Monday, August 31, 2009

A Trip to Beijing

I leave soon for Beijing. I will read my new email while there but I plan to reply to none of them. I won't bring a computer with me so I'm going to be "old school" armed with just a pad of paper and a couple of pens and a few printed copies of papers I'm working on. While I love my Blackberry, the emails I compose on it do not look professional.

Why am I going? To escape? Yes but that is only 62% of the truth. My friend and co-author Prof. Siqi Zheng of Tsinghua University has arranged some great seminars for me and I'm excited about meeting her colleagues. Siqi and I have written 3 papers now on China's cities and I am a firm believer that it is wrong to write papers about a place one has never been to.

My new book also has a half written chapter on China and climate change and I know that my time there will help me to actually write a good chapter (Tom Friedman style?) based on my journey. With this Swine Flu crazyness, I do expect to be quarantined at a motel for my time in China. I am ready for that contingency and have plenty of stuff to do.

Now that LA is 100 degrees and smelling of smoke, this isn't a bad time to skip town. I'm actually not in that town. I remain in Berkeley adding some diversity to this town. I wore my UCLA hat to the University pool the other day and did notice people snearing at me.

Some students have emailed me asking whether I am teaching this quarter. Yes, Mike Jura and I are co-teaching Energy and the Modern Economy. I have redone all of my readings for the quarter and I actually think it will be interesting. I am on leave in the Winter quarter and will not be on campus. In Spring 2010, I will teach an enormous section of Environmental Economics.

Wednesday, August 19, 2009

The Battle to Claim Trash off of Berkeley's Streets

This morning is trash pickup time in Berkeley. As I walked to starbucks, I saw a person with a shopping cart on the residential streets. Her cart was filled with empty cans and bottles. She stopped at a house whose trash was ripe with bottles and cans set to be picked up. As she leaned over to pick these "free nickles" up, the owner of the home yelled at her from inside his house. He told her to "go away". What is going on here? This is a fight over revenue. Who gets the nickels? The City of Berkeley or the bums?

In other news, Lucas Davis and I are proud of this. I like his photo more than mine. Finally, I should note that today will be a historic day. Dora will join me at the UC Energy Institute's lunch so this marks her acknowledgement that she has joined the energy "fraternity".

Thursday, August 13, 2009

You Won't Have Nixon To Kick Around Any More

"I leave you gentleman now and you will write it. You will interpret it. That's your right. But as I leave you I want you to know — just think how much you're going to be missing. You won't have Nixon to kick around any more, because, gentlemen, this is my last press conference and it will be one in which I have welcomed the opportunity to test wits with you." (Nixon Quote)

Press conference after losing the election for Governor of California, (7 November 1962); "Transcript of Nixon's News Conference on His Defeat by Brown in Race for Governor of California", New York Times (8 November 1962), p. 18.

This is my last blog entry for five weeks. I return to Berkeley and then I go to Beijing for several weeks. I don't blog when I thinking. Good bye and good luck.

I may defect. Relative to US cities, the Beijing air is cleaner, the pay is higher and I'm hoping that the Chinese food is tastier.


At 530pm today at the Westwood Starbucks on Broxton, I spotted the LA Clippers star Baron Davis enter the Starbucks. He has lost weight. He went to UCLA and he must like Westwood. Say what you want about UCLA but we have the celebrities. As a guy who subscribes to People Magazine, I value celebrity spotting at $100,000 per year. So, the UC President can just continue to cut my pay because I want to stay.

Wednesday, August 12, 2009

Cash for Clunkers Evaluated Based on "Carbon Benefits"

Ignoring the Keynesian Demand benefits for New Car makers, what is the payback period for the Cash for Clunkers payment of $4,500 measured solely in terms of reduced carbon emissions? My algebra suggests that it is 25 years or more and that's not too good.

UPDATE: Here is another set of calculations on this topic: Here is a Similar Exercise

UPDATE AGAIN: OK, I now realize that I am not the world's leading expert on C4C. This piece is also worth reading. Maybe, I should return to griping about my pay cut?

