Tuesday, August 31, 2010

My Comments on Edward Glaeser's Review of Climatopolis

Like the mailman, Ed Glaeser always delivers. In this review of my new book, he quickly reveals his "conflict of interest" (we were classmates, we are friends and co-authors) and then gets to work presenting the core thesis of my book and then offering some constructive criticism.

He emphasizes three reasonable points that I do discuss in the book but which merit further discussion ;

1. What if climate change is abrupt versus gradual?

2. open borders between nations would enhance our collective ability to adapt to climate change

3. LDC nations will face the greatest impacts.


He is right that I hint at #2 without ever openly advocating for it. I do a good job on topic #3 and I discuss topic #1 briefly in the conclusion. In my talk at UCSB's Bren School, the Dean Steven Gaines emphasized a similar point.

Economists have long talked about the impact of "new news" on economic activity. Countless finance economists have conducted event studies where they examine how stock prices move as new news about a firm's profitability is released. This could be a court ruling or a discovery of a new drug.

What is the analogue for climate change? The Climate Change scientists continue to develop their models --- we can only be "blindsided" (i.e caught unaware of coming doom) if Mother Nature accelerates sea level rise beyond what the climate science models predict will happen and that this dynamic plays out extremely quickly in real time. Economists would call this a "discontinuity" because there would be a "jump" in climate outcomes over night.

As I discuss in my book, if we "know that we do not know" about this ambiguous risk then this begins to create the incentives for innovation to begin (floatable homes) to help protect us. Insurance companies have every incentive to price their policies in specific areas to reflect this ambiguous risk. The key is to "know that we do not know". Doom can only occur is we are arrogant and declare that "we do know" that a spatial area is safe when in fact Mother Nature is getting ready to punch hard. Be humble and you will thrive!

Monday, August 30, 2010

Friday, August 27, 2010

The Seattle Times Publishes My OpEd on the Future of Seattle

source

"In fall 2050, Pete Carroll will be entering his 41st season as the head coach of the Seattle Seahawks. As he walks the streets, he will notice that the outdoor summer temperature reminds him of his days at USC. Due to climate change, Seattle’s future average temperature will look a lot more like Los Angeles’ today. Kings County’s average July temperature over the years 1968 to 2002 was 65 degrees. One climate change model (with the catchy name CCSM) predicts that Seattle’s average July temperature will be 71 degrees in the year 2070."

Will Climate Change Cause Us To Discover the Next Teddy Roosevelt?

Crisis creates opportunities. Basic Books has just published Edward Kohn's book that highlights how a heat wave helped to make Teddy Roosevelt a star. I don't know if this "cause and effect" (that the heat wave "made" Teddy Roosevelt) is as clean as this books claims but it highlights an important point.

"The Great Heat Wave of 1896 and the Making of Theodore Roosevelt

One of the worst natural disasters in American history, the 1896 New York heat wave killed almost 1,500 people in ten oppressively hot days. The heat coincided with a pitched presidential contest between William McKinley and the upstart Democrat William Jennings Bryan, who arrived in New York City at the height of the catastrophe.

As historian Edward P. Kohn shows, Bryan's hopes for the presidency began to flag amidst the abhorrent heat just as a bright young police commissioner named Theodore Roosevelt was scrambling to mitigate the dangerously high temperatures by hosing down streets and handing out ice to the poor. A vivid narrative that captures the birth of the progressive era, Hot Time in the Old Town revives the forgotten disaster that almost destroyed a great American city."

An Urban Sociologist?

Now, I know who I am. I thought that I was this guy but now I know that I am a urban sociologist.


Heroes and Cowards: The Social Face of War, by Dora L. Costa & Matthew E. Kahn

Princeton: Princeton University Press, 2008. Pp. xxvi, 215. Illus., tables, append., notes, biblio., index. $27.95. ISBN: 0691137048.

Heroes & Cowards attempts to look at how social factors influenced the lives -- and deaths -- of soldiers during the Civil War.

Using official documents, letters, diaries, census returns, and other materials, the authors, respectively an economic historian and an urban sociologist, used Robert Fogel's data base on roughly 41,000 soldiers, both North and South, among them a substantial number of African-American troops. Based on this material, they discuss the effects of such diverse factors as localism, ethnicity, faith, friendship, class, and numerous other elements of "social capital" on the behavior of these men from their choices about the side they supported and their decisions to enlist, how they adapted to military life, and how they behaved in combat and as prisoners-of-war, and even how these factors influenced their post war experiences.

An insightful look at the things that make soldiers tick, with applicability even in the present, and a valuable read not only for students of the Civil War but for anyone interested in military history.


Reviewer: A. A. Nofi

http://www.strategypage.com/bookreviews/520.asp

Wednesday, August 25, 2010

USC vs. UCLA Redux

In the Spring of 2010, the USC Deans did not tell me that the great 1970s musician Steve Miller would be joining their faculty. They should of. I live my life at the margin and this would have been quite valuable information. I recently taught my son the words to "Jungle Love". Hiring Professor Miller is a big big deal to me. I would like to write a paper with that "space cowboy".

What Does Brie Taste Like One Year After Its Expiration Date? And an Editorial About Solar Power by CEO Tom Rooney

I am back in Berkeley after several days in Novato. From Novato, we went to Pt. Reyes to climb all the steps to the lighthouse. To our surprise, there was no fog and we spotted two whales who swam by. They surfaced every 60 seconds or so and you could see their water spout and the full shape of their big body. I wish that I could be that graceful. But, I was created for another purpose rather than to swim around nude all day long and be admired by strangers.

Instead, my purpose is to be a food sampler. After seeing the whales, we sat down for lunch at a nice park overlooking a lake. Dora's Aunt handed me some brie cheese and a knife. She had just bought the cheese at a well known supermarket (which I won't name). It was hard to cut but I didn't think much of that. It was a strange color and when I bit into it -- it tasted weird. I looked at the box to find the expiration date and the renown supermarket had just sold her cheese that expired in September 2009! I thought I was going to die on the spot but I didn't even hallucinate. My wife and son yelled at me for not studying the cheese box before I bit into it. At that moment, I made a promise to myself that I will never trust anyone again. So, if in the future you meet me and I appear to be strange or rude -- it is nothing personal --- it is what I learned from that old piece of nasty cheese.

Permit, me to change the subject and introduce my guest blogger for the day. Tom Rooney is the President and CEO of SPG Solar, in Novato, California. SPG Solar is one of the larger solar integrators in the country.

I had a very good phone talk with him a few months ago and we are both proud to be graduates of the University of Chicago.


Why Conservatives Are Bad on Energy: It's All About the Costs

By Tom Rooney


Conservatives, let's talk about energy. And why so many conservatives are so
wrong -- so liberal, even -- on wind and solar energy.

Let's start with a recent editorial from the home of 'free markets and free people,"
the Wall Street Journal. Photovoltaic solar energy, quoth the mavens, is a "speculative and immature technology that costs far more than ordinary power."

So few words, so many misconceptions. It pains me to say that because, like many business leaders, I grew up on the Wall Street Journal and still depend on it. But I cannot figure out why people who call themselves "conservatives" would say solar or wind power is "speculative." Conservatives know that word is usually reserved to criticize free-market activity that is not approved by well, you know who.

Today, around the world, more than a million people work in the wind and solar
business. Many more receive their power from solar. Solar is not a cause, it is a business with real benefits for its customers.


Just ask anyone who installed their solar systems five years ago. Today, many of their systems are paid off and they are getting free energy. Better still, ask the owners of one of the oldest and most respected companies in America who recently announced plans to build one of the largest solar facilities in the country.

That would be Dow Jones, owners of the Wall Street Journal.

Now we come to "immature." Again, the meaning is fuzzy. But in Germany, a country 1/3 our size in area and population, they have more solar than the United States. This year, Germans will build enough solar to equal the output of three nuclear power plants.

What they call immaturity our clients call profit-making leadership. But let's get to the real boogie man: The one that "costs far more than ordinary
power."

I've been working in energy infrastructure for 25 years and I have no idea what the WSJ means by the words "ordinary power." But, after spending some time with Milton Friedman whom I met on many occasions while studying for an MBA at the University of Chicago, I did learn about costs.

And here is what every freshman at the University of Chicago knows: There is
a difference between cost and price.

Solar relies on price supports from the government. Fair enough -- though its
price is falling even faster than fossil fuels are rising.

But if Friedman were going to compare the costs of competing forms of energy, he also would have wanted to know the cost of "ordinary energy." Figured on the same basis. This is something the self-proclaimed conservative opponents of solar
refuse to do.

But huge companies including Wall Mart, IBM, Target and Los Gatos Tomatoes figured
it out. And last year so did the National Academy of Sciences. It produced a report on the Hidden Costs of Energy that documented how coal was making people sick to the tune of $63 billion a year.

And that oil and natural gas had so many tax breaks and subsidies that were so interwoven for so long, it was hard to say exactly how many tens of billions
these energy producers received courtesy of the U.S. Taxpayer.

Just a few weeks ago, the International Energy Agency said worldwide, fossil fuels receive $550 billion in subsidies a year -- 12 times what alternatives such as wind and solar get.

Neither report factored in Global Warming or the cost of sending our best and bravest into harm's way to protect our energy supply lines.

Whatever that costs, you know it starts with a T. All this without hockey stick graphs, purloined emails or junk science.

When you compare the real costs of solar with the fully loaded real costs of
coal and oil and natural gas and nuclear power, apples to apples, solar is cheaper.

That's not conservative. Or liberal. That comes from an ideology older and more
reliable than both of those put together: Arithmetic.

Tuesday, August 24, 2010

The Causes and Consequences of Environmentalism

When I was a graduate student at the University of Chicago, I was impressed by the fact that each of the senior faculty had a "research program". These ambitious fellows sought to answer a single question and took years crafting their papers. At the start of my career, I didn't imitate them. Instead, I engaged in some "hit and run" applied micro. I'd track down a data set, do something clever and write it up and move on. A wise move?

In recent years, I have stumbled upon two big research questions. One concerns cities and climate change and examining both mitigation and adaptation issues. Climatopolis is the big "deliverable" from this research program.

I have also been fascinated by the causes and consequences of environmentalism. On the consequences of environmentalism, here are 4 smart papers

paper #1

paper #2


paper #3

paper #4

I have circulated a paper that I hope the Journal of Urban Economics will soon accept that documents that more liberal/environmentalist cities block new housing development in California relative to the average city in the same metropolitan area (think of Berkeley versus Emeryville).

I have also done some work on the causes of environmentalism. One paper was about the "silver lining" of natural disasters: see this paper .


Recently, Matt Kotchen and I released this paper .

Environmental Concern and the Business Cycle: The Chilling Effect of Recession

This paper uses three different sources of data to investigate the association between the business cycle—measured with unemployment rates—and environmental concern. Building on recent research that finds internet search terms to be useful predictors of health epidemics and economic activity, we find that an increase in a state’s unemployment rate decreases Google searches for “global warming” and increases searches for “unemployment,” and that the effect differs according to a state’s political ideology. From national surveys, we find that an increase in a state’s unemployment rate is associated with a decrease in the probability that residents think global warming is happening and reduced support for the U.S to target policies intended to mitigate global warming. Finally, in California, we find that an increase in a county’s unemployment rate is associated with a significant decrease in county residents choosing the environment as the most important policy issue. Beyond providing the first empirical estimates of macroeconomic effects on environmental concern, we discuss the results in terms of the potential impact on environmental policy and understanding the full cost of recessions.


All sorts of people ranging from Rush Limbaugh, to the Freakonomics Blog, to Andrew Leonard are talking about it.

I don't write papers to be cute. I'm interested in cause and effect. Leading economists have argued that recessions are good for the environment because the economy slows down. Matt Kotchen and I have figured out a rigorous way to test this claim and we counter with a more nuanced claim that the median voter loses interest in environmental policy tightening during recessions. If this hypothesis stands up, then greens need booms to make progress in promoting their progressive agenda. That is interesting and we are challenging the conventional wisdom.

Why are greens green? When would Rush Limbaugh go green? If more people were green, how would each live their lives? In aggregate, would this really help to shrink our "footprint"? My research program seeks to answer these questions.

For young graduate students looking for something to work on, I encourage you to join me! You know where to find me.

Sunday, August 22, 2010

Should Your Freshman College Roommate Be Your Clone?

I am in Novato, California. My friends at UCLA won't see me on campus for a few more weeks. In this post, I'd like to return to an old theme that is at the intersection of economics and sociology. The topic is the costs and benefits of living and working in a "diverse" environment. Each fall, millions of 18 year old first year college students are assigned by some unknown dean to live with a stranger (the roommate). How should your precious 18 year old be assigned this stranger? Random matching? Matching on observables (a love of guitars and tattoos)? In the past, random matching (with the exception of not pairing smokers and non-smokers) was the norm. Now, the NY Times reports on the new "marriage market" as potential roommates interview each other and shop around.

If you bother to read the article , you will see a righteous quote from Dr. Dalton Conley on his opposition to this new reality. He hints that students are choosing to avoid exposure to diversity by choosing a clone today. This benefits the suburban student in the short run but will cost him/her in the long run.

Now, as you know --- Dora Costa and I have written a serious applied econometrics paper on this very point. Using the Civil War as our laboratory, we document in this 2007 JEH paper the short run costs BUT the long run benefits of living and working in a diverse environment. Other academics have looked at samples of university students, but they have no way of following these students decades after they finish university to see how their exposure to different types of people affects their later life outcomes.

Friday, August 20, 2010

Matthew Kahn Talks About Climatopolis (Basic Books 9/7/2010)

Here is a Climatopolis Podcast . I promise to broadcast no more "informercials" for at least 10 days!

Somebody at UCLA is Quite Funny

Recent Media Coverage and Accolades:

The prolific writer and Luskin Scholar Matthew Kahn regularly contributed to the Christian Science Monitor, Huffington Post and the Los Angeles Times on topics including the non-organic Egg McMuffin and a cost/benefit of California’s Assembly Bill 32, the Global Warming Solutions Act. In addition, his studies─ on topics ranging from energy conservation to household carbon emissions in Chinese cities compared to U.S. cities─ were highlighted in The New York Times, The Economist, and American Public Radio, among others.

Source

Given that I plan to retire soon (when I turn 45 next February), I will want to be remembered for my path breaking work on the egg mcmuffin.

What Do Philosphers Do All Day Long?

I received a C in philosophy in college and never pondered the subject again until now. Their wise men seemed to argue in circles and just talked and talked about "talk and more talk". The NY Times offers some more talk about talk . I see that UCLA has made some serious investments in this subject .

Clicking on some of the UCLA faculty webpages, I see research such as;

"Quantifying In," Synthese, XIX 1968.
"Bob and Carol and Ted and Alice," in Approaches to Natural Language (J.Hintikka et. al., eds.), Reidel, 1973.
"How to Russell a Frege-Church," The Journal of Philosophy, LXXII 1975.

Inducing Moral Deliberation," 123 Harvard Law Review 1214 (March 2010).

"Incentives, Motives, and Talents," Philosophy and Public Affairs (forthcoming Spring 2010).

Here is the profile of a UCLA Philospher who I have not met.

Without speaking to them or knowing what there field is about, permit me to offer some uninformed opinions. But please note, that I know that I do not know what I am talking about.

Each person must rationalize why they have lived the life they have lived. If you are a great success, why? If you are a failure, why? How do you rationalize your past history? Who do you blame? (your mother? capitalism and "The Man" for holding you down?) Simply bad luck, for growing up now versus graduating from college in 1955 when the U.S was in a sharp growth trajectory? Is Philosophy the field of rationalizing our past and why we take actions now?

Given your own view of why you stand where you stand, what do you do next? Do you revolt? Do you pay your taxes? Who do you vote for?

So, my vision of philosophy focuses on the causes and consequences of ideology at both the individual level and then the aggregation of such ideology at the national level.

What shapes your philosophy? One of my favorite Hamilton College teachers argued that Karl Marx wrote Das Kapital because he was covered in skin abrasions and was thus ugly and in pain. Do such "biological" theories of philosophy merit debate?


How do philosphers judge who is a "good" at their field? It better not be on the word count of their respective articles. What is a convincing argument in this field?

Tuesday, August 17, 2010

Capitalism is Our Best Defense Against Climate Change

Capitalism will help us adapt to climate change, economist says

By Alison Hewitt

Capitalism has caused climate change — and it will also help the world adapt in order to survive the impending shake-up, UCLA Professor Matt Kahn argues in his new book, "Climatopolis: How Our Cities Will Thrive in the Hotter Future" (Basic Books, 2010).

Kahn, an environmental economist, takes a pessimistic view of climate change — it's too late to avoid rising sea levels and hotter summers, he wrote — but he believes cities can cope with the changes.

"Many people are fixated on how we can reduce greenhouse gases, and acting like adapting to a warmer climate is still in the sci-fi future," Kahn said. "But we've passed the point of no return. Certain urban places — like Los Angeles — will suffer. But I'm optimistic that Los Angeles will also adapt."

Sure, you could hedge your bets and move north and inland, where cities are more sheltered from higher sea levels and warmer temperatures. Kahn predicts that Salt Lake City, Milwaukee, Buffalo, Minneapolis and Detroit may give New York and L.A. a run for their money in the new, warmer world. By his calculations, you could get a real bargain if you buy now: The price of one home in L.A. equals the cost of 100 homes in Detroit.

But Kahn's staying in Los Angeles. It helps that L.A. is where the UCLA Institute of the Environment professor has a house and dual appointments in economics and public policy, but he's also upbeat about L.A.'s future.

"I foresee a lot of challenges for urban cities, but I think they'll reconfigure themselves," he said. "I'd guess that in 2070, Los Angeles will have New York- or Hong Kong-style density, clean air, a working subway and much more development in the city's temperate zones."

The key is the very capitalism that has propagated the jumbo-sized, gas-guzzling American Dream, complete with a house full of energy-hungry air conditioning and two SUVs in the driveway, Kahn said.

"Capitalism is always coming up with new products," he explained. Energy-efficient air conditioners, electric cars and floating houses built to rise with sea levels or flash floods are just a few of the products that he expects will provide a profitable reason for companies to help the world adapt to climate change.

The way people will adapt depends on whether we're all a bunch of Spocks or Homers, Kahn explains. Spocks – named after the rational-to-a-fault Star Trek character — would calculate the risks of climate change and prepare accordingly. Homers — named for the bumbling father figure on “The Simpsons” — would seek instant gratification and find cheap housing exactly where climate change will cause the most damage. Whereas some economists think of the world population as either all Spocks or all Homers, Kahn thinks we're a mix of both — and that's what will save us.

"The Homers will be desperate to survive after the climate apocalypse, and their desperation creates incentives," he said. "The Spocks will respond to that need and profit by coming up with the products that will be in huge demand. The Homers’ very existence creates the demand that saves them."

That's not an excuse for people to ignore climate change, Kahn warned. For cities to adapt, households and businesses need to learn about and respond to new data, he said. Climate models being developed in UCLA's Institute of the Environment, where Kahn works, will help give people the information they need to make smart choices about where they live and work, he said.

"My colleague Alex Hall is working on very detailed climate models that turn L.A. into a checkerboard of wildfire risk, flooding risk, average temperatures and so on," he said. "Home prices will rise and fall accordingly, and people will make more climate change-based decisions." Kahn foresees homeowners picking their neighborhoods by checking climate models along with crime rates and school districts.

Accurate information will be vital for people to make good climate decisions, which is why the saving power of capitalism could be derailed by government interference, Kahn argued. Subsidies and assistance can muddy incentives, he said. For example, he's disturbed by the message sent by low water prices in Los Angeles.

"Climate change is going to make water both scarcer and more in demand, but charging so little for water is actually exacerbating the water shortage problems," Kahn said. "People need pricing signals or they won't respond to shortages."

Companies that might otherwise develop water-saving devices have no incentive to do so if tap water isn’t priced high enough to make people want to buy the new products, he argued. "Capitalism is much less efficient when pricing signals are artificial."

So while Kahn is generally optimistic about how cities will adapt to heat waves and higher oceans, he does have some qualms. Optimism can lead to complacency, he warned.

"We still need a sense of urgency," Kahn insisted. "We can't let the expectation that we'll be okay keep us from making the effort now. We'll have an easier time if we start adapting now."


article source

Monday, August 16, 2010

The View from Berkeley

Who am I? Where am I? I can answer the 2nd question. I'm at the UC Energy Institute . A great set of energy economists are sitting around here and it is my job to lower the average. While Berkeley is not a glamorous town, it is a mildly productive place. I apologize for not blogging for a week but I don't get paid much for this activity.

I would like to talk about a thoughtful review of Climatopolis that is posted here . Unlike the Publishers Weekly review, here a reasonable intelligent person sat down and with an open mind read my book.

The reviewer liked the book but has two concerns:

"But Kahn’s analysis gives short shrift to two aspects of climate change that make it especially daunting. First, waiting for markets to feel the effects of global warming before getting serious about limiting greenhouse gas emissions will guarantee that the disruption is extreme and long-lasting. Second, the world is finite. It may be true that wealthy nations can easily import food if agricultural patterns change, but only up to a point. As the recent global economic recession illustrates, when a crisis is bad enough, it hurts pretty much everywhere."

This first point is wrong. Insurance markets have every incentive to be forward looking. If premiums are priced wrong in the face of changing risk probabilities, then these firms will go bankrupt. Farmers have access to futures markets to hedge risk and to see what is the best guess of future scarcity of various commodities such as oranges. Home owners own the rental stream of their home into the infinite future. They have every incentive to investigate whether the future holds an ugly fate for their specific community. In fire zones where such fires become more likely due to climate change, homes will sell for a lower price today (to reflect this anticipated future risk) and the home seller will have an incentive to invest in fire proof materials to lower this risk. This is adaptation baby! Free market adaptation and this is at the heart of Climatopolis.

As climate science improves, these forecasts will give us predictions about the time persistence of likely continued heat waves and droughts --- this information will help us to make "better" decisions today in terms of holding inventories and engaging in self insurance (i.e buying dried fruit) to protect us against the anticipated hotter trend.

I hope that my book reinvigorates the 1970s debate on Rational Expectations versus Myopic Expectations. This is an important debate. I agree that we have a better chance to more easily adapt if we have "rational expectations" and we learn over time. My point is that market forces encourage such learning and the anticipation of future scarcity creates opportunities today that actually help us to adapt (i.e product innovation that economizes on increasingly scarce commodities).

His second point is the "finiteness" of the globe. Economists don't believe this. The mind is our limiting factor. Human capital and new ideas can augment our finite natural capital stock in ways that will continue to amaze you. Star Trek now!

Monday, August 09, 2010

Quickly Recharging Electric Vehicles in the Rain and Snow

This article discusses progress taking place to make electric vehicles easier to recharge and to convince the public that it is safe to recharge them in bad weather conditions. In order for these vehicles to appeal to a wider group of vehicle drivers, this safety and convenience progress would seem to be very important. Suburban Employers will need to make decisions concerning whether they invest in recharging stations in their private parking lots. Employees will be happy to receive this free non-taxed perk (free electricity) and maybe this will help with selection of "team players" and retention of such workers.

If households install recharging stations, will there be liability lawsuits? If one person gets electrocuted while recharging in the rain, could this tragedy unravel this whole nascent effort? Can the lawyers promise not to sue for "too much" $?

Climatopolis: How Our Cities Will Thrive in the Hotter Future

Here is the official webpage for my new book (Basic Books). You can read an excerpt there and judge for yourself whether it is new and interesting. Soon, I will stop blogging for a couple of weeks but when September 1st rolls around, I will have a lot to say.

Could Academic Economics Mimic "Open Source" Academic Math?

The math nerds are working in ever larger open source groups to solve tough math problems. Could economists with our love of "private property" gain from mimicking these "hippies"?

The internet solves a co-ordination problem and lowers transaction costs in searching for "nerd partners". Without the Internet, independent mathematicians wouldn't know what others are working on and wouldn't know that other nerds might have a clue that would help the other person overcome a stumbling point. These math blogs are solving this problem and apparently are accelerating discovery. That's mildly exciting. Here is another example.

Prominent economists such as Josh Lerner have written on the economics of open source.

Now, given the ego that economists have about having a discovery associated with a single name --- does this act as a barrier to "team work"? Does math have more of a comparative advantage element to it? that each of its nerds has complementary knowledge while economists (all trained in the Chicago tradition) are all perfect substitutes with different levels of IQ and work effort? If this story is right, then open source won't work in academic economics.

