea rch/mortgagema rk et.
7 See Foote, Chris, Kristopher Gerardi, and Paul S. Willen. 2008. "Negative Equity and Foreclosure: Theory and Evidence," Journal af Urban Economics, 64(2):234-245; Sherlund, Shane. 2008. "The Past, Present, and Future of Subprime Mortgages." Federal Reserve Board, November; Mayer, Christopher, Karen Pence, and Shane Sherlund. 2009. "The Rise in Mortgage Defaults," Journal of Economic Perspectives, forthcoming.
8 This argument was initially laid out in the opinion piece by R. Glenn Hubbard and Christopher Mayer entitled "First, Let's Stabilize House Prices," Wall Street Journal, October 2, 2008.
9 See Appendix 3 for detailed calculating and what the costs and benefits might be for other caps.

Friday, November 21, 2008

A Green City?

Amsterdam moves to close a fifth of 'coffee shops'

By TOBY STERLING, Associated Press Writer Toby Sterling, Associated Press Writer

AMSTERDAM, Netherlands – Amsterdam will close almost a fifth of its marijuana cafes to comply with a national ban on having them near schools, the mayor said Friday.

Another city, Eindhoven, said it would start issuing permits to marijuana growers in order to better regulate the trade — if the national government approves.

The plans were announced as 33 major Dutch cities held a "weed summit" to discuss the nation's long-standing policy of tolerating marijuana use while routinely arresting growers.

Marijuana is technically illegal in the Netherlands, but can be sold in small amounts in designated cafes — euphemistically known as "coffee shops" — without fear of prosecution. More than a quarter of the country's cafes are in Amsterdam, where they are a major tourist attraction.

But Mayor Job Cohen said the city would close about 20 percent of its cafes.

Those included some landmarks, such as The Bulldog — a high-traffic shop operating since 1985 in a former police station on one of the city's main squares.

Letters have been sent to 43 shops located within 250 meters (yards) of a high school informing them they will have to close by the end of 2011 if they cannot successfully appeal the decision, Amsterdam spokeswoman Iris Reshef said. Though she added that the city did not have any major problems with the cafes.

But other cities closer to the Netherlands' borders have expressed frustration at being bombarded by "drug tourists" from Germany, France or Belgium seeking to stock up on marijuana — an often finding ways to bypass a 5 gram (1/5 ounce) purchase limit.

"If the border areas shut down tomorrow, then (inland cities) Den Helder and Almere will soon be suffering," said Mayor Geert Leers of the southern border city Maastricht.

Representatives at the summit Friday in Almere, 20 kilometers (12 miles) east of Amsterdam, also discussed the policy of arresting growers, which left cafes with no way to legally source their most lucrative product.

Eindhoven Mayor Rob van Gijzel said his city wanted to set up a pilot scheme of issuing permits to growers.

"People will be able to ask for a permit to grow for fixed prices," he said after the summit. "It'll be regulated in terms of produce and revenues, but also movement, in transports to the coffee shops."

Amsterdam backed the idea of expanding the tolerance policy to growers, the city spokeswoman said, noting it could help keep organized crime out.

"We don't have any insight to what goes on behind the back door," Reshef said. "What we need is a closed supply chain."

But the national government must approve the scheme, and it was unclear how long that could take or if it was even likely. Polls suggest most voters support decriminalizing marijuana cultivation, but the coalition government is led by the conservative Christian Democrats, which opposes it.

Justice Minister Ernst Hirsch Ballin said Thursday he had "no intention" of changing national marijuana policy.

The Dutch Parliament voted to regulate growers once before in 2005, but the government refused, saying it would lead to a confrontation with the European Union.

According to data compiled by the Netherlands' Trimbos Institute for Mental Health and Addiction, after 30 years of the Dutch tolerance policy, usage rates here are somewhere in the middle of international norms — above those in Germany and the Scandinavian countries, but below those of France, Britain and the United States.

Thursday, November 20, 2008

A Radio Interview that You May Not Have Heard the First Time

In the 1970s, radio rock stations would play "classic tapes". These would be live recordings of the Stones, the Doors or The Who that have been rarely played on the radio. If you have a fast download connection, you might want to download this 2007 Bloomberg News Interview where I talk to Tom Keene is pretty funny see The Kahn Interview . I don't know how many people heard this live. I make some sense during the interview but I made the mistake of actually answering his questions rather than promoting my Green Cities book. I have learned from my mistakes!

San Francisco's Differential Parking Fee Structure: Efficiency or Price Gouging?

Cruising for free parking exacerbates urban congestion and creates local and global pollution. When demand exceeds supply prices usually rise but in the case of urban parking spots, this hasn't been the case. The good news is that a city not known for its free market adherence, San Francisco, is showing the good sense to take a step toward Milton Friedman. Milton Friedman lived in San Francisco for many years and perhaps his thoughts diffused through his adopted hometown.

I am fascinated by guinea pigs and policy experimentation. The rest of the nation can free ride here and watch San Francisco's experience with this idea. If it works, judged by increased government tax revenue and less street congestion and pollution, then other cities will jump in and mimic SF. Just as buildings of the same size cost different amounts to purchase depending on their "location, location, location" within the city, parking (a 100 square foot (?) piece of vacant land) should differ in price across the city.

My colleague Don Shoup is a consistent man who can stay on message. See his quote below.

Will there be a back-lash against this policy? Behavioral economists would say yes. This is price-gouging given our reference point of "free parking". We will see.

New York Times
November 20, 2008
A Costly City Tries Pricing Its Parking by Popularity
By JESSE McKINLEY

SAN FRANCISCO — In a city known for its pricey property, and terrible parking, some of the most valuable real estate may soon be curbside.

Under a trial plan passed Tuesday by the board of the San Francisco Municipal Transportation Agency, 6,000 of the city’s precious parking spots will be priced on a sliding scale depending on how popular they are. And while the worst locales will go cheaply — as little as a quarter — a handful of premium parking spots will be worth $18 an hour, or nearly a pound of quarters.

Other cities have dabbled in such pricing, but Nathaniel P. Ford Sr., executive director of the transportation agency, said San Francisco’s plan — due to start in the spring with the aid of new meters, sensors and $18.4 million in federal financing — would place the city at the forefront of parking technology. Mr. Ford cited the various benefits it would reap, including reducing congestion and carbon emissions from circling cars and ensuring pedestrians are not sideswiped by parking-obsessed drivers.

“It’s an exciting time,” said Mr. Ford, who also pointed to advances in payment technology, including the ability to buy parking time with a cellphone.

Under the 18-month pilot plan, meters in six of the city’s most trafficked neighborhoods will be remotely monitored for “occupancy,” transit officials said. Mr. Ford will then have the prerogative of lowering or raising rates on four-to-six-week cycles as supply and demand requires. While most meters would be capped at $6 an hour, rates during big events like concerts or a game could enter the $18 range.

Not everyone shared Mr. Ford’s enthusiasm for the plan. “That’s outrageous,” said Louis Issac, a San Francisco resident who works for a towing company and was feeding a meter at City Hall on Wednesday. “With things right now, the economy, people losing jobs? It’s a lack of consideration.”

Donald Shoup, a parking expert at the University of California, Los Angeles, said San Francisco’s plan would provide incentive for using mass transit and discourage those searching for the perfect — and cheap — spot.

“I think when we look back on this period 20 to 30 years from now,” said Mr. Shoup, who consulted on the plan, “We’ll say, ‘My God, what were these people thinking having free parking?’ ”

Wednesday, November 19, 2008

Rich Private Universities Adjust to Endowment Loss

Does income inequality decline during recessions? As all Universities feel poorer right now, what gets chopped out of their budgets? Below I report a public letter written by one leading University President. It will interest me how universities balance the need to provide more financial aid to students versus "sketching out" the demand curve for their school by keeping prices high and using the revenue to enhance the faculty and the capital stock of the University.


November 19, 2008

To the Washington University Community,

Next week we will pause for the great American tradition of Thanksgiving. The Washington University family has much to be thankful for, including a wonderful community of talented students, great faculty, outstanding staff, highly successful and supportive alumni, and many, many friends. Thanksgiving is a time to reflect on our many blessings, to relax, and to enjoy family and friends.

But this Thanksgiving season will be difficult for many, and I am concerned about the hardships members of our community are facing, including our students and their families. Our entire country faces enormous and immediate challenges stemming from rapid deterioration in the economy that resulted in sharp employment declines; significant losses in the value of investments held by individuals, foundations, and institutions; and anxiety about what lies ahead. Washington University, as strong as we are, is not immune to the changes of the last several months.

Washington University is blessed with financial strength. However, the value of the invested assets of the University has declined considerably during the months since the start of this fiscal year (FY09) that began on July 1, 2008. Since July 1, the value of the endowment has declined approximately 25%. The Board of Trustees will set the spending rate from the endowment for the next fiscal year, and I anticipate a significant reduction from the amount we had previously been planning for FY10. With the decline in the value of our endowment, coupled with leveling of research support, constraint on the rate of tuition growth, uncertain prospects for philanthropic support, pressures on healthcare costs, and the prospect of increased needs for financial aid, we must take some actions to assure that our University remains strong into the future. Whatever the origins and whatever the length of the economic decline, it is important to respond to this new environment. We will constrain the growth of administrative expenses, compensation expenses, and commitments to new building projects.

To our talented students, you are a principal reason for our existence, and we are fortunate you selected us for your education, whether you are in your first year as an undergraduate or working toward your graduate or professional degree. We have a commitment to you, and we have the strong desire for you to complete your degree program here and join the ranks of other successful Washington University alumni around the country and around the world. Each of you has the potential to complete your degree here, and we do not want your financial challenges to preclude a successful outcome. Education is at the heart of what we do, and we will do our best to meet your needs.

To our faculty and staff, you have contributed significantly to the rise in quality, visibility, and impact of the University. Our students and alumni can count your commitments and achievements as blessings. I am thankful to each of you for your creative and dedicated work. Unfortunately, as we consider the financial environment within which we are working, the traditional financial rewards associated with hard work and achievement will be limited.

For FY10 we will not be able to sustain past levels of salary increases, and we are planning lower increases in compensation this year. The Vice Chancellor for Human Resources will be working with all supervisors to encourage that compensation increases, in general, be higher for those who are lower in total compensation. I have discussed these matters with the Chair of the Board of Trustees, and I proposed and will implement a reduction of my own salary by 5% effective January 1, 2009 and another 5% reduction effective July 1, 2009. School Deans and Vice Chancellors have volunteered to have no increase in their compensation in the year ahead. These leaders have been asked to review carefully the compensation of their faculty and staff and to assure that their programmatic plans for FY10 can be achieved with realistic expectations of revenue. All Vice Chancellors have been asked to reduce the rate of growth of administrative expenses as we plan for FY10 and to identify opportunities for expense reductions in the current year.

While we must exercise restraint in compensation and administrative expenses, it will be vital to continue to attract and retain key members of the faculty and staff and to provide financial resources to do so when needed. It is imperative that we remain in a position to add people to maintain momentum in improving our quality and impact, to secure philanthropic support for the University, and to continue our progress in improving gender balance and building greater representation of members of minority groups. We also may need to apply new resources to initiatives that will contribute to our future strength, including in areas such as exceptionally promising academic initiatives, compliance, safety and security.

Our programs are strong now and must remain so. New staff additions in the administration will be very limited and require considerable additional justification. New additions to the administrative staff of the central administration must have approval of a committee that includes Executive Vice Chancellors Henry S. Webber, Chairman, and Michael R. Cannon, and Vice Chancellors Barbara A. Feiner and Ann B. Prenatt. Open positions will be reviewed and this same group will determine whether such positions will be filled. New, recurring and one-time commitments to expand the central administration for FY10, some of which have already received “soft approval,” are being reviewed and may be eliminated, scaled back, or delayed to reduce the rate of growth of expenses.

It is also important for us to scale back, eliminate, or delay capital projects. For example, planned renovation and expansion of Mallinckrodt Center at a cost of over $20 million will be delayed indefinitely. The redevelopment of the South 40 will be slowed. New capital projects for schools will be required to have a much larger fraction of the costs assured in the form of philanthropic contributions before construction begins, rather than relying on accumulated reserves. Reserves may well be needed to address financial aid and other future needs.

Two capital projects already underway must be completed. The BJC Institute of Health will be finished in late 2009 and will provide much needed space to respond to research opportunities in medicine in connection with our BioMed 21 initiative. Stephen F. and Camilla T. Brauer Hall will be completed and open in the late summer of 2010 to enable us to expand education and research in biomedical engineering as well as in energy, environment and sustainability. Both of these capital projects will enable the expansion of programs to uncover new knowledge that will respond to critical challenges we face as a nation. In addition, halting or slowing these projects would end up costing us more in the long run.

To our loyal alumni, parents, and friends, we thank you for your support and encouragement. Many of you have been financially supportive in the past, and that support has secured for us the financial strength to be flexible at this time of uncertainty. Your support has provided a large endowment for financial aid, for faculty professorships, for programs, and for facilities. We have flourished because you have helped us. In addition, through your own accomplishments and association with Washington University, you have encouraged others to view Washington University more favorably. Many among you have encouraged prospective students to explore Washington University for their higher education. At this time of Thanksgiving, I count you as key among our many blessings, and it is my hope that these challenging times are not too adverse for you and your families.

To all who are in the Washington University community, I have several requests. First, let’s be supportive of each other. These are not easy times. Befriending those in need at this time can be very meaningful. For those who are able, please continue to support us financially, with special emphasis on support of our scholarship programs. Second, if you are in a situation where you see employment opportunities for the talented students and alumni of the University, please contact us to make these positions known to our graduating students. Internships for continuing students can also make a difference. Finally, to all who encounter talented people seeking a great university experience, refer them to us! We thrive because an exceptional group of students joins us each year, and we encourage prospects to visit us and learn more about what we do and how well we do it.

At all times, but especially in a time like this, we need to balance idealism with pragmatism; optimism with realism. For myself, I pledge to continue to do my best to take actions now that will not compromise our prospects for excellence in the future. This letter summarizes some of our near-term plans; we may have to undertake efforts to introduce greater constraint as this year unfolds.

As uncertain as these days are, I remind everyone of the great year we are having: we welcomed a world-class group of students this fall; a tremendous group of new faculty joined us this year; we rejoice in the successes of our continuing faculty like Mary Jo Bang, Professor of English, who won the 2008 National Book Critics Circle Award in poetry; we launched the Institute for Public Health; we dedicated Harry and Susan Seigle Hall; we opened the Danforth University Center; we hosted the Vice Presidential Debate; faculty, students and staff contributed to establishing that water exists on the surface of Mars; and faculty, students, and research staff in the School of Medicine have reported path-breaking research to understand, through genome sequencing, the origins of cancer. Let us work together to continue to enjoy national and world leadership in education, research, and service as one of America’s finest research university communities.

While we face challenges, I am confident that our financial strength, dedication, and creativity will sustain our great university. Even with these challenges in mind, I encourage you to take the coming holiday break to reflect on our many blessings.

Sincerely yours,

Mark S. Wrighton
Chancellor

The Green Keynes

The original Keynes joked that green money (I realize that pounds are not green) should be put in bottles burried and let the unemployed go look for them and then spend their "winnings" to jump start aggregate demand. The new fashionable green keynesiam has a benevolent well meaning goal (i.e Tom Friedman's vision) but could lead to a number of Newmans from Seinfeld

Consider this thoughtful blog entry:

New York Times "Dot-Earth Blog"

"I would ask President Obama to combine economic recovery and a new energy agenda (renewable energy, alternative transportation infrastructure, energy efficiency, smart grid and smart land use) into a Green New Deal. Several economists, for example 2008 Nobel Prize winner Paul Krugman, are talking about the need for a Keynesian type fiscal stimulus akin to F.D.R.’s New Deal. And others are talking about the need to make it green.

The Apollo Alliance and Van Jones of Green for All have been talking for years about the potential of a green economy to create jobs and provide opportunities for displaced workers and low income people. Alan Durning’s recent piece on Gristmill explicitly related a green economy agenda to a fiscal stimulus program: http://gristmill.grist.org…


— Laurie Dougherty, Brookline, Mass.
Recommended by 25 readers

Are faith in markets and faith in government perfect substitutes? Will Harvard now send 50% of its graduate class into the public sector? Will President Obama give us a federal government that provides a high level and quality of public goods per tax dollar spent? I hope so but I doubt it.

Contracting issues and corruption must be addressed. Public sector wages would need to be closer to private sector wages to help us avoid another Boston Big Dig (triple cost over-runs and low quality). Monitoring to minimize shirking and credible punishments would need to be figured out and enforced.