Let's make some assumptions:

1. Regardless of vehicle fuel economy, a household drives M miles
2. the interest rate equals zero
3. the marginal social cost of an extra ton of co2 equals $35
4. each gallon of gasoline consumed creates 23.5 pounds of carbon dioxide
5. The average household's vehicle that is scrapped achieves 15 MPG
6. This household buys a vehicle that achieves 30 MPG

The annual dollar value of the carbon externality when the household owned the "Clunker" = (M/15)*(23.5/2000)*35

The annual dollar value of the carbon externality when the household now owns
a "green car" = (M/30)*(23.5/2000)*35

The change in the household's annual externalty = -(M/30)*(23.5/2000)*35

Solve for N such that: $4500 - (M/30)*(23.5/2000)*35*N = 0

and N is the break even number of years. For any M that equals roughly 12,000 miles N is going to be a huge number. Note that if the interest rate is positive, N must be an even bigger number. N represents the number of years that the green 30 MPG vehicle must be driven.

Example: suppose M = 15,000 and N = 10 ; so the household drives the green vehicle for 10 years and then scraps it;

4500 - (500)*(23.5/2000)*350 = $2,443. In english this means that the cumulative carbon benefits from the "greening" of this vehicle and driving it for 10 years in an economy with a zero interest rate only gets you half way to the subsidy!

that is ugly.

If we value carbon at $75 a ton ,then these numbers will look better.

Tuesday, August 11, 2009

Cash for Young "Clunkers"

I was talking to a smart reporter today and he was telling me that he supports the Cash for Clunkers program saying that it not only benefits Detroit but also helps a variety of new car dealers who are more broadly scattered across the country. He got a pinch upset with me when I told him that if our sole goal is to stimulate new car sales then a more cost effective policy would be to release auto thieves from prison and let them get back to work.

A wise man has some ideas for how to allocate our cash. He would invest more in kids and less in clunkers.

"In times of economic adversity, governments look for temporary stimulus packages, be it cash for clunkers or shovel-ready jobs filling potholes. More often than not, they overlook America’s best economic stimulus package with lasting benefits long after the money is spent—investing in the youngest among us and producing significant economic and social benefits with rates of return that are comparable to the high return on stocks over the long run. That is why it is heartening to see the federal government seriously considering large investments in early childhood education from birth to age five." quote from Jim Heckman's essay .

How Cheap Should Public Transit Be?

Senior Citizens pay 25 cents to ride the Santa Monica bus. Here is the fare schedule. I was discriminated against and forced to pay 75 whole cents to ride. The Blue Bus claims that 80,000 people ride per day so let's do some arithmetic. Suppose that raise rates by 50 cents per ride. I doubt that anybody would substitute away but suppose that 75,000 people now ride per day. The increase in annual revenue = .5*75000*365 = 13.7 million dollars a year in new revenue.

While I realize that we want to encourage public transit use, do these very low prices encourage too much use? Is this city throwing away revenue?

In New York City, the bus fare is $2.25 , Senior Citizens are charged $1.1 per ride and students are charged $2.

In liberal Berkeley the bus fare to go two miles from my wife's parents home to UC Berkeley is $2.

So, what is Santa Monica thinking?

In Los Angeles , the regular bus fare is $1.25 so this is cheaper than Berkeley and New York but more expensive than Santa Monica.

Some smart student should write a paper on explaining why bus fares differ across cities and what factors predict fare differentials. It appears that Santa Monica and Los Angeles are throwing away revenue during a time of big deficits.

Why am I talking about this? Tonight I took my first bus ride while living in Los Angeles. I enjoyed it and I may do it again some day. I am part of the solution.

Look for me in the New York Times tomorrow. My quote isn't so brilliant but I'm happy to be there. Please send me an email congratulating me. I would be quite grateful.