In applied research, could open source work? One researcher would have to pay the fixed costs of creating the stata data set and then post it for the other nerds to run regressions on. The first guy, who I view as a hero, would ex-post be viewed as the research assistant for everybody else. This "stigma" precludes the possibility that open source could become a big piece of applied micro.

Sunday, August 08, 2010

Some Climatopolis Book Tour Dates

What are the necessary and sufficient conditions for publishing a book that interests people? Your timing has to be right. During a deep recession, does anyone want to read a book celebrating that capitalism is our best system for achieving a "pareto optimal" allocation of resources? The book itself must be pretty good and say something new. But, what "new things" can an economist say? We don't have any inside info on who was Bob Woodward's "Deep Throat" insider. We are not privy to the inside gossip during the 2008 Presidential Campaign or what "really goes on" at Goldman Sachs.

With that drum roll, I will roll out "Climatopolis" next month. Here are the dates and places where I'll be speaking about it:

Seattle Townhall ---- September 1st for details click here
Stanford Univ. PSED Energy Conference ---- 9/7 details here
San Francisco's World Affairs Council -- 9/8 details here
Hamilton College ---- 9/21
World Bank 9/22
Los Angeles, Zocalo event in Culver City 10/26
UCLA at some point this fall
Claremont McKenna 12/2

I have a feeling that I can be talked into giving a few more talks. I'm waiting for my friends at UC Berkeley and the University of Chicago to offer me slots.

Here is my Description of my new book that I wrote for the University of Chicago's Alumni Magazine:

Climatopolis: How Our Cities Will Thrive in the Hotter Future
ISBN 9780465019267 Basic Books , Business & Economics

This book examines how free-market capitalism will help us to escape the potentially deadly impacts caused by coming climate change. The book's core theme is ironic. Capitalist growth has caused climate change, but the innovation spurred by free markets will allow us to adapt to our changing climate conditions. Why? In the Chicago rational-expectations spirit, forward-looking households and firms have every incentive to anticipate the challenges ahead and take proactive actions. Unlike the free-rider problems inherent in reducing greenhouse-gas emissions, mere self interest (to save our ass!) helps us to adapt to climate change. While some of us are Homer Simpson, just a few Spocks will help to protect the entire world from the tough days ahead.

This book is funny. Most economists aren't funny and no climate-change books are funny at all. This book will anger the entire political spectrum. The right will not like this book because I believe that climate change is a real threat. The left won't like it because I aspire to be a minor league Milton Friedman, AM'33, or Gary Becker, AM'53, PhD'55. David Brooks, AB'83, might like it?

Comparative Advantage Revisited

At 4pm on August 7th 2010 in Malibu, California I had the deep honor of officiating at the wedding of Prof. Mary Evans and Prof. J.R. DeShazo.




As you can see, it was a perfect day and the event was held at a wonderful private home with an ocean view. In the picture, you can see me in the middle looking like a secret service agent. The bride and groom are facing me. Note how tall J.R's brothers are, Michael Stoll can barely be seen next to the other groomsmen. Dora and I had a wonderful time. Our son is parked in Berkeley and it was just great.

Some of the guests know me quite well and they were surprised that I didn't crack any jokes. I must admit that I tried to be a sober adult and that is difficult for me. But, one's wedding day is a big big day and I didn't want to take any chances. I was married on May 29th 1998 and my grandfather married us. He was quite serious that day --- so perhaps I was trying to imitate his professionalism.

For future economists who are asked to perform a marriage; I offer you my 3 steps to success.

1. get a haircut and dry clean your clothes
2. practice your lines
3. arrive early

Unfortunately, my "magic powers" of marrying people have now faded and I'm merely a professor again. I have a large number of tasks I must complete in August and I will do so in Berkeley. Severin Borenstein has been kind enough to offer me an office at his UCEI and if you can help me get through my list of tasks --- I'll be happy to speak with you!

Thursday, August 05, 2010

Rush Limbaugh Roughs up Kahn and Kotchen (NBER WP #16241)

On his radio show yesterday, Rush Limbaugh expressed his disgust with my new NBER paper joint with Matt Kotchen. You can judge for yourself here . Rush baby, I was hoping you were going to invite me onto your show to discuss Climatopolis! I guess that's not going to happen.

"RUSH: What if they gave an environmental disaster and nobody came? That's what has happened to the BP Deepwater Horizon, the "worst environmental disaster in our history." They gave an environmental disaster and no one came, and in the New York Times today... This is from their "Economix," with an X on the end of it, blog site, which claims to be "dedicated to explaining the science of everyday life." Catherine Rampell is the authorette here. "Is Environmentalism a Luxury Good? -- Add environmentalism to the long list of things the Great Recession may have successfully pulverized. That is one implication of a new working paper titled 'Environmental Concern and the Business Cycle: The Chilling Effect of Recession,' by Matthew E. Kahn at UCLA and Matthew J. Kotchen at Yale.

"Using survey data, it finds that high unemployment rates are associated with less concern for the environment and greater skepticism about global warming." I don't think unemployment has nothing to do with it. It has to do with the fact that we have now learned that man-made global warming is a hoax that has been perpetrated by a bunch of leftists, and the guys participating in it at the Hadley Centre for Climate Prediction and Research at the University of East Anglia have been found out. And even though the partisan political operative media has yet to report on this, we have -- and more and more people are understanding now what a fraud this whole thing has been, like much of liberalism is. "The Chilling Effect of Recession."

So now you, you selfish people, are so concerned about finding a job while you're unemployed that you are forgetting about global warming. You are forgetting about environmentalism. "From the study's abstract: '[W]e find that an increase in a state's unemployment rate decreases Google searches for "global warming" and increases searches for "unemployment," and that the effect differs according to a state's political ideology.'" So this scientific survey is using Google searches for their data? This is hilarious. This is actually from the study by these two university professors: "We find that an increase in a state's unemployment rate decreases Google searches for 'global warming'..." They're actually judging public interest in global warming by examining Google searches, and they're ticked off more of you people are entering the search term "unemployment" than you are "global warming."

Despite all their efforts over the last 20 to 30 years to make you feel guilty for causing all this destruction, now we have a recession that's come along and, damn it, you are being so selfish that you've given up the notion that you have to save the planet. Now you want a job instead, and these ruling class professors are distressed. By the way, as we have previously noted on this program, Google searches themselves cause global warming. "From national surveys..." This is from the abstract: "From national surveys, we find that an increase in a state's unemployment rate is associated with a decrease in the probability that residents think global warming is happening and reduced support for the US to target policies intended to mitigate global warming. Finally, in California, we find that an increase in a county's unemployment rate is associated with a significant decrease in county residents choosing the environment as the most important policy issue."


I am not making this up. These are learned, high-education, ruling class members -- the best and the brightest, the smartest -- and they're out there researching why it is that you don't care about global warming. It's because you're unemployed and they find this out by studying Google searches -- and they're ticked off about it! I'll tell you what this shows. What this illustrates is that the belief in man-made global warming really is just that: It's a belief and one that can be easily cast off when confronted with hard, cold reality. It's a belief. It's a theory. It is an article of faith. It's almost a religion. We can understand leftists falling prey to this. They have no other god -- and if you have no god, if you don't believe in God, you will believe anything.

But we have pseudo-intellectuals on our side, on the right, who also fall for this notion. "No wonder the BP spill hasn't galvanized as much support for a climate bill as many advocates had initially hoped," because people are worried about jobs. They're worried about disposable income. Those selfish people. How dare you! How dare you forget global warming? How dare you forget the "fact" that you are destroying the planet? How dare you. Why, you're searching Google for jobs more than you are trying to learn about how you are destroying the planet. Never mind that the BP spill has not been anywhere near the ecological holocaust or Armageddon that the environmentalist wackos had hoped for -- and believe me, they did hope for it.

Maybe... Are we to believe here the public reaction would have been different if the oil spill had occurred when the economy was booming? If the economy was booming and we'd had the spill, and less attention was focused on finding work, more people would now believe in global warming and be concerned about it? See, this is how these people think. It's a belief, and they're actually trying to figure out how it is they can massage and manipulate public opinion to keep alive their hoax of man-made global warming. "Rush, are you for dirty water and dirty air?" No! I'm not for dirty water and dirty air. I'm for freedom. I'm for common sense. I am for people not falling prey to hoaxes of disasters and man-made hoaxes. You know, we don't hear much talk about climate change out of Europe lately. Have you noticed that we haven't? We haven't heard much talk about that. Economic growth and the environment can coexist. Economic growth is taking place in parts of Europe and yet we're still not hearing about global warming and panics and so forth. Let's go to the audio sound bites. This is President Obama this morning, AFL-CIO Executive Council Meeting. "

General Equilibrium Price Effects Induced by Climate Shocks

U.S wheat prices are rising as Russia's exports are falling as their unexpected heat wave must have reduced Russia's yields. See this . Such price "volatility" should offer new opportunities for Wall Street guys trading in futures markets. Climate change's impact on commodity pricing would appear to be an interesting subject to study. Now, if we anticipate that it will affect such pricing -- will it end up having such effects? Anticipation is a necessary (and perhaps sufficient?) condition for taking pro-active steps to protect yourself against approaching challenges. Assuming, you can store wheat over time (in silos?) --- Hotelling Law may have something to say about smooth price dynamics.

Globalization and the Future of Lawyers' Wages

Richard Freeman once asked; "Are Your Wages Set in Beijing?". Now, the NY Times is asking lawyers the same question but pointing to outsourcing to India as the competitor (source ). The interesting issue here is the generational gap. The piece argues that this outsourcing trend will increase demand for experienced U.S lawyers (who will teach the Indian rookies) but will soon decrease the demand for rookie U.S lawyers as clients will substitute to cheaper Indian lawyers. My question with the "outsourcing of skilled work" is liability. If I am a fancy U.S business , I do want cheap legal service (and this nudges me to India) but if the law firm there does a bad job, who can I sue? The same issue arises in radiology and other fields where there will be outsourcing of expertise to lower wage nations.

