This NY Times piece has some interesting ideas. Environmental scholars have wondered about the quality of the aggregate carbon dioxide statistics that China generates. Do we really know how many tons of carbon this big nation produces each year? In terms of data quality, is this the tip of the iceberg? Tyler sketches some ugly possible future scenarios concerning China's economic dynamics

After spending two weeks in Beijing in September 2009, I can offer a few observations.

1. China's leading universities are producing 100,000s of talented ambitious young graduates. Now that the young faculty have been trained at Western Universities, this new cohort is getting a serious education. (I cannot judge the quality of the education in the 1980s in China's universities). This huge stock of human capital will allow the "Google Chinas" and other human capital based enterprises to boom.

2. The huge home market --- will act as a commitment device for selling to domestic consumers. Even upper-middle class people in Beijing do not have the standard of living of graduate students in Boston. The Beijing elite live in small apartments with some durables and many without cars. Car ownership is 18% in Beijing as of 2006. My point is that there is a heck of a lot stuff that can be sold to the current urbanites in China and the hundreds of millions of rural people who will soon move to the cities.

3. The government appears to be "pro-growth" --- it is ironic that a communist party government appears to harness public goods investments to achieve greater growth targets than the mighty USA. Counter, to this claim --- it appears that China's marginal taxes are quite high. Even upper-middle class people in Beijing have little disposable income. Arthur Laffer needs to go to China.

So, my bottom line is that 8% growth will continue. Now Tyler might ask me; how do you "know" that their economy is growing at 8% a year? Now there is an objective reality that can be counted. Count new car registrations; count electricity consumption; look at the budget share on food (following the work of Hamilton and Costa; is this budget share falling over time? If so , then this is a clear sign of a growing standard of living.

If you want to read my wife's paper on this topic then read this 2001 JPE paper.

Note that at the end of the Cowen piece he makes some general equilibrium claims.
If China redirects its capital investments inward, how much will U.S interest rates
rise by? If we have a decent macroeconomic model, it should provide such a prediction. Is China "small" in the world capital market? If not, how "big" is it? If China ducks out, will the rest of the world demand a larger risk premium for lending to us?

This NY Times editorial below surprises me. Could the Smart Obama Team really be this bad at basic game theory? I thought that during the Cold War that RAND was paid big bucks for teaching the government strategy lessons in dealing with the Soviet Union. I guess that the stock of Government knowledge depreciates over time. The Boss of Israel has clearly called President Obama's "bluff" as he anticipated that any threats would not be credible in the sub-game. Tough guy Rahm could have foreseen this and had a surly foul mouthed strategy ready to launch. He seems to have forgotten that tough guy language (while scary to an Ivy League grad) is unlikely to intimidate the typical Israeli.

The NY Times has another long article about Honduras and its coup and new election. I read the article that South America is watching the Obama Team to see if it commits to respecting the Rule of Law regardless of narrow ideological agreement (so if "the people" elect a socialist --- does the USA respect that outcome or does it try to get the guy thrown out and replaced by a friendlier government?). Respecting Rule of Law is a commitment device. It removes discretion but it helps to build up a reputation that is predictable. Here is the Honduras case .

Both cases embody basic ideas in strategy. Rules over discretion. Pre-commit to an ideological vision (rather than ambiguous "pragmatism") and you sleep well at night. Being labelled as "pragmatic" has dragged this new president into a series of costly bargaining games . Games of "chicken" that did not have to break out.



November 28, 2009
Editorial
Diplomacy 101
NY Times

We were thrilled when President Obama decided to plunge fully into the Middle East peace effort. He appointed a skilled special envoy, George Mitchell, and demanded that Israel freeze settlements, Palestinians crack down on anti-Israel violence and Arab leaders demonstrate their readiness to reach out to Israel.

Nine months later, the president’s promising peace initiative has unraveled.

The Israelis have refused to stop all building. The Palestinians say that they won’t talk to the Israelis until they do, and President Mahmoud Abbas is so despondent he has threatened to quit. Arab states are refusing to do anything.

Mr. Obama’s own credibility is so diminished (his approval rating in Israel is 4 percent) that serious negotiations may be farther off than ever.

Peacemaking takes strategic skill. But we see no sign that President Obama and Mr. Mitchell were thinking more than one move down the board. The president went public with his demand for a full freeze on settlements before securing Israel’s commitment. And he and his aides apparently had no plan for what they would do if Prime Minister Benjamin Netanyahu said no.

Most important, they allowed the controversy to obscure the real goal: nudging Israel and the Palestinians into peace talks. (We don’t know exactly what happened but we are told that Mr. Obama relied more on the judgment of his political advisers — specifically his chief of staff, Rahm Emanuel — than of his Mideast specialists.)

The idea made sense: have each side do something tangible to prove it was serious about peace and then start negotiations. But when Mr. Netanyahu refused the total freeze, President Obama backed down.