If we go ahead with this green public financed big push, will public sector unions gain greater wage increases relative to their private market alternatives? How will we evaluate whether this is money well spent?

It is an interesting question for incentive theorists to think about to ask whether we can achieve two goals at once; is it feasible and desirable to "stimulate" the economy through a public financed green infrastructure investments? How will we pay for this? It is quite difficult to kill off government programs, will this be a temporary program?

Why must the public sector be given a monopoly here to pursue this? I realize that public goods are involved here and that there are large upfront fixed costs to these infrastructure projects.

Tuesday, November 18, 2008

A Deep Question

Google can be used to answer many questions. The other night, my son and I were wondering what monkey brains might taste like. I logged on and google told me the answer (chicken) and showed some unappetizing photos that I didn't share with my 7 year old son. Another person has used google to ask a fundamental question that I also don't know the answer to.


Referring URL http://www.google.co...ial&client=firefox-a
Search Engine google.com
Search Words who is matt kahn

Social Capital, Climate Change and Exurban Fringe Negative Externalities: Fighting Fires Together is the New Bowling Alone

The New York Times loves to publish photos of Southern California on fire. I am surprised that they don't have the rock group REM popup and sing "its the end of the world as we know it." It is 80 degrees here today with blue skies and the smell of smoke has vanished from Westwood. I don't want to trade places with you.

Now that LA is back to being #1, it is time to think about how "bad things happen to good people". This New York Times article hints at the following interplay. Climate change means that it rains less than it used to. Lots of plants and trees are ready to catch fire. Due to bad insurance pricing, people are living too close to areas that do catch fire and aren't incentivized to take actions to minimize the probability that they start a fire.

If this part of Los Angeles had more social capital between neighbors, would people be less likely to plant bougainvillea (see the last paragraph below)?

My read of this situation is that climate change is making the exurban fringe of LA more risky and to minimize the likelihood of these events we need people to be good citizens. People are more likely to be good citizens in communities with more social capital and connectivity. While it is sexy to connect the cost of climate change to the presence of social capital, I actually think this merits some research. Bowling Alone could morph into "Fighting Fires Together".



New York Times
November 18, 2008
As Winds Quiet Down, California Fires Are Tamed

By JENNIFER STEINHAUER

LOS ANGELES — Firefighters gained the upper hand on Monday against three blazes raging over a 130-mile stretch of Southern California, as scores of residents picked over the charred remains of their homes and state officials took a new look at how to prevent a recurrence of the destruction.

Gov. Arnold Schwarzenegger called for a review of building standards for manufactured homes after nearly 500 of them went up in flames in the Oakridge Mobile Home Park in the San Fernando Valley over the weekend and the remaining 100 or so in the park were left badly damaged. Mr. Schwarzenegger also called for hospitals to examine their generators after the backup power system failed at a hospital in the center of that fire, north of downtown Los Angeles.

A calming of the Santa Ana winds, which helped propel the three fires that over the course of several days consumed roughly 40,000 acres and hundreds of homes and sent five counties into states of emergency, helped firefighters who were laboring mightily.

In Santa Barbara County, a fire that quickly consumed scores of luxury homes last week was almost completely under control. In the San Fernando Valley, fires were roughly 40 percent contained. In an area south of Los Angeles, fires smoldering across two counties were also about 40 percent controlled.

In all, more than 30 people were injured in the fires, three seriously, with burns and smoke inhalation.

Smoke and ash blanketed much of Los Angeles County, with schools in some areas closed and outdoor activities curtailed because of poor air quality.

Officials in the counties hit by fires said the causes were under investigation, though the Santa Barbara County fire was initially thought to be caused by people.

While California has adopted regulations that require ignition-resistant construction materials and roofs for manufactured residences outside of mobile home parks, officials said Monday that the Schwarzenegger administration would seek to tighten those regulations for homes within the parks, particularly because an increasing number of California residents have moved deeper into canyons and other areas prone to fires.

“Our focus is primarily on the manufactured housing,” said Chris Anderson, chief of field operations for the division of codes and standards at the California Department of Housing and Community Development. Mr. Anderson said he expected the state to adopt new regulations in January that would extend tougher manufacturing regulations to mobile home parks.

He said there had been “some resistance” from the mobile home industry to increased fire prevention standards, because of the increased costs. But, he said, “most people in California understand that we are in a state that has wildfires. They acknowledged they needed to do something.”

