I don't own a TV so when I stay in a hotel I try to watch it. This morning I was watching the 12/17 confirmation hearings of the California PUC's Michael Peevey . He is a very important guy on all energy issues for the state.

During the hearings, a Democrat pushed him that the Public Utility Commission (PUC) should be using its budget to encourage the development of new green human capital at high schools. Similar to Bill Clinton's 1992 love for the European vocational skills education, this vision would have California high schools train students (in shop class?) with practical skills for the new green economy. So, avoiding engineering details, these young people would be trained in installation and maintenance of wind and solar panels and perhaps the art of maintaining plug in hybrids and other energy efficient durables.

This harkens back to an old labor economics literature; namely on the job training versus general human capital. In one scenario, firms would hire young people and would train them. This would be attractive if there is specificity to the specific task that the firm wants done. For example, if Burger King has an exact way of making their Whopper. The firm will only invest in a worker's green skills if they expect the worker to remain with the firm and if there is a demand for the final product.

I wondered if there is a "field of Dreams" logic behind what the Democrats are arguing for. If California has a thick pool of "skilled" relatively cheap green labor, will more factories locate in California or will China still be more attractive?

Does this create a new interest group who supports AB32 (anti-carbon) legislation?
Typically, carbon mitigation has been an elite issue but this would nudge the union rank and file on board.

If high schools embrace an even "greener" curriculum what gets pushed out? economics?
If it is trigonometry then I support this.

The big issue here is the "tipping point" --- wise strategists are moving on several levels to build support to keep carbon mitigation going strong. Al Gore and other people in Malibu and Berkeley will always support this legislation but how do you get Joe the Plummer on board? He needs to believe that there is something in it for him.

Does supply create demand? This green jobs push may offer a good test but I do believe that we also need the Copenhagen Success to send a world wide signal that the future is low-carbon. If there isn't credible demand then such supply side subsidies will fail to deliver "good green jobs at good wages".

In his last NY Times column of each calendar year, William Safire always made gutsy predictions for the new year. Now that he has passed away, somebody needs to take his place. Below, I will fail at this but I hope that my failure raises your hopes that you can do better.

I am sitting in a hotel in downtown Sacramento. I have lived in many places and traveled widely and I must report that downtown Sacramento is not the place to be. I am excited though that I will spend tomorrow at my favorite electric utility. If you are on the 440pm Amtrak train tomorrow heading to Berkeley, please look for me in the bar car.

Predictions

1. The DJIA will stand at 11,250 on December 23rd 2010. The national unemployment rate will be 9% and the price of gasoline will be $3.20 a gallon.

2. UCLA, UC Berkeley will be allowed to earn some revenue from their national brand names. Rather than having only 5% of students from out of state, these schools will have 25% of students from out of state and 75% from in state. The out of state students will pay the midpoint of the tuition paid by in state students ($10 grand) and the tuition paid at elite private schools $40 grand); so each out of state student will pay $25,000 a year.

If UCLA has 32,000 undergrads; this will yield (in steady state) an extra 8,000*$15,000 a year = $120 million per year and the school will start to recover from the recent extreme pain. With this extra revenue, my concerns about the future of the UC vanish and I will stop complaining (that's a conditional prediction).


3. I have trouble making a prediction about the 2010 Midterm Election. Nobody likes the Republicans. They are not a party of ideas or leadership. Still, there will be a backlash against this growth in government. The marginal tax rate on upper middle class people is soon going to look quite high.


4. Basic Books will publish a new book of mine in fall 2010 and I will drone on and on about its merits.

5. A resolution and a prediction: Dora and I will have a happy and productive 2010 and I will try to be a more productive, less negative person.


SWITCHING subjects: I suggest you read this NY Times article about UCLA's Hospital
here . A fascinating debate on heterogeneous treatment effects is brewing. The Dartmouth Atlas guys have had a good run aiding the Obama Team with their "empirical finding" that a free lunch can be had such that health outcomes improve and we reduce the cost of care. UCLA appears to be a counter-example offering high value added care at high cost to a subset of recipients. What are your rights? Do you get to make health choices while facing a hard or soft budget constraint?

