Wednesday, September 30, 2009

The Magic Formula for Writing a Good Book for a General Audience

I am writing a book about how our cities will adapt to climate change. I'm trying to write a serious book but a book that people might actually crack open on the airplane or in the shower. The New York Times Book Review shows me what they are "good books" (by their choices of what to review) and what the witty critics have to say. Here is a book that caught my eye. To be gay in the pre-AIDS 1970s New York City is an interesting topic. This author has written a "tell all".

My book won't tell all and this has me thinking. Houston, do I have a problem? In this day and age, what do the words "good book" actually mean? Unlike a Bob Woodward, I do not have a nugget of information that world has been dying to know (who is Deep Throat?) but doesn't know. Instead, I'm a mildly smart man who has a huge number of ideas about our future in the face of climate change and many of these ideas fly in the face of the conventional wisdom. That's all I've got.

Energy Issues in the News

The Senate will now take up Carbon legislation and it is interesting that Senator Boxer's opening bill proposes more aggressive 2020 carbon cuts than the House Waxman/Markey bill. This surprises me.

But, let's move on.

The NY Times had a nice piece on the water requirements of new solar panel installations. This Nevada solar panel set would need 20% of the area's water supply in order for it to run. That is pretty serious.

So, the clear issue here is that we need serious water pricing. There would be no misallocation if water prices reflected marginal cost rather than being set by a public regulatory agency.

"Conflicts over water could shape the future of many energy technologies. The most water-efficient renewable technologies are not necessarily the most economical, but water shortages could give them a competitive edge." An economist would question why we have to have water shortages?

Take a look at slide 4 here . True water pricing would push RPS portfolio to wind over solar.

Switching subjects but staying on the energy theme, if you need some humor in your life read this experiment about a small Danish island that has achieved energy "self sufficiency" through some big government subsidies.

Note that this article does not calculate the per-capita energy subsidy to make this "dream" come true. So, if a nation wants to scale up this dream --- how much will taxes have to go up by to finance it? The beauty of a small project is that the media can celebrate its "success" and the deadweight loss of the subsidy is hidden because it is small (because the scale of the project was small). I do not mean to be cynical but honesty counts.

Tuesday, September 29, 2009

Where are the Hybrids? The Answer is Berkeley and Other "Walkable" Communities and This is Why Priuses Hit People

The Economist Magazine posts a puzzle.

The answer to this riddle is explained here and here .

The Prius is not spatially uniformly distributed it clusters in richer, more educated communities but it also concentrates in liberal, dense, walkable and public transit friendly communities such as Berkeley. These areas have lots of people (targets) for texting Prius people.

Monday, September 28, 2009

Closing the Harlem vs. Scarsdale Achievement Gap

As an underachiever from the Scarsdale Class of 1984, this new Stanford research by a professor named Minter-Hoxby caught my eye. Charter Schools appear to have a serious Treatment Effect. But, why do they? In thinking about the development of "human capability", the key unobservable is what goes on in the household. When parents see that their kid is in a better learning environment do they turn off the television and read more more and work more with their kids? Are home investments in the kid's human capital a substitute or complement of what goes in school? So, the "Kahn Conjecture" is that we need to take care that we have identified what actually is the "treatment". Parents will re-optimize once they see their child is making progress. I would like to see time diaries on what goes on at charter school households at night and at weekends and the counter-factual would parents have been reading to their kids and working less with them had they remained in public schools?

Looking back to Scarsdale, a big chunk of the "treatment" was the culture of excellence. I felt bad about not paying attention to my teachers and winging my homework. Now, I realize that I was front loading leisure . Only starting at age 22 when I went to Graduate School from October 1988 on have I have worked hard. From February 1966 until October 1988, I was in low gear and not too bugged about it.

Caroline is certainly correct that A lottery discontinuity does get you the right control group but the treatment group may be receiving multiple treatments including better parental inputs because they are in the treatment group. Should this second effect be counted as part of the treatment?

Suppose I am right about my parental "complements" story, does this chip away at Caroline's claims? I don't think so but it hints at necessary versus sufficient conditions for child excellence.

I would like to ask Caroline how Roland Fryer's "incentive experiments" and Heckman's work on dynamic complementarities (learning begets learning) fits into her claims. In the second case, should this predict heterogeneous treatment effects of participating in charter schools. Is she claiming that there is a uniform treatment effect here?

Prof. shows charter school efficacy

By: Marisa Landicho

Supporters of charter schools – schools that are privately managed but supported by public funds – have gained scientific credibility from a report released by Stanford economics Prof. Caroline Hoxby.

The report analyzed the New York State Exam results for over 41,000 charter and public school students, ranging from grades three through 12, in the New York City school system.

“On average,” the study concluded, “a student who attended a charter school for all of grades kindergarten to eight would close about 86 percent of the achievement gap in math and 66 percent of the ‘Scarsdale-Harlem’ achievement gap in English.”

Hoxby’s research, however, goes beyond just measuring test results of disadvantaged Harlem students against those of higher-performing, suburban Scarsdale students.

While previous studies have shown a similar increase in test scores, critics have argued that charter schools secure these higher scores by selecting only the students most likely to succeed. Professor Hoxby’s work has gained national attention for finding a method to overcome this objection, with mentions in the Washington Post and The New York Times.

Instead of comparing charter school students with the entire public school population, Hoxby only examined those students who had applied to the charter system and were either accepted (‘lotteried in’) or denied (‘lotteried out’) based on a lottery system.

“If the charter schools are doing better, then it can’t be because they are choosing better students,” she said. “That’s why we like to do these studies – it clarifies what we’re talking about and removes one of the potential problems.”

‘Lotteried in’ and ‘lotteried out’ students in the study are statistically equivalent in the categories of race, ethnicity, gender, prior test scores, percentage on free and reduced lunch and English Learner status.

“The parents go through the same application process, they are just as likely to send their kids to charter schools, and the only difference is a random lottery number,” Hoxby said.

With controls in place, the ‘lotteried in’ students ended up scoring higher than the ‘lotteried out’ group, testing an average of three points higher on Regents Exams for every year spent in the charter system.

Further study is needed to identify what aspects of charter schools contribute to better achievement, Hoxby said.

“I think that one of the big things to do is to follow these students when they get out of high school and go on to college,” she said. “We’d be disappointed if they did better in eighth grade then find they no longer improve.”

But Hoxby stressed that the results are not a mandate for charter schools.

“It’s about learning what makes schools work,” she said. “The point is to say, ‘O.K., look, here are a set of schools that are successful with disadvantaged students, what can we learn about these schools, and can we apply these lessons to public schools.’”

Tags: Caroline Hoxby, education

Sunday, September 27, 2009

International Trade in Waste Revisited

Will Larry Summers comment on the mutual benefits of this globalization? Here is direct evidence of the pollution haven effect at work. As Europe ratches up its pollution regulation, waste is now being exported to poorer nations. Unlike in the case of international trade in manufacturing, there is no offsetting factor endowment effect. While the New York Times does a good job of documenting the fact, they implicitly are saying that this trade "is bad". From an environmental standpoint, I understand their claim if they are saying that "in the absence of trade, Europe would have figured out ways and passed laws to reduce the amount of garbage produced because they would have anticipated that they would be stuck with any waste that would be generated because they would know that they couldn't "outsource it"".

But, a Larry Summers might say; "once the waste is created, doesn't the Coasian logic ask us to consider whether there are mutually beneficial gains to trade between the poor and rich countries?".

Don't forget about the Summers Memo . It does raise some interesting debate points.

This article promoting Denmark as a nation of "Consumer Cities" catering to tourists is also worth reading.

Saturday, September 26, 2009

The Future of Appalachia

There are no direct flights from Los Angeles to Lexington, Kentucky. Next thursday, I will have the pleasure of flying through Houston as I try to get to Lexington. I will be participating in this conference on friday 10/2.

I am greatly looking forward to this event. Some excellent economists will be there and I'm eager to see some old friends of mine.

To quote the organizers;

"UKCPR will host Appalachia and the Legacy of the War on Poverty: A Research Agenda on Oct. 2, 8-4:15 p.m. in the Young Library Auditorium, UK campus. This conference will help UKCPR establish a research agenda to invesitgate policy solutions for persistent poverty in the region."

My paper discusses the challenges and opportunities for cities located within Appalachia. In a nutshell, I will argue that the last 30 years of urban economics has taught us that the key to urban growth is attracting and retaining the skilled.

I document that few skilled people move from outside of Appalachia to Appalachia's cities. So, the key for Appalachia is to retain their own skilled and to "grow more".

I argue that small, "green" consumer cities are the path to achieving this goal and point out an irony that the rise of carbon pricing and thus the acceleration of the decline in coal mining (dirty) activity will accelerate this trend. As usual, I will argue that there is a "green silver lining" to exiting the dirty sector, even though there are short run transition costs.

Please read my new paper.

Friday, September 25, 2009

Stanford Learns the Costs of the H1N1 Flu

Do we have good estimates of the costs of the flu? This article highlights the costs that Stanford Seniors have suffered. Would a hyperbolic model have predicted a riot against the Administration's rules? Will the Stanford class of 2010 donate less $ to the school because they were denied their kiss under the full moon? A good labor economist should study how this kissing market "clicks". When it isn't flu season, there must be a good field experiment that could be tried in this setting?

I taught at stanford from 2003-2004 and nobody invited me to this event.

Some Deep Thoughts on Shrinking a Person's Carbon Footprint

To reduce global greenhouse gas emissions, we need per-capita emissions to decline faster than population grows. Given continued world per-capita income growth, how can we reduce per-capita carbon emissions?

My strong Governor Arnold Schwarzenegger argues here that children should not take long hot showers. His thoughts are interesting on a number of levels. His push for "minimalist consumption" would stand out in Brentwood. The article highlights that he has 4 children. If each of them takes a 5 minute hot shower, perhaps I should encourage my 1 child to take a 20 minute hot shower? Don't we have an equal right to scarce resources?

An alternative strategy for shrinking the carbon footprint is to make energy intensive technologies less fun to use. Read this . Consider taking the elevator versus the stairs. This article says that if elevators were slower and smaller that more people would take the stairs, Gary Becker made this point in 1965. Time is money.

I realize that we will embrace many different strategies to reduce our carbon production.

But at the end of the day, we do need the nudge of the carbon tax. Will the Senate agree?

Thursday, September 24, 2009

UCLA Protests Budget Cuts: "Whose University? Our University"

Your loyal embedded reporter risked injury to take this exciting picture of an active protest at UCLA:

In contrast, Beijing's leading universities are focused on research and teaching rather than protest. Here was the scariest sight I could see at the Peking University Business School.

I suggested that this was a monument in Bill Clinton's honor and my hosts agreed.

Returning to the UCLA protests, what is the issue here? My University has a serious budget deficit. Do we balance such a budget by raising revenue (i.e Tuition and the % of out of state students)? Or by cutting expenditure? (i.e no more hiring and faculty and staff pay cuts)

Who bears the incidence of bad news? Of course, I think that the students should. Ignoring liquidity constraints, attending UCLA is still a wise long term investment even if we charged $65,000 per year per student.

Murphy Hall is not this brave. Given UCLA's prominent name, from now on we should take 50% of our students from out of state and the extra tuition we could collect would cover the University's costs. There wouldn't have to be these draconian pay cuts that threaten to lead to a massive Brain Drain starting this year. Has anyone asked the UCLA Law School Dean whether his paycut was a "push" in encouraging him to leave?

Wednesday, September 23, 2009

Land in Cities

This is an interesting article about how land is being re-allocated in major U.S cities. Even I notice the urban heat island effect created by pavement. Can we share public space? In cities with less income inequality and more ethnic homogeneity, there must be a greater demand for sharing public parks (a public good) rather than self segregating into separate spheres of the city (private clubs and country clubs).

During my time in Beijing, I had the opportunity to learn about land allocation in China. Many local politicians collect a large % of their revenue from leasing land to developers. This creates some distinctive incentives. On the one hand, a revenue maximizing Mayor has an incentive to have no parks and to turn all "green space" into land that will be leased to developers who will build a 50 story apartment building. On the other hand, such activity can chip away at the city's quality of life and this will be negatively capitalized. So, do China's cities have the right incentives to preserve "green space"?

Switching subjects, Mike Jura and I are co-teaching this energy course this fall.

Tuesday, September 22, 2009

New York Times Readers Comment on 9/22 Climate Change Summit

The New York Times should consider allowing its readers to do the writing on climate issues. These comments are worth reading.

Unique Opportunities in Los Angeles

UCLA's faculty have not been that happy about our unexpected paycut. My wife and I have suffered a combined paycut larger that the Chancellor's (but smaller than the basketball coach). But, the UCLA Deans have informed us that we can use our furlough days to generate some more money for our families. Below, I report on a unique opportunity that LA offers. You can't spell "UCLA" without "LA"!

FOR IMMEDIATE RELEASE Contact: Hayley Scheck

B|W|R Public Relations

(310) 550-7776 /


Los Angeles, CA (Sept. 9, 2009) – Are you the queen of the coupons? Are you obsessed with finding the best deal? Do you get a rush from getting a better deal than your neighbor? Are you in competition with your best friend and tend to brag about your cost cutting talents?

The Grocery Game and a major Los Angeles based television production company are seeking bargain hunters with big personalities for a new TV show. Casting producers are looking for people who are obsessed with living and entertaining well, but on the most frugal budget possible. We are looking for entertaining people with magnetic personalities who viewers will love to watch and, most of all, are driven by hunting out the best bargains from and

The Grocery Game has been asked to help find those people who are willing to share their compulsion of hunting down the best deal and for entertaining on a dime.

If you or someone you know would like to submit for this unscripted TV show please email the following info to!

Two Pictures:
City Located
Describe your family:
Besides or, list any organizations, groups, memberships, or websites that you use for your bargain hunting.

Please submit brief bio on how far you go to get the best deals. Also tell us how competitive you are and if any of your friends share your same passion!

Please do not make any inquires regarding the above to Customer Service at or

NOW, shouldn't a cost minimizing economist well trained in the stochastic calculus and quick with numbers excel at this?

Monday, September 21, 2009

Cost Effective Investment in a "Green Campus": Evidence from Hamilton College

I can barely remember my Hamilton College days. Somehow the mid-1980s are a blur. Perhaps graduate school erased my hard disk. But, this letter that I quote from below makes me proud. The President of Hamilton College is not a Ph.D. economist but she sounds "as if" she is one in this hard headed letter. I see a forward looking thinker who anticipates technological advance and a long payback period for the current generation of green products (especially if carbon pricing is not enacted). Please see my additional comment after her quote.

She must be taking some heat for not "going green" today but her choices will make Hamilton College more "sustainable" in the long run. She is a "Profile in Courage".

"As I look around our beautiful campus, even more beautiful in my eyes after a few months’ absence, I feel strongly the responsibility to sustain this place and the experience it provides. And so I ask myself again, as I often have in the past, “What does it take to be a sustainable campus, a sustainable college?” The answer is, frankly, especially complex in stringent times, and entails intersecting matters of education, finances, construction, people and choices – endless choices.

Let me evoke one such recent choice. The summer months were, as usual, busy with renovation, repair and construction projects, for a campus the size and expanse of Hamilton – 113 buildings spread over 1350 acres – requires a continuous round of maintenance. One of the first discussions in which I participated centered on the renovation of Emerson Hall (originally built in 1928 and known as ELS) into a student center. This is a project many of us have long wanted to bring to fruition, for it responds to needs for meeting, office and activity space that have been consistently expressed by students over the years. It will house our wonderful campus activities staff and provide a central place for the work of the numerous student organizations that form so essential a part of the Hamilton College experience. But the specific subject of the conversation that I was called on to moderate was solar panels. Should we or should we not put them on the roof of the renovated building? On the one hand, it was argued that they would be a visible sign of our commitment to being “green,” mirroring not only the solar panels recently installed on the renovated Kirner-Johnson Building but also the windmill on the Kirkland side of campus (a gift from the Class of 1991), and resonating with other initiatives of the last few years such as geothermal heating systems, Zipcars, a community garden, our food service’s farm-to-fork program, and even the use of commencement regalia made of recyclable materials. On the other hand, the energy generated by such panels would be small and the payback long – perhaps 40 to 50 years, during which time the technology will evolve – and there are countless competing needs to which we must attend. Do the actual contributions to preserving the planet and the symbolic contributions to Hamilton’s image outweigh the decades-long timeframe necessary to recoup the expense?"

A quote from Hamilton College's President Joan Stewart

FOLLOWUP: Two commenters made some good points but I'd like to add a new point. The President of Hamilton holds an option here. If President Obama signs a Cap and Trade Carbon Bill (and I hope he does), then the payback period on this solar panel investment will shrink. Stewart has not said "no" she has said "not yet". She has the option of exercising this option in the future when better, cheaper solar panels are available and when electricity prices are higher due to explicit carbon pricing (which will drive up the price of power generated by coal and other fossil fuels).

Sunday, September 20, 2009

The 2009 Chicago School of Economics?

This recent UC Alumni Magazine article is worth skimming. The author appears to want to sketch a long run intellectual history of the rise and fall of the Chicago School of Economics.

The article quotes the usual suspects. All are Superstar economists and I enjoyed reading their quotes. But, the "Chicago School" (adding up economists at UC's Economics Dept, Business School, Policy School, Social Work School, Law School, and Medical School) probably includes 100 PHD economists. It is difficult to take such a diverse set and boil them down to a 2 sentence "catch-all".

At the end of the day, 80% of the flow of new research is generated by assistant professors. This article would have been much stronger if the author had spoken to some junior UC professors about their research agendas because their work represents the leading indicator of where academic economics is going.

In the article, Jim Heckman sketches a novel claim. If I'm reading his words correctly, he says that the rise of blogs and the desire by applied micro researchers to be famous has tantalized us to substitute to a set of questions and quick answers that offer short run gratification but slows down the long run progress of economic science. Are many academics so impatient for fame? Has the anticipation that a sexy NBER Working Paper will yield world headlines and (hence immediate gratification), affected our ex-ante investment behavior in the set of questions we work on? I go back and forth on whether I believe this.

I believe in comparative advantage. Clint Eastwood said; "A Man Has to know his limitations." There are very high returns within the profession for doing structural econometric research. Think of John Rust or Kenneth Wolpin. These guys have had great careers. But, not everyone can master these skills. What should happen to us "slugs"? Banishment? Why can't we academic economists celebrate diversity like everyone else at the University? UCLA Economics is one of the few departments with an ecosystem featuring both types of applied micro researchers. Other programs have tipped in one direction or the other.

The reduced form crowd can generate some very interesting facts but cannot conduct any policy counter-factuals. The structural crowd can yield policy counter-factuals if you buy their model's assumptions. There is no free lunch. Who is the economist here?

Saturday, September 19, 2009

A Return to the USA

After two great weeks in Beijing, I have returned to LA. While I couldn't access my blog or anyone else's blog while in China, I was able to post some insights about China at my Planetizen blog . I learned a heck of lot about Beijing and China. I spoke to dozens of scholars who were willing to answer all of my crazed questions. I gave seminars at several of Beijing's top Economics departments and made a series of new friends. I planned out several new papers that I will write with my friends and Siqi Zheng, Rui Wang and I made progress on several project. I even hope to write a short book some time soon called "China's Green Cities". I now have an outline for that book would do. At several of my lectures, students had copies of the Chinese translation of my book and I must admit that I was thrilled when a few of them asked me to sign their copies. I guess I am quite vain.

My Bottom Line is China's urban future is quite bright. While we have "greener" cities, China's 8% growth will continue. Will our 2% growth continue? While the U.S has great research universities, it is obvious to me that Peking University and Tsinghua Univ are getting their acts together and soon will be major research universities. After seeing Beijing and now understanding that China will soon turn inward in focusing its production on serving its own "growing middle class", I wonder what will be the comparative advantage for the U.S economy in 25 years? Of course, I didn't predict Google's rise back in 1990 and my predictive abilities are not as strong as Roubini, Krugman or Schillers but still I am worried.

Here in California, we have a seeming refusal of the median voter to invest in excellent public universities. If I argue that universities are the last U.S strength, am I wrong? Does the public recognize that these elite universities are costly but are a "good investment"? In California, there is the public perception that the President's Office in Oakland wastes an infinite amount of money and if this office could only get "lean and mean" that there would be plenty of money for UC Berkeley and UCLA and other campuses. I wish this is true.

I'm midly excited that the new school year is starting at UCLA but the big pay cuts have hurt my morale. Beijing has a very bright future and I'm a pinch envious of them. Ronald Reagan instinctively knew that people need to believe that it is "morning in America" rather than 3 minutes to Midnight. I'm not saying that we need a new Reagan but instead I want an objective reality that signals to me that our best days are ahead of us both for the UC system, UCLA and for the U.S economy as a whole. Decline is ugly and embarrassing.

Returning to Beijing, Beijing's traffic problem almost matches its pollution problem. I was hit by a motorcycle on their crowded streets but the streets are so congested that I was hit by a relatively low speed motorcycle.

Friday, September 04, 2009

Krugman on the State of Macro

As a Nobel Laureate, Paul Krugman has earned the right to state his views on the state of macroeconomics. I wish that the New York Times had allowed a couple of the University of Chicago scholars, (Lucas, Cochrane, Fama, Mulligan) who are mentioned in the piece, the opportunity to respond.

Paul Krugman's piece does not mention the word "heterogeneity". He hints at this when he discusses the Shleifer and Vishney paper investigating the limits to arbitrage. But heterogeneity will be the future of macro.

In markets featuring mixtures of types (such as naive and "smart" actors), how do market outcomes evolve in the face of shocks? When a new market is opened up (such as zero interest ARM loans), who participates? What are the macro economic implications of who enters the market? After all, economics think at the margin --- who is this subset of people at the margin?

Applied micro economists have used partial equilibrium models to study the participation decisions in markets but we are not good general equilibrium modelers.

In a globalized economy, a macro guy is pretty ambitious. Does everyone have the same information for forming expectations? Does everyone have the same "model" in their head about how the economy evolves? Does everyone really act like a small price taker? Are there really no firms (think of Goldman Sachs) playing a strategic game with government? Add in heterogeneous expectations, market power, and strategic game playing and general equilibrium becomes pretty tough. Now add in non-stationary shocks to the system and things get even tougher.

Prof. Krugman's piece has some truth to it but if a 22 year old undergraduate reads it, I'm worried that she may not want to go to Princeton to study Macro in a Ph.D. program. In fact, today we need more macroeconomists.

Returning to the University of Chicago, their excellent economists should write a popular piece on what they have learned from this crisis. Do they think differently now about macro? If I went back to Chicago for another PHD, would my macro teachers still spend so much time on the one sector growth model with a representative consumer?