Calls and e-mail messages to a spokeswoman for the Manufactured Housing Institute, a national trade organization, were not returned Monday.

Fire experts said more residents needed to heed local ordinances and use common sense in terms of building and landscaping to prevent homes from being destroyed, a common problem in California. The combination of housing developments in increasingly remote areas and a protracted drought have resulted in devastating loss numerous times in recent years.

“You can have a lot of codes and laws and ordinances,” said Jim Smalley, a program manager for Firewise Communities, an organization that seeks to reduce wildfire risks and damage. “But the problem is that compliance with those codes is voluntary. It’s a social-contract issue, both in understanding where you live and what the hazards are and what you can do about it.”

For example, Mr. Smalley said, in Rancho Santa Fe, an area threatened by fires last year, codes prohibit planting certain types of plants near homes, but residents in subdivisions often do not comply.

“The fire department comes in and says, ‘You can’t plant bougainvillea here,’ ” he said, “and the homeowner says, ‘O.K.,’ and then they go away and they plant it anyway.”

Saturday, November 15, 2008

The Income Elasticity of Demand for Academic Economists

A couple of facts and then a question. Until the last couple of months, rich Universities have enjoyed a runup in their endowments. At the same time, there has been active "free agency" in trying to recruit senior economics professors. It has been taken as a simple fact that great universities must have a great economics department. The net result of these two trends has been a significant increase in salaries at the top end of the profession. Now that endowments are down and Universities are hunkering down and ramping up financial aid, is this "era" over? This is especially the case because the Deans have locked into long term contracts with the "athletes" they have signed up. Would Washington University in St. Louis today offer the same contracts they offered 3 years ago? Will the Deans actually write Ben Bernanke letters requesting a hyper-inflation?

Business Schools have been a major source of demand for academic economists. If they continue to offer "superstar" contracts then we will see a further migration of academics from economics departments to business schools.

An Obituary for an Engineer who Vastly Improved Quality of Life in Cities Around the World

For ambient ozone, a leading indicator of smog, the average of the top 30 daily peak one-hour readings across the Los Angeles Basin’s 14 continuously operated monitoring stations declined 60% between 1980 and 2005, from 0.24 parts per million (ppm) to 0.094 ppm. The number of days per year exceeding the federal one-hour ozone standard declined by an even larger amount—from nearly 150 days per year at the worst locations during the early 1980s, down to fewer than 20 days per year today.

Recent pollution gains are especially notable because the Los Angeles Basin’s population grew by 42 percent between 1980 and 2000, and total automobile mileage grew by 88 percent.

How could SHARP pollution reduction take place during a time of increased private vehicle use? I have two words for you; Carl Keith.

New York Times
November 15, 2008
Carl D. Keith, a Father of the Catalytic Converter, Dies at 88
By DENNIS HEVESI

Carl D. Keith, a co-inventor of the three-way automotive catalytic converter — a major advance in eliminating the toxic tailpipe emissions that once blanketed cities in smog — died Sunday while visiting one of his daughters in New Bern, N.C. He was 88 and lived on Marco Island in Florida.

His grandson Leonard Hardesty Jr. confirmed the death.

Working with John J. Mooney and a team of other chemical engineers at the Engelhard Corporation, one of the world’s largest mineral refining companies, Dr. Keith designed the three-way catalytic converter in the early 1970s, just as the stricter emission requirements of the Clean Air Act Extension of 1970 were coming into effect.

“Billions of people around the world breathe cleaner air because of this invention,” Margo Oge, director of the Office of Transportation and Air Quality at the Environmental Protection Agency, said Friday.

The three-way converter was a significant improvement over what is called the oxidizing converter, the patent for which is held by General Motors. The three-way is now standard for cars and light trucks made in the United States and in most of the rest of the world.

Lindsay Brooke, a senior editor of Automotive Engineering International, the magazine of the Society of Automotive Engineers, said Thursday in an interview, “The catalytic converter, combined with the transition to unleaded gasoline, led to a dramatic improvement in air quality and enabled the auto industry to meet the Clean Air Act regulations.”

A catalytic converter is a can-shaped device installed beneath a vehicle as part of the exhaust pipe. Inside the converter, a bricklike ceramic honeycomb with hundreds of tiny passages is coated with a catalyst material, typically platinum or palladium. When the exhaust flows out of the engine and passes over and through the catalyst coating, a chemical reaction renders three toxic compounds harmless.

The oxidizing converter worked for two of those compounds, turning carbon monoxide into carbon dioxide and hydrocarbons into carbon dioxide and water. The three-way device designed by Dr. Keith and his colleagues added the conversion of nitrogen oxides into nitrogen and water, greatly reducing the emission of harmful particulates into the air.

According to an E.P.A. statement, today’s cars are 98 percent cleaner in terms of nitrogen oxide emissions than those built in the 1970s, “and the three-way catalytic converter is the greatest contributor to that reduction.”

David Doniger, the director of climate policy at the Natural Resources Defense Council, agreed, pointing out that “smog has gone down sharply, even as the number of cars and the size of the economy has more than doubled.”

Carl Donald Keith was born in Stewart Creek, W.Va., on May 29, 1920, one of three sons of Howard and Mary Rawson Keith. His father was a steelworker, and his mother worked in a bakery.

Dr. Keith graduated from Salem College, in Winston-Salem, N.C., in 1943. He received a master’s degree in chemistry from Indiana University in 1945, and a doctorate from DePaul University in 1947.

He was a chemist for Sinclair Oil from 1943 until 1957, and then joined Engelhard Industries. From 1976 to 1985, when he retired, he served as an executive vice president, president and then chairman of the company.

Dr. Keith’s wife, the former Edith Birmingham, died in 2000. He is survived by two daughters, Judith Hardison of New Bern and Carla Hardesty of Randolph, N.J.; six grandchildren and eight great-grandchildren.

In 2002, President Bush presented Dr. Keith and Mr. Mooney with the National Medal of Technology, the nation’s highest honor for technological innovation.

Thursday, November 13, 2008

People Magazine for Economists

I used to subscribe to Econometrica and People Magazine. I dropped my subscription to the first one; not enough pictures. I have noticed that economists are under-represented in People Magazine. Jeff Sachs is sometimes there but not often enough. The world certainly needs a glossy magazine with nice color photos of economists. I thought about creating my own. During this time of recession, I wanted to create new jobs. But then I found out that Columbia's Econ Department beat me to the punch . How many Jim Heckman photos can you find in this issue?

Wednesday, November 12, 2008

Google Search Aggregates as a Sociology Tool

Forget the General Social Survey. In real time, do you want to know what is hot and what is not? http://www.google.com/trends will answer your question. If I may humbly make a suggestion, it would be cool if they stratify this data by U.S county or other geographical units. What are the people of Berkeley searching for? What are the people of Houston searching for? Are these searches positively correlated? The New York Times today claims that we all care about avoiding the flu and that Google trends has great predictive power for tracking flu cycles.

Now the GSS would counter that google offers a great dependent variable but offers few attributes of the searcher such as (42 year old bald PHD economist guy in westwood. Should Google do something about this? From your office IP address no. From your home IP address, I'm guessing that they could merge in lots of information for owners concerning the type of home, value, size etc. There must be ways to protect confidentiality and privacy issues.

What could be done with this new micro data? The Next Obama wouldn't need to pay polling firms to canvas voters, google could easily tell him "am I Hot?" "Where am I hot?" and study decay rates to see momentum.

When rock albums are released, bands would now what local markets to target based on American Idol type "votes" (i.e internet searches). Companies that can capitalize on network effects and bandwaggons would want to know which geographical areas appear to be susceptible to these effects (i.e wealthy teenagers in abundance there?).

Tuesday, November 11, 2008

A Doubleheader at USC

Today, I presented two different papers at USC. Neither was on football. In the morning, I participated in a Megacities conference that was held in downtown Los Angeles. Before my session, I heard a 30 min presentation by the new Dean of the USC School of Architecture. Qingyun Ma gave a fascinating talk on his work in China. He is helping to build some very funky "green" Universities in China. While the Chinese officials had hoped that he would build a "Princeton" style campus for them, he has planned something better. He presented amazing visuals of buildings that looked like they were from Star Wars III (Revenge of the Sith). He had more imagination that George Lucas. His buildings are "green" in how they take advantage of lighting and cooling from being located on a mountain range to reduce their electricity consumption. Whether students will learn more on this "vertical" campus with a really small land area, remains an open question. But, I was very impressed. I asked him whether there are people at UCLA Architecture who he is working with. He politely told me that he is new to USC and that the answer is no. I'm hoping (but I'm not optimistic) that my UCLA architecture colleagues are as productive as Mr. Ma.