This breaks my Chicago heart but take a look at this unclaimed checks website at Sacramento's SMUD. Now some of you smart economists will say that this must be low stakes stuff. You like data my fellow "Super Crunchers"? Here are the micro data. Go write a JPE paper with it. I see one person who has not claimed a $1200 check. What does this prove? Sharp diminishing marginal utility of income?

I should add that this will be my last blog post for 2 weeks. I am returning to my second favorite city. I'll give you a hint. It is liberal and its name begins with a "B" and it isn't Boston.

In October 2009, I had the opportunity to sit down and talk with Francisca Richter. The interview is presented below. Doug Campbell was kind enough to arrange this. I had a great time and I hope this new magazine is as well read as the Federal Reserve of Minneapolis' publication.

Here is the first issue in pdf format.

Here is another link

Here is the video . I apologize for my odd look

and here is the web link.

For those of you who know me, you will see that I tried to be funny and to be interesting.

One Example from the interview:

Kahn: "I started this blog because my wife wanted me to stop telling her all my ideas, and this was a cheap way to communicate with all my friends in academia. Many of them read it and then send me rude remarks. But to your question, UCLA has been suffering from high local real estate prices! A sign to economists of great quality of life is high real estate prices, but UCLA is having trouble recruiting faculty because of it. Faculty at an Ohio State or a university in Boston say, "UCLA is a great school, but I can't afford the housing nearby." I'm talking about a $1.3 million, 2,000 square foot house, not the Playboy mansion, that is affecting the ability of UCLA to recruit."

Are you an economist who has been thinking about climate change research topics? Are you eager to raise some research funds? Well, then please take a look at this . Prof. Charlie Kolstad and I have worked to encourage the California Air Resources Board to devote some of its research money to encouraging new work on the broad topic of the "Economics of Climate change". We hope that such research funds will catalyze important new research that helps California design its innovative AB 32 carbon mitigation legislation.

We hope that there are a few active research scholars who are sitting at their desks and suffering as they devote effort to pushing the research frontier.

I view this as a great opportunity for economists to show that we are useful people whose innovative ideas can help society achieve its goals in a cost-effective manner.

Here is photo of my backyard taken on 12/15/2009.



Note the blue skies, the palm trees and the blooming plants. Last week I gave a talk attended by some local business people. Several of them were quite concerned that the state is not "business friendly". They predicted that the state's fiscal problems will cause a future brain drain. This photo represents my response and why I'm not as concerned as they are.

Never forget backwards induction. Whether you are playing chess or arguing with somebody, don't forget about the sub-game you are trying to get to. In the case of carbon mitigation, we are trying to initialize a domino effect. Rather than the rise of communism through some continent, we are trying to cause the decline of carbon. But, Jeff Frankel's blog post depressed me.

Have the fast talking delegates considered; "what happens if no deal emerges?" Will there be a "next Copenhagen"? How does position convergence take place? If the delegates think about the challenge if no deal emerges, then does this affect their negotiating now? Do expectations of failure and the cost of failure raise the probability of compromise and "success"?

The Coase Theorem would say that the international "winners" from carbon mitigation will offer a nudge to the "losers" but in this case the "winners" have little to offer the USA and China except for a hearty handshake. If these nations would volunteer to help us in Afghanistan perhaps the Republicans in Congress would take this issue more seriously.

If Copenhagen unravels, will Al Gore need to pray for a true climate disaster to push back the skeptics back to the international negotiating table? Will venture capitalists stop investing in green tech because of their uncertainty concerning the timing and the extent of coming carbon pricing?

Put simply, Dick Cheney would consider investing in "green tech" if he was sure that the price of carbon would be $50 a ton starting in 2012 and rising year after year after that. But, nobody is sure about the distribution of this random variable.

Don't forget irreversible investment under uncertainty --- it is rational to wait and delay making a decision now but if each individual investor delays then the aggregate economy ends up "less green" than if we could commit to the big push now.

Economists and engineers have celebrated the coming installation of $200 real time electricity meters in our homes. This real time inflow of information will allow households to be sophisticated consumers of electricity. When electricity prices are high (like at peak times) we will use less and substitute off-peak. When we see the salient real time price signal (rather than the monthly uninformative current electricity bill) we will be more likely to demand energy efficient durables if we realize that we are "hogs". Given that most households spend around $1,000 a year on electricity. These meters could quickly pay for themselves. But, today's NY Times reports of a brewing rebellion. Some households are complaining that they "prefer" the good old days. They say that the technology is flawed because the smart meter says that they owe the power company more than under the old measurement system. Who is to blame? Energy auditers should diagnose the issue to see if the households were getting a good deal and didn't know it or whether the 1st generation technology is flawed.

This raises 2 issues. How do we transition to a new technology? Should it have been piloted first with voluntary opt-in and a subsequent randomization across that subset of volunteers? Will this new technology be regressive as the educated and skilled reduce their electricity consumption more (think of Captain Kirk) than the less skilled? Past research has documented that information is regressive because the educated are more likely to respond to it. There could be significant heterogeneity here. The old and out of the work force may have more time to babysit their smart meter and respond "optimally". The time pressed may not have the same freedoms for restructuring their days around the non-linear pricing system. Is that fair?

Has your child ever lectured you on the importance of recycling? This LA Times article highlights a new set of children's books with a green edge to them. Perhaps the Cato Institute should commission a sociologist to study whether the modern elementary school curriculum is ramping up the next generation to become Al Gore to the third power.

Given that I have no memories at all of anything I learned at the vaunted Scarsdale School System, I have no problem with my son being taught some righteous ideas about what is good and moral behavior. But, the economist in me keeps thinking about tradeoffs. Somehow the broad concept of "tradeoffs" is not a major topic in elementary school curriculum. My son has also pointed out to me that his classmates are happy to redistribute other people's stuff but are not very generous with sharing their own stuff.

An interesting line of research has examined children's consistency of preference orderings. Do children make "rational choices"? Bill Harbaugh has some important work on this topic . If we extend the right to vote to children, would we be more likely to have carbon pricing? My guess is that health care wouldn't be such an exciting issue to these 8 year olds. There would be a large "Cash for Lego" program and President Obama would easily win a second term.

But, anticipating that today's deficits will lead to higher future taxes for their birth cohort --- the young today might act like tough Bob Barros and vote for fiscal discipline.

Maybe I need to start "tweeting"? Most economists neither have anything to say in real time nor discrete time! But, hear me out. The movie star Vin Diesel just jogged past my Little Holmby house. I was walking out to pick up the newspaper and he was moving fast enough that I didn't have time to say; "Yo Vin". So, in the last few weeks my street has been visited by Warren Christopher and Vin Diesel. And, this is just the tip of the iceberg. For all I know, Brittney Spears may play ping-pong down the street.

For those who expect substance from this blog, I refer you to this Copenhagen blog. Rob Stavins will be posting there.

What am I doing? Nothing. I just finished grading my exams and I have been sick with a cold. Dora and I have been working on our electricity project. The comments we received at the Berkeley conference last week have made us change our project in several key ways.

2010 is shaping up to be a very productive year. My resolution in the new year is to be productive.

UPDATE: Like a Simpson's episode, permit me to change themes. The NY Times has a nice piece on Mike Bloomberg's big carbon footprint . The article points out a "paradox" in many facets of his life, big mike is quite green -- he "walks the walk" on energy efficiency at his buildings and in his NYC public policies that are pushing NYC to be a "green city". I don't believe that the NY Times is calling him a hypocrite but they are getting close to saying that. The ask; "why doesn't he fly commercial first class rather than having his own jet?" The answer is obvious; this guy's scarcest asset is his time and he is rich enough to be able to fly when he wants to fly.

As many of you know, the "internal consistency" of choices by greens has been a big theme of my recent research. See my paper with Vaughn 2009 in BE Press 2009 and my paper with Morris in JAPA 2009. Liberals both vote green and live green but few have Bloomberg's money or high value of time.

The Italians have been talking about building an airplane whose fuel economy is much higher than current jets. I bet that Big Mike will buy one in the year 2050 (when it is released) and the NY Times will endorse him for a 15th term as Mayor.

As I have mentioned before, the funny part of guys like Big Mike being good Mayors is that the NY Times and other opinion leaders have to grudgingly admit that they prefer benevolent dictatorship rather than messy interest group democracy.