Saturday, October 30, 2010

My KPCC Radio Interview on Climatopolis with Molly Peterson

Are there other professors who wish they could be paid per spoken word?   If I could get my price above zero, I'd earn a few bucks for this KPCC Interview.  Molly Peterson is a kind interviewer and I had a lot of fun.

Friday, October 29, 2010

Some Links for Today

I believe that my new publication in the Journal of Housing Economics will generate so many cites that Ted Bergstrom will owe Elsevier an apology.   The "consequences of land use regulation" literature isn't so convincing because we have so much trouble measuring intense land use regulation and we rarely have a good control group.  In my humble opinion, we are able to address both of these problems in the case of the California Coastal Zone.  But, the beauty of academic economic is that suppliers must sell their product on a competitive market --- so you can judge its true quality.

Some other links:

When I become a billionaire, I wonder if I will live in this house.  Is this typical Mumbai architecture?

A salient example of the synergies between Government subsidies and the nascent Green Tech Sector: "Green-Industrial" Complex

Thursday, October 28, 2010

What Do Keith Richards of the Rolling Stones and Greg Mankiw Have in Common?

They both have a PHD from MIT in economics, and they share a belief that the tax code matters in determining our choices.  For evidence about Keith's views about the distortionary effects of the tax code click here.

To quote Dr. Richards, "The whole business thing is predicated a lot on the tax laws," "It's why we reherse in Canada and not in the U.S.  A lot of our astute moves have been basically keeping up with tax laws, where to go, where not to put it. Whether to sit on it or not. We left England because we'd be paying 98 cents on the dollar. We left and they lost out. No taxes at all."  (Source November 1, 2010 New Yorker Magazine page 104)

Somewhere, I can hear George Harrison singing "Tax Man (Mr. Wilson)".

Perhaps the Tea Party has found a new leader to run against President Obama in 2012?  Street Fighting Grandpa.

A Violation of the Law of One Price?

The Universe of University of Toronto Faculty Salaries in 2010   .  I see some variation in salaries within well defined occupational categories that I cannot explain using the observables I know about.

Can Technology Solve Political Problems?

Recently, there was a LA Times article discussing using technology to slow immigration into the United States.  A resident of Laguna Beach wrote the LA Times the following letter; "Note to the Department of Homeland Security, Meg Whitman, Carly Fiorina, and others: Political problems cannot be solved with technology."

In many case, this strong statement is false but it is worth thinking about.

Example #1:  Los Angeles Smog --- Los Angeles used to have a terrible smog problem.  Too many cars were driving too many miles.  In the early 1970s, the catalytic converter and unleaded gasoline were phased in for new cars and by the year 2010, there are almost no pre-1972 vehicles still on the road.  Vehicles built with the catalytic converter and modern computer systems emit 99% less pollutants per mile than the 1960s makes. Technology and the phase out of old vehicles that lacked this technology have solved this problem.

Example #2:  Traffic Congestion --- this is another political problem.  Time of day toll roads can now be implemented and this "Smart Grid" technology advance would go a long way in reducing traffic congestion as would time day parking rates so that parking prices would be higher during peak times and fall off peak.

Example #3:  Urban crime --- the ubiquitous cell phone makes everyone a roaming reporter who can call 911 if an attack takes place. People are making videos and taking photos and this makes our streets safer. Potential criminals know that due to this technology that they are more likely to be caught "red handed".

Example #4:  Climate Change --- if some nerd could invent a renewable power source that is cheap then debates about whether the U.S should sharply reduce its CO2 emissions would vanish as the the costs of reducing our greenhouse gas emissions  would plummet.

An example where the author is right --- is the budget deficit.  This is a political problem for which technological advance does not offer a simple solution.  Improvements in health technology actually increase the budget deficit as past procedures that were impossible now become possible and there is an ethical issue in denying such treatment to the sick.

Wednesday, October 27, 2010

Can an Economist Predict the Future? If We Can, So What?