After his presentation, Paul Torrens of Arizona State University presented a "agent based" modeling framework of mega-cities. In one demonstration, he showed a street scene where 14 different types of agents try to navigate through a very busy intersection (think of broadway in New York City). Some of the agents are drunk and are randomly moving around, others are disabled and walk slowly, while others are determined economists hoping to cut through the clutter and get home. He then detonated a bomb in his video and the 14 types of people tried to get away from the debris. Congestion and chaos ensued. My 7 year old son would have found this to be the highpoint of this conference.

I spoke next for 15 minutes about my optimism that quality of life is improving in mega-cities as smog and crime decline. But, looking ahead to the future I pointed out the challenges that climate change adaptation poses for mega-cities and the issues of mega-city contributions to greenhouse gas emissions.

At the end of my talk, I shook hands with some new friends and ran off to get to the main USC campus. Once there, Richard Green and I had a nice lunch where we talked about real estate research. The USC faculty club is nicer than the UCLA faculty club and this made me sad.

At my 2pm real estate seminar, I gave a power point presentation of a new paper on the consequences of housing and environmental regulation that I'm writing with Jonathan Zasloff and Ryan Vaughn. The USC economists beat up on this paper hard and made a number of excellent points. Our paper revision will be much better because of the comments I received. I was so impressed with this crew that I thought about simply staying at USC and never returning to UCLA but then I remembered that I hadn't brought a change of clothes.

Monday, November 10, 2008

Be Prepared

As a younger man, I was a boy scout. I earned one merit badge in cooking. My wife doesn't believe this. I was never promoted above the rank of "Second Class" (she believes that). I think our motto was "be prepared". I'm looking forward to thursday at 10am and I'm eager to shake out with Chancellor Block and the rest of happy Bruins. I've published on this general subject of protecting life in the face of earthquakes and other disasters; You have read this well cited paper haven't you? (The Death Toll from Natural Disasters
( see http://mek1966.googlepages.com/kahn_restat.pdf)


http://www.shakeout.org/

UCLA Office of the Chancellor

--------------------------------------------------------------------------------

To the Campus Community:

I am writing to encourage you to participate in the Great Southern California Shakeout drill, the largest earthquake preparedness activity in U.S. history.

The exercise, to be held on Nov. 13 at 10 a.m., is based on a magnitude 7.8 earthquake on the San Andreas Fault—5,000 times more powerful than the July 29 Chino Hills earthquake. The simulated San Andreas earthquake will last nearly four minutes. An actual earthquake of this magnitude would likely create catastrophic damage to the entire Southern California area.

You can participate by conducting a “Drop, Cover, and Hold” exercise from 10 to 10:05 a.m. The drill also presents an opportunity to discuss your personal readiness plans, review the campus emergency prevention and preparedness programs and become familiar with the campus emergency communications systems.

During the drill, we will test our campus mass notification (BruinAlert) systems, activate the campus Emergency Operations Center (EOC) and conduct an exercise to practice our response to such an event. The Ronald Reagan UCLA Medical Center will conduct drills over several days.

UCLA has well-trained professionals and outstanding programs in place to respond swiftly to emergency situations and to recognize and prevent potential problems before they occur. Complacency is the enemy of emergency preparedness. I am committed to doing everything possible to ensure the safety and wellbeing of our campus community.

If you have questions about the exercise or need other assistance, please call the UCLA Emergency Management Office at (310) 825-9200.

Below are links to information and support resources:

UCLA Campus Emergency Management web site: http://map.ais.ucla.edu/go/Emergency Management
UCLA Campus Safety: http://map.ais.ucla.edu/go/campus-safety
Colleges & Universities Shakeout: http://www.shakeout.org/colleges/
Practice Drop, Cover, and Hold drills: http://www.shakeout.org/drill/
The “Roots” brochure, where you can review your personal and family disaster preparedness: http://www.earthquakecountry.info/roots/index.php
Sincerely,

Gene D. Block
Chancellor