Henry Ford's Field Experiment on Institutions vs. Geography

Can we export our institutions into a LDC and help it grow? This book about Henry Ford's failed attempt to build "Fordlandia" in the Amazon suggests that the answer is no but it seems that Ford's treatment went only half-way.

"Ford’s Amazon team had plenty of able men, but as Grandin observes, “what it didn’t have was a horticulturalist, agronomist, botanist, microbiologist, entomologist or any other person who might know something about jungle rubber and its enemies” — the lace bugs and leaf blight that laid siege to the rubber trees, the swarms of caterpillars that left areas of the plantation “as bare as bean poles.” "

BUT FORD did know what a city is supposed to look like;

"Ford’s vision was a replica Midwestern town, with modern plumbing, hospitals, schools, sidewalks, tennis courts and even a golf course. There would be no drink or other forms of immorality, but gardening for all and chaste dances every week.

Fordlandia would not just make car production more efficient. By applying the principles of rational organization to turn out goods at an ever faster pace, Ford would also be improving the lives of those who worked in the new town, bringing health and wealth to American managers and Brazilian laborers alike. In Grandin’s words, this outpost of modern capitalism was to be “an example of his particular American dream, of how Ford-style capitalism — high wages, humane benefits and moral improvement — could bring prosperity to a benighted land.”

That blueprint may have worked in Ford’s River Rouge plant in Dearborn, Mich. It most emphatically did not work in the jungle. Instead of a miniature but improved North American city, what Ford created was a broiling, pestilential hellhole of disease, vice and violence, closer to Dodge City than peaceable Dearborn."

As new cities are formed today, Fordlandia appears to offer some valuable lessons in the creation of Charter Cities.

Monday, August 10, 2009

Measuring Progress in Our Standard of Living

The NY Times Declares that GDP Accounting should R.I.P. If we don't rely on GDP growth rates, how do we answer basic questions such as; "Are you better off than you were 4 years ago?" How do we judge when the economy is in bad shape? How will the Fed decide whether drastic intervention is warranted?

The challenge for economists is that we do not have a revealed preference test for figuring out your answer. Ideally, there would be a market for a time machine. This time machine could take you back to any past date and location. Once back, you have to live there and you can't change history such as killing Hitler or tipping off the FBI about foreign pilots pre 9/11. The economist would observe the market clearing price for each location at each past date. Suppose that the aggregate supply curve is set at 5,000 seats on the time machine for each place and time. Once there, you must live there for 3 months and you can't buy google stock! (so this is about consumption not inside information and investment).

From observing the market prices of "vacations" to these places at different dates, we could learn about how different nations' standard of living is changing over time. Without such a time machine's pricing, how do we judge "progress"? Now, you would say that old people would pay the most to buy a slot in the time machine but we wouldn't make them younger. A 95 year old in 2009 would need to go live as a 95 year old in 1952 Georgia if that is what he bid for. Clearly, different demographic groups would have different bidding schedules for different locations at different dates.

Armed with the time machine, we would study whether the average person's bid is a negative number. This would reveal that they want to stay here in Los Angeles in 2009 rather than going to Los Angeles in 1999 or 1989 or 1909.

A microeconomist would study the slope of the bid function with respect to the calendar year. Those demographic groups with the steepest increasing bids with respect to calendar year would reveal themselves to be the ones enjoying the greatest progress in their standard of living.

Sunday, August 09, 2009

International Trade in Used Durables is a Substitute for "Cash for Clunkers"

As Lucas Davis and I document in this July 2009 paper, we already have a "Cash for Clunkers" program in place. It is called international trade in used durables. The U.S has been shipping millions of old, dirty vehicles to Mexico. We use an extensive data set on recent U.S/Mexico trade under NAFTA to document the patterns of used vehicle exports and investigate this trade's environmental consequences. The reason the posted paper does not have our names on it is because it is under review at a journal that wants the papers "blind". We document a classic "Roy Model" effect. Do you know the joke of the guy who transfers from Harvard to Yale and lowers the grade point average at both schools! We find this effect. When the U.S exports used vehicles to Mexico, average emissions decline in BOTH nations! The marginal U.S export is dirtier than the average u.s vehicle but is cleaner than the average Mexican vehicle. Nice! Now, to know how these exports affect total greenhouse gas emissions we need to know how many miles Mexicans drive with these vehicles and how long these vehicles live there. These are hard parameters to know but we do some back of the envelope calculations on that point.