Mr. Netanyahu has since offered a compromise 10-month freeze that exempts Jerusalem, schools and synagogues and permits Israel to complete 3,000 housing units already under construction. The irony is that while this offer goes beyond what past Israeli governments accepted, Mr. Obama had called for more. And the Palestinians promptly rejected the compromise.

Washington isn’t the only one to blow it. After pushing President Obama to lead the peace effort, Arab states, especially Saudi Arabia, refused to make any concessions until settlements were halted. Mr. Mitchell was asking them to allow Israel to fly commercial planes through Arab airspace or open a trade office. They have also done far too little to strengthen Mr. Abbas, who is a weak leader but is still the best hope for negotiating a peace deal. Ditto for Washington and Israel.

All this raises two questions: What has President Obama learned from the experience so he can improve his diplomatic performance generally? And does he plan to revive the peace talks?

The president has no choice but to keep trying. At some point extremists will try to provoke another war. and the absence of a dialogue will only make things worse. Advancing his own final-status plan for a two-state solution is one high-risk way forward that we think is worth the gamble. Stalemate is unsustainable.
http://www.nytimes.com/2009/11/28/opinion/28sat1.html?ref=opinion&pagewanted=print

I agree with Nat Keohane's main claim here . I read this as a "Field of Dreams" domino effect. If we build it, they (i.e China, India) will follow. The specific details don't really matter. Leadership is leadership. We are trying to shift a perception that the U.S is a free rider and that it is acceptable to continue to free ride on global carbon production. If the U.S commits to being a credible "first mover", then this sharply reduces Political Business cycle issues. Forward looking investors will start to calculate the carbon content of various investment strategies and be more likely to "go green". Such little choices will accelerate the reduction in carbon intensity of our economy. Now will a future Republican administration void all of this carbon stuff in the future? If business people think that the answer is "yes", then they may hedge their investments today. What is cheaper; good lobbyists or "green tech"?

Now, of course the specific details matter. If you want to see serious economists hard at work at getting the details right, please look at this . Larry Goulder's Committee is working hard to get the details right on California's AB32. Economists can use our basic knowledge of incentives to reduce the full cost of meeting a carbon goal. As we lower this "price tag", affected polluters have less reason to complain about the regime shift (switching from a zero price on carbon to a positive price).

Right now we are in the midst of a big tug of war about property rights. The polluters want their "right to pollute" to be acknowledged and to have cap and trade permits be freely allocated to them. They are threatening to lobby and complain and rile up the public if they don't get them. The Greens want the permits to be auctioned so that the polluter pays and the State has more $ for Public Works projects and deficit reduction.

Most economists don't really care about such income effects (unless we own shares in the polluting companies). We care about getting the marginal incentives right.

Now, I do have an international relations question. If the messy U.S democratic process does yield carbon legislation; will the rest of the world follow? Will India and China be impressed? I doubt it but if endogenous technological change means that our engineering nerds invent green products that become cheap and high quality; they will be happy to use them rather than status quo "brown" technologies. So my causal story for how the U.S changes the world is;

1. we go green
2. we innovate and China innovates in order to sell to us under the new carbon laws
3. Learning by doing with respect to these new products
4. due to low price per unit of energy (the rest of the world buys it)
5. carbon intensity falls sharply,
6. does 5 fall more more than global gdp increases? I don't know.

I am happy to hear that China has pledged to reduce its carbon intensity by 40% by 2020 but does this guarantee a smaller global carbon footprint? Recall that carbon intensity = tons of CO2/GNP. China's economy has been growing by 8% per year. Make the big assumption that this average growth rate will continue until 2020 and ignore compounding. So, in ten years their economy will be 80% bigger and their carbon intensity will be 40% lower than it is now. So, according to my logic relative to today, China's total carbon emissions will be .6*80% or 48% higher. From Al Gore's standpoint, is that progress? At the same time that President Obama is pledging a 20% reducing in CO2 emissions (under these growth assumptions), China's government is pledging that their emissions will be 48% higher. For more details read the NY Times Article on China's Energy Intensity Pledge .

The Los Angeles Times Headline Writers Really need to study algebra again. Look at this headline from their front page. The article contradicts the headline. A 40% reduction in carbon intensity does not equal a 40% reduction in co2 emissions. They are equivalent only if the economy grows by 0% over time!


Now suppose this vision plays out. Under this scenario, China's 2020 share of global co2 emissions would roughly equal what?

Suppose that in 2010; the percentages are; China 20%, USA 25%, rest of the world 55%.

So normalize global co2 production in 2010 to 100 (new units are not tons!)

China produces 20
USA produces 25
ROW (rest of world ) produces 55

If we would reduce by 20% by 2020, then we are at .8*25=20
Assume rest of world grows to 65
Under assumptions above; china grows to 30.

China's new share of global co2 = 30/(30+65+20) = 30/115 = 26%.

So, the rest of the world's climate fate increasingly hinges on what China does. Will it play nice? Will it want a big payment to reduce its externality? Who has property rights here and how is this tied to political power and military clout?

I am an optimist but we optimists better convince ourselves that learning by doing will feed on itself.