Switching Topics: Have you notice that Bill Gates and Warren Buffet are both making a big deal about their social pressure pledges that fellow billionaires promise to give away a large % of their fortunes to charity at the SAME time that that the Congress is about debate the repeal of the Bush Tax Cuts? Are there any cynics out there who would argue that out of self interest that Bill and Warren are making the case to the poor and deserving that they are better able to take care of the less fortunate than the government who is requesting the $ back?

Switching Topics: I return to Berkeley next week and look forward to seeing my friends there.

Wednesday, August 04, 2010

Climate Change Adaptation: The Case of Moscow

Moscow is not enjoying its heat wave . Up until now, the people of Moscow have said "Nyet" to air conditioning and living and working in buildings that are well ventilated and offer some relief from rare heat waves. This recent heat wave is certainly a "salient event" that should increase demand in Moscow for such basic ways of adapting to our hotter future. Simple economics would predict that air conditioner sales will rise and that real estate prices for "heat wave" friendly buildings will start to reflect this dimension of quality. Fool me once shame on you, fool me twice --- shame on me. I would assume that there are other adjustment margins that I have not listed here but each have the same goal in mind; "to beat the summer heat". Up until now, Moscow has not had to cope with such heat but moving forward people will be more pro-active. There is also the urban heat island effect and urban planners can think about what tangible steps can be taken to battle the heat island effect .

Tuesday, August 03, 2010

News About UCLA's Economics Department

Here is the UCLA Econ Summer 2010 Newsletter. It is filled with decent gossip and details about the department that folks like to talk about.

(Lipstick on a Pig) is to (Powder on an Economist) as XX is to YY

I am wearing makeup and I'm not sure that it helps. I look like Richard Nixon crossed with Boy George but that is the price for appearing on a video about my new book. I'm grateful to UCLA for giving me the opportunity and I don't forget who has been nice to me. In the interview, I served up some amusing remarks and I will post those soon.

Today's NY Times Economix blog has written a nice piece about my new paper with Matt Kotchen (ungated here ).

The conventional wisdom is correct. It is hard to get non-Al Gores excited about battling climate change during a recession. Look at the Google table regressions, we document that Democrat states (those that voted for Kerry in 2004) are even more responsive to reducing their searches for "Global Warming" in response to changes in unemployment than Republican states.

To form majority political coalitions, Greens need economic growth and less severe business cycles. Is growth bad for the environment?

Sunday, August 01, 2010

Reduced State to State Migration Rates and Persistent High National Unemployment: Regional Evolutions Redux

Most people in the United States live in a metropolitan area. There are over 300 to choose from and over 80% of the population lives in one. Each metro area, whether it is Detroit, Los Angeles, Miami, Boston or NYC, represents a distinct collection of industries. So, New York City has a larger share of finance jobs than the average metro area while Detroit has more car jobs. The fortune of such cities rises and falls with the "health" of these industries. When finance booms, NYC booms. When the domestic car industry suffers, Detroit suffers.

If you live in a city that experiences such a "bad local demand shock", you can get up and move to another city. Such migration protects you and your family from protracted unemployment. A prominent paper by Blanchard and Katz (called "Regional Evolutions" for Google fans) found that it takes roughly 7 years for a city to recover from a bad demand shock. During the adjustment period, people stop moving in and incumbents move out. This net out-migration leads to adjustment in the labor market so that wages after the shock return to what they were before the shock.

Today, the Christian Science Monitor reports that migration has been chilled. People are not leaving declining areas the way that regional economics predicts. Why Not?

Possible reasons;

1. Demographics --- the population is getting older and older people don't move to arbitrage labor market opportunities. The expected benefits just don't cover the costs of getting up and going.

2. The unemployment in declining markets believe that their city will soon make a comeback.

3. The unemployed anticipate Federal government will step in and help jump start their city.

4. The unemployed do not believe that other cities offer significantly better opportunities (so in terms of correlations, this would occur if all local labor markets are positively correlated). --- when Detroit is suffering, so is Boston, LA, San Diego.

5. The unemployed are home owners and are under-water and would have to sell their home at a loss if they move.

6. The unemployed are home owners with school age kids who do not want to lose their social capital by moving to a city where they don't know anyone.

This fact has serious consequences for the nation's unemployment rate and hence for the fall 2010 election! If unemployed workers are not leaving "bad" local labor markets, then the national unemployment rate will remain high for longer than in a counter-factual setting in which the unemployed sought out booming local labor markets.

If the Obama Administration wants lower unemployment then it should encourage more households to move to booming South Dakota. As I argue in Climatopolis, climate change will encourage more households to move closer to the Canadian border. Perhaps, Larry Summers urged the President to devote little effort to carbon cap and trade to accelerate global warming and this would nudge households to move to booming South Dakota and this would reduce the national unemployment rate. He is a smart man and he is likely to have foreseen this slightly wild logic chain.