The patterns we document are just the tip of the iceberg. All over the world, LDC citizens are using old durables to enjoy the same flow of services that we take for granted. Scrappage of older vintages would increase overall energy efficiency but would deny these individuals the access to cheaper products.

There are some interesting distributional issues here. The Cash for Clunkers will displace a fair bit of the exports to Mexico. The winners will be used vehicle owners in the U.S and new vehicle owners in the U.S. Owners of vehicles who receive $4,500 get a lot more than if they sold their vehicle to a middleman who turns around and sells it to Mexico. The losers will be poor people in the U.S and Mexico who will now face a higher price for purchasing low quality vehicles. How much higher? I expect to see some hedonic pricing papers soon using an event study methodology. Is environmental quality helped or hurt by disrupting this pattern of trade? Read our paper to see our views. The U.S tax payers will also have to pay higher taxes to pay for this program. There is the usual deadweight loss caused by this taxation.

Saturday, August 08, 2009

Back to Los Angeles After Meeting the 2010 Heisman Trophy Winner

A week in Berkeley is good for the mind but now I must work on my tan --- so I'm back at UCLA working in seclusion. It turns out that UC Berkeley is filled with great economists. They have not all left for Harvard or Obama. I spent all day monday and friday there and talked and talked and talked. There was a lot to talk about.

On thursday, I was downtown at the Public Policy Institute of California ( As usual, there was a lot to talk about. My old friend Jed Kolko is doing some very interesting things there with David Neumark. Economics is making progress.

When I wasn't in a meeting in the Bay Area, I was challenging my son to 1 on 1 basketball. This isn't quite yet the "Great Santini" with Robert Duvall but this 8 year old is really taking it to me. He was highly indignant when I said that a kid his age should make 20% of his shots on an adult basket. He said that 50% would be more like it and demanded that I count the fraction of made shots as he shot about 150 shots. He made about 50 so I was impressed. There were teenagers on the nearby b-ball courts cursing and screaming and I felt like an old man (but proud of AK).

I also did some writing while in berkeley. My draft of my paper for the University of Kentucky 10/2 conference is almost done. I wrote two separate lectures for my Beijing trip next month and I re-wrote a chunk of my new book manuscript and debated my editor on whether I actually am making any progress or not. While in Berkeley, I debated with folks up there two new papers that may or may not be worth writing.

So, I'm trying. We return to Berkeley in 1 week so I'm going outside now to tan.

UPDATE: I forgot to mention my discussion with UC Berkeley's star running back Jahvid Best . At LAX last saturday, we were waiting for the delayed Southwest flight to Oakland. I saw a young man with a Cal Football travel bag. I asked him if he played for Cal. I then asked him if UCLA was going to be good this year. He said yes. I asked him what position he plays and he said "running back". I asked him what he majors in and he said "legal studies". I told him that I teach economics at UCLA but he didn't seem to care. I asked him if he missed the "tree people" who have been opposing the new stadium. He dodged that loaded question. I told him that Dora is Berkeley class of 1986 but he didn't care about that either. I was hoping that my son would ask him some questions about playing serious football but Alex was too busy building a lego creation. I didn't know who I was speaking to and didn't ask him his name. He was a nice young man who looked quite powerful. Only later in the week did I learn that he is a favorite to win the Heisman Trophy this year. I am impressed. He didn't appear to be too impressed with me but I can respect that. You have to earn respect.

In retrospect our meeting was like when Elvis met Nixon. I'm worried that I'm no longer Elvis.