Okay, I'll cry uncle. The Keynesian Multiplier of this government spending is very large. My Dynamic Stochastic GE Model concludes that for every $ that the Department of Energy gives to Los Angeles we generate $3112 of new output and intellectual capital. If you want documentation for how my model works, please go to this technical webpage for details.

Next week there will be a very interesting energy conference at UC Berkeley. I don't like to travel far from Los Angeles but this is worth the effort. These are very exciting days to study empirical energy questions here in California. When I taught in Boston, I was frustrated by the local electric utility's lack of interest in talking to us nerds. In my first 3 years in California, I've been thrilled that several of the electric utilities here are willing to share data with us nerds and are interested to hear about what new results we can produce using their great "ingredients".

California's AB32 provides a good reason for the electric utilities to be thinking "outside of the box". To meet the coming 33% Renewable Portfolio Standard and to reduce their greenhouse gas emissions, the utilities will have greater incentives to encourage their consumers to be more energy efficient and to encourage more of them to sign up for "green energy" programs. Economists who have thought about how diverse consumers respond to incentives can be useful for people for helping such utilities design "optimal" programs. This is the role I will continue to play. I am trying to be useful member of society.

Switching Subjects, if you want to see how blog entries influence "traditional media" such as the Santa Monica Mirror take a look at this .

Bloggers are supposed to provide useful links. Each Thanksgiving, I think about the life of the turkey. This website answered many of my questions about the typical turkey's Biography .

Switching subjects and returning to issues that I actually know something about:

I have a deep interest in "green" products. Coda Automotive is an intriguing new company. Their leaders will visit the UCLA Institute of the Environment in early December. I look forward to meeting them.

I'm particularly interested in speaking to the Coda Leadership about how they are marketing their vehicles. Do they envision that they will be in head to head competition with the Toyota Prius? How do they view the market segmentation between "green car" buyers? In english, do they hope to lure some past Prius buyers to purchase their car or are they looking for guys who used to buy a BMW to buy their car? Are they pro-actively taking steps to generate the same "buzz" that the Prius has achieved?

Apparently, it is not hard to get into Harvard. Ask these Rats. They clearly were
excited about the opportunity to be research subjects in the new Allston labs and came up from below ground to volunteer to be part of randomized trials. They were "rewarded" for their altruism with sharp counter-measures. Life is not fair.


University Funds Rat-Proof Trash Bins

Harvard denies fault over rodents, but says cans are part of “larger partnership”
By Sofia E. Groopman, CRIMSON STAFF WRITER
Published: Tuesday, November 24, 2009

In response to complaints of severe rodent infestation in Allston this February, Harvard spent roughly a quarter of a million dollars to provide North Allston residents with 2,600 rodent-resistant trash cans early last week to help alleviate the problem.

Some North Allston residents have been complaining about a rise in the rodent population, tying it to Harvard’s construction work on the still incomplete science complex.

“It’s absurd to think that blasting a massive hole in the ground isn’t going to cause a rodent problem,” said Jake Carman, a founder of the Allston Brighton Neighborhood Assembly. “The rats weren’t there before they started construction.”

And while University officials maintain that Harvard is “in no way responsible for any increased rodent activity,” the University agreed to fund the trash receptacles as “part of [its] larger partnership with the city and the neighborhood,” said Kevin A. McCluskey ’76, Harvard’s senior director of community relations for Boston.

The principal health inspector for Boston’s Inspectional Services Department, John Meaney, agreed that Harvard is not to blame.

“There would be rats in the neighborhood whether Harvard was there or not,” Meaney said.

The trash cans, distributed by the City of Boston last week, have been generally well-received in the community.

John Cusack, an Allston Brighton Task Force member and a recipient of a rodent-resistant receptacle, said that he loved the cans, calling them “a grand slam” and giving them an “A+.”

“They carry a huge amount of garbage,” Cusack said. “I can’t see any way that they could be anything but the best solution.”

But Harry Mattison, another member of the task force, said he was a bit perplexed by Harvard’s decision to finance this latest addition to the community.

“I was surprised to learn Harvard was spending probably close to a quarter of a million dollars to buy trash cans.” Mattison said. “Individual residents and homeowners should be responsible for their own trash.”

He added that this sort of involvement was “a strange direction” for the University to be pursuing, given earlier talk of providing “community benefits.”

“There was a lot of talk about education, public health—things that Harvard as an educational institution would be uniquely capable of providing,” Mattison said. “There was never discussion of free trash cans.”

—Staff writer Sofia E. Groopman can be reached at segroopm@fas.harvard.edu.

Here's a new criteria for ranking research universities; who on your faculty has thought about the broad issue of climate change? Permit UCLA to put its cards on the table.

The Young Men (could any women be writing this stuff?) at www.econjobrumors.com are very funny. Dora and I greatly appreciate their cumulative wisdom. I wish that I had the time and the anger to join them because I could certainly top their remarks but I've reached an age where I'm supposed to be a dignified leader. Exhibit A and Exhibit B .