Are the impacts of climate change more predictable than future stock price dynamics?  I think so.  Here is my New interview with The Futurist.  If we can forecast some of the likely effects of climate change, then doesn't economics predict that long lived durable investment choices we make today (such as over what types of buildings to build and where we build them and infrastructure choices) will reflect these expectations?  The rational expectations model of investment under uncertainty offers some bold claims about our ability to adapt to climate change. I'd like to lure some smart theorists to join me on my quest to improve our understanding of adaptation to climate change.

Do Economists Supply Interesting Interviews?

I was not ready for these questions.

How Do We Judge the Quality of University Presidents?

This article  got me thinking about how we use quantitative metrics for judging University Leaders.  The endowment's dynamics matter but do you attribute all of its growth to "the leader"?  I don't.  How do we construct the counter-factual of what the University would have achieved under a different President?  You can see that there is no control group available and this is a hard question.   Within the Ivy League, can you judge Columbia's President's performance based on the performance of the other 8 leaders?  Nope.  So then, how do the trustees of Columbia make a reasoned decision on whether to grant their First Amendment lawyer another 5 years?    They like him and know him so there is a  status quo bias and they recognize that search is costly so it would take an extraordinary hire (Larry Summers? Paul Krugman? Bono?) to put them in the mood to trade horses.

At the University of California, I have some ideas for how to rank our leaders both on campus and at the Oakland office.  I will tell you my ideas in private.

Can an Economist Float Like a Butterfly and Sting Like a Bee? My Zocalo Square Speech About Climatopolis Rocks LA

In my humble opinion, I finally gave a really good talk about Climatopolis at the Zocalo Square to a group of about 120 Los Angeles residents at the Actor's Gang in Culver City.  I didn't have powerpoint and it was funny to stand at a podium. I was armed with one page of notes and a copy of my book. 

My Notes only consisted of the following talking points

Thanks, what is climatopolis?  adaptation vs. mitigation,  why listen to an economist?  The Chess analogy, city competition, migration and innovation, the future of Los Angeles, Homer Simpson vs. Mr. Spock, politicians and policy,  Moscow and criticism of Climatopolis, Titanic Redux.

Based on these "keywords", you can my watch the video here.

Here is how Zocalo wrote up the event. I see I wasn't clear about the boxer Ali. I meant that he was throwing hard punches in the 1960s and would knock us out unless we were pro-active and ducked!

Matthew Kahn kicked off his talk at The Actors’ Gang with a big question.

“What is the future of our great city?” said the UCLA Luskin scholar and professor. “Are we going to take it on the jaw and be knocked out like Muhammad Ali in the 60s, or is there any room for optimism?”

In an event co-presented with the UCLA School of Public Affairs’ Luskin Center for Innovation, Kahn, author of Climatopolis: How Our Cities Will Thrive in the Hotter Future, outlined the threats Los Angeles and other cities face from hotter temperatures, and why the consumer culture that so contributed to climate change could actually help save us from it.

Not Ronald Reagan

As an environmental economist who talks about climate change, Kahn has faced his share of criticism — from the right that denies the impact of global warming, and the left that criticizes him for emphasizing adapting to climate change. “They’ve said this guy is trouble,” he said. “I’m a mild-mannered professor losing my hair and gaining weight. I’m not trouble.”

But Kahn continued forcefully, noting that leaders around the world failed to pass a global carbon deal, the Senate failed to pass climate change in the U.S., Barack Obama hasn’t pushed through controls on emissions, California’s emission reduction plan is under attack by a ballot proposition, and China and India are emitting ever more greenhouse gases. Given the lack of forward-thinking steps to mitigate climate change, Kahn suggested, a realistic approach may be to adapt.

“I’m not Ronald Reagan. I don’t believe in wishful thinking,” he said. But he’s optimistic, he said, that people are risk-averse and self-interested enough to adapt to climate change — at least if they had good information. Just as Los Angeles County’s restaurant ranking system made for a healthier city, Kahn suggests we need to know how different areas of Los Angeles will be hit by climate change. “How many of you eat at a grade-C restaurant? Armed with this new information, you made different choices,” he said. “And if I’m running a C-grade restaurant, I might call in the exterminators.”

Kahn noted that his colleague at UCLA Alex Hall (a past Zócalo guest), is creating such a bank of information by observing how different parts of the region will be hit by higher temperatures, lower rainfall, and other measures of climate change. Kahn added in Q&A that we should observe whether the same person, living in two different places, would consume more or less energy — which would suggest something about the place is the problem.

A hundred Detroit homes

As we start acting on climate change information, Kahn said, the 300 American cities — not to mention those around the world — could enter a competitive phase. Kahn noted that today, one home in Westwood is worth the same as 100 homes in Detroit, but with climate change, the calculation could flip. “If Los Angeles or New York became unlivable because of climate change, we could move to Fargo. We could rebuild our cities at other latitudes,” Kahn said.

“If a city is foolish enough not to address climate change, mobile, foot-loose, skilled people will leave. That city will become the Detroit of today,” Kahn said. “It’s not about having the port or having the steel industry.” This trend would create strong incentives for local politicians, Kahn said, even if they don’t believe in climate change.

Let prices rise, give peace a chance

Short of migration, we could change how we build and run our cities, and how we consume, Kahn said. Although L.A. has yet to commission a “crystal ball study” on the matter, we know that the city will face particular challenges that it can answer with some innovation. With rising temperatures, Kahn suggested, demand will increase for housing in temperate parts of the city. “If we ripped out every golf course in West L.A., how many people could live there?” Kahn asked. “And I’m a fan of golf. I still like Tiger Woods.” If builders faced NIMBYism, he said, the city would have to step in to regulate land use.

To address water scarcity, Kahn suggested we follow the economists’ solution: “Let prices rise. Give peace a chance.” Currently, he said, the price of a gallon of water in Los Angeles is half a cent. If prices rose, households would economize, and demand water-efficient durables and appliances, creating a strong new market. As he explained in Q&A, such a system would have to ask how much water we need daily “to have a good day,” and provide for those earning lower incomes to afford this amount of water at the new market prices.

For rising sea levels and fire risk, Kahn pointed to smarter insurance policies, which would charge higher prices than they have. This would either encourage people to live elsewhere, Kahn suggested, or build more smartly, citing Thom Mayne and Brad Pitt’s effort to create $180,000 floating homes. He noted that even natural disasters — like the heat wave in Moscow this year — could make us keener to innovate and adapt to climate change more quickly.

Kahn emphasized that whether consumers are Mr. Spocks — rational planners — or feckless Homer Simpsons, whether they believe in climate change or not, they’re likely to catch on to such innovations and act in their best interest as a market arises. “It’s like selling lemonade on a hot day,” Kahn said. He did note in Q&A, however, that each advance would likely need to be evaluated case-by-case — for example, some argue that Prius batteries create environmental problems even as the cars emit less. And immediate action for poorer people may be required in the interim, using simpler coping mechanisms for heat, like cooling centers.

Green guinea pig

Politics could stand in the way of innovation, Kahn noted. “If we don’t allow insurance prices to rise or water prices to rise, there are winners from the status quo.” As he added in Q&A, Al Gore may even have made it harder to break the status quo on climate change. “I could imagine an alternate world, in ‘The Twilight Zone’, where climate change was a national security issue,” Kahn said. “But when Al Gore wrapped this issue around himself, Republicans, like the Sarah Palins, defined themselves by what they don’t believe in.”

But Californians at least could be getting it right with AB32, the state’s plan to reduce emissions. Creating a market for green goods requires, Kahn aid, a “green guinea pig” — someone to make room for these products and create an incentive for entrepreneurs. With the legislation, California, “with our liberalism and our high incomes despite the recession and our high education — we are volunteering to be that guinea pig for the world,” Kahn said. “Are we a hero or a sucker? Why aren’t we free-riding like everybody else? I think we’re heroes.” He added that once California creates good green ideas, they could easily travel around the world, including to India and China, and accomplish what Kahn strongly advocates: decoupling economic growth from greenhouse gas emissions. Until now, as Kahn admitted during Q&A, capitalism has mostly been the cause of greenhouse gas emissions.

And in fact, Kahn said, that stream of green ideas may go the opposite direction. China, he noted, is offering low-interest loans and free land to green entrepreneurs. “For years China stole our intellectual property — Microsoft Windows, Hollywood movies,” Kahn said. “If China makes a breakthrough in green tech, we’ll steal it from them.”

Tuesday, October 26, 2010

Can the Harvard Class of 2011 "See" Their Future Using a Sample of Harvard's Class of 1975?

In a stationary economy, young people can "see" their future based on what has happened to previous cohorts who are now middle aged.   So, for the Harvard Class of 2011 what can they learn about their future 35 years from now in 2045 based on the  Harvard's Class of 1975 asks "what if" about today?

Allow me to cherry pick some quotes:

"But over half will wish they could make a major life decision again, more than three-quarters will have gained weight, and around one-fifth of the class will have had an affair.

These statistics, found in a 100-question survey conducted this year of Harvard and Radcliffe students who graduated in 1975, portray a class whose members—despite some significant regrets—are largely satisfied with the current state of their lives and are optimistic about the future."

So based on probability theory, what is your best guess that a Harvard graduate who is age 57 will get fat and have an affair?  Do you guess .75*.2?    I love sociology.

Back to the article:

"But when alumni were asked to reveal the main personal issue they confront today, they divulged more serious answers.  “I need to become brave enough to leave my husband,” wrote one alumna. Another asked, “What do I want to do with the rest of my life?”"  

I thought that a Harvard degree guaranteed being happy.  I was very happy there as a Visiting Assistant Professor from 1996 to 1998. 

Back to the article:

"On family life, 94.2 percent of men and 85.7 percent of women said they are happy in their current relationship.

About 50 percent of alumni said that they either do not believe in God or do not know, although over 90 percent said spirituality was a force for good.

Over 65 percent said that the happiest time of their lives was now or yet to come."

I don't know if I believe this but I am not Dennis Gilbert and I am not happy.

I can't remember who I was at age 22.  I know that I didn't have the zealous focus of a Zuck.  There was no one passion pushing me forward.   I had a broad array of skills and interests and I thought that economics opened the most doors and had the most option value in terms of making a choice later once I was well trained.

The one weakness of this "attitudes" survey is that it could have presented a household income histogram. How many of these graduates are members of wealthy families? How many spouses married into wealthy families? How many of the graduates made their own wealth? 

What role  has the "Harvard Network" played in this wealth creation? Did they join a firm filled with Harvard people?  Did they meet their spouse at Harvard?     

UCLA Institute of the Environmental Faculty Write About Prop 23 and AB32

Have you ever written a good paper and wondered whether you should send it to the American Economic Review or the UCLA Daily Bruin Newspaper?  I have published in both outlets but the choice is an easy one.  The Daily Bruin has a faster acceptance time and the editor roughs you up less and my salary increases by more when I publish there.  Click on that link above to see my newest contribution to economic science.   Google Scholar needs to incorporate student newspapers into its database.  A publication is a publication.     


Proposition 23, if enacted by voters, will freeze the provisions of AB 32 until California’s unemployment rate drops to 5.5 percent or below for four consecutive quarters. AB 32 is the code name for California’s Global Warming Solutions Act of 2006. This law requires that by 2020, the state’s greenhouse gas emissions be reduced to 1990 levels, a roughly 25 percent reduction from current estimates. The California Air Resources Board has the regulatory authority to prepare the plans to achieve this emissions reduction goal.

As a free market environmentalist, I strongly hope that Proposition 23 will fail. International and domestic efforts to reduce our greenhouse gas emissions have failed.

The U.S Senate refused to vote on the American Clean Energy and Security Act of 2009. Our refusal to enact a credible incentive to decarbonize the economy means that world population and per capita income growth will only increase greenhouse gas emissions. This will further exacerbate the coming challenge of climate change.

While the rest of the United States and most of the rest of the world have been unwilling to take credible steps toward capping their emissions, California has been willing to shoulder this leadership role. Are we a “hero” or are we a “sucker?” Shouldn’t we simply free ride like everyone else? I don’t think so.
I moved to California three years ago because I wanted to live and work in a progressive, cutting-edge state. During this time of deep recession, California is trying to figure out how our economy will “get its groove back.”

While there is a lot of hype around the “green economy,” I do believe that the synergies between our leading universities, the venture capital money and our state’s progressive ideology, combined with clear government incentives and signals (provided by AB 32), help to give California an edge in the nascent green economy.
In many of his past movies, Gov. Arnold Schwarzenegger starred as a man willing to take risks to protect his loved ones and to do what was right. In this spirit, AB 32 represents an opportunity for the state to target its entrepreneurial energies and to pursue a key environmental goal. This “double bottom line” is quite attractive.

As AB 32 is implemented, California will be a guinea pig for the whole world. California’s firms and researchers will experiment and tinker and learn as we individually attempt to reduce our carbon footprint. Some ideas will succeed and others will fail but the knowledge generated will be crucial for helping the world economy to decarbonize.

AB 32 is not a “free lunch” for our state, but its implementation costs have been exaggerated by supporters of Proposition 23. In the medium term, AB 32 will help our state to simultaneously reinvent our economy and to help achieve global sustainability goals. 

Sunday, October 24, 2010

My 10/26/2010 Talk in Los Angeles' Culver City

Given that I plan to retire from academia on July 1st 2011, you are running out of chances to hear me talk.  I will be speaking at the Zocalo Public Square Event this tuesday in Culver City and I hope to meet you there.  What is my topic?  Urban adaptation to climate change and my optimism about the future of Los Angeles. 

A Walk in West Los Angeles Reveals Some Neighbors Who Oppose AB32

My son had a playdate at a friend's house in Rancho Park.  As I walked from Rancho Park back to Westwood, I saw the house whose picture I display below.  This is a typical home in West LA but note the sign on the front lawn; " Yes on 23:  Save Jobs".    This "bumper sticker" is making a strong causal claim but I see no footnotes or econometric evidence tied to these 5 words.  Perhaps we should think this through.

I know how to "save baby seals" but how do we "save" jobs?

Supporters of Proposition 23 (which would stall AB32 --- the carbon fighting California regulation) are claiming that AB32 will raise electricity prices and that footloose employers will leave California for China or Nevada and that the end result will be fewer jobs for Californians.

I have argued that AB32 will simultaneously raise some firms' cost of production but it will create new business opportunities for other firms.  Some of these firms who will benefit haven't even been born yet and thus can't lobby for themselves. 

Erin Mansur and I will soon release a new working paper where we study how "footloose" are 21 different major manufacturing industries with respect to electricity prices.   In english, which manufacturing industries would be responsive to spatial differences in electricity prices?

Permit me to "name names"

Industry NAICS

1.  Primary Metal Manufacturing 331

2.  Paper Manufacturing 322

3.  Nonmetallic Mineral Product Manufacturing 327

So for manufacturing firms in these industries, there is some truth to the claims that AB32 could displace some of these jobs out of California.  But, I don't believe that California's stake in these industries is that large.  Cities that are home to such industries can always approach Sacramento for "carrots" to offer these incumbent firms to convince them to stay rather than to move to a less regulated state such as Nevada.  Minimizing the possibility of these industries migrating to another state is not a good reason to vote yes on Prop 23.

We analyze 21 major manufacturing industries and find for the other 18, that higher electricity prices would not significantly impact the propensity of these industries to get up and leave.   Another study by Olivier Deschenes concludes that there is no correlation between state electricity price growth and state level manufacturing job changes. 

As I think about AB32 --- it will have no impact on short run employment and in the medium term it will set credible policy signals encouraging the growth of the California "green economy" and this will shift the composition of California's employment growth into industries that are likely to have great promise as the world takes the climate change mitigation and adaptation agenda more seriously in the decades ahead.

Saturday, October 23, 2010

The Los Angeles Times Reviews Climatopolis

Emily Green has written a review of Climatopolis in this LA Times Review.   Similar to many of the non-economists who have reviewed Climatopolis, she devotes a little bit too much time to the "specificity" of my brief discussion of certain cities.  Climatopolis is an overview of how every city across the planet will adapt in the face of climate change.  The cost of covering so much ground is that some nitty gritty details will be glossed over.  I recognized this tradeoff. This is why the Los Angeles chapter goes into truly nitty gritty detail about the specific challenges that different parts of Los Angeles will face under climate change and how a self interested set of capitalist households and firms will cope and adapt in the face of climate change. 

Contrast her review with the review in Nature, or the Climatopolis Review in the Financial Times and you will see that Ms. Green is a pinch silly. Her review is barely correlated with these other reviews of the same book!  

Yes, I ranked Salt Lake City high on my list of "resilient" cities.  Why?  It won't flood and I take coastal sea level rise seriously.   I do not mean for Climatopolis to engage in geographic determinism. Emily Green calls me "sloppy" for not thinking through the specific water scarcity challenges that Salt Lake City will face.  On one level she is right, but I had hoped that readers would be smart and see that the lessons from the Los Angeles chapter on climate change induced water scarcity apply in this case.  Salt Lake City water prices will rise due to climate change and this will trigger a series of adjustments at the extensive and intensive margins and aggregate water demand will fall and "crisis" will be avoided.  The climate scientists ignore behavioral responses over and over again. Economists are relevant to the climate change discussion!  Yes, climate change will shift supply but there is also demand!  If we anticipate that supply will be affected by climate change, then we have access to other technologies to enhance our supply.

Non-economists are not used to reading what a microeconomist has to say about the world.  She doesn't use the word "incentive" once in her review.  All hail incentives!  My whole book is about incentives and how climate change shifts our incentives and how we will respond under these new "rules of the game".

My hope is that Climatopolis will trigger specific case study work in every city.  Every city's boosters should following New York City's 2030 plan (discussed in my book) to help it anticipate how their city will adapt to climate change.  I acknowledge throughout the book that I do not have a crystal ball but I understand how an evolutionary optimizing capitalist system can change its ways in the face of an unknown but known scary threat of climate change.

UPDATE:  I have now re-read Emily Green's review and I think it is pretty silly.  94% of people in Los Angeles commute by private car.  Yes there are 6% of 8 million people using public transit, but I stick to my point; people do not use public transit. Dumb, dumb , dumb.

She says that I offer policy recommendations that people should use public transit and live at higher density. Again, dumb, dumb dumb.  I don't recommend this.  I predict that this will be a consequence of adaptation to climate change in Los Angeles.  To protect themselves from the heat, people of Los Angeles will seek to live in the temperate part of the city closer to the Ocean.  To afford this, they will need to live in high rise buildings at Hong Kong style density. This will shrink Los Angeles' carbon footprint and this density will make subways feasible.  This is NOT a recommendation.  This is a prediction of how our city will adapt in the face of climate change.  I'm a pinch amazed at how people read a book.   The book makes no recommendations at all. It isn't an urban planning book; it uses basic microeconomic incentive theory to explain how adaptation will take place and to predict how we will rebuild our cities in the future. 

UPDATE:  The reviewer takes me to task for not being able to spell the Mayor's name correctly.  I apologize for this but she hints that this was my attempt to insult the Mayor.  This is false.  I would not engage in such 3rd grade activity.   She also points to the Moscow Heat Waves as "proof" of my inability to see the future.   Permit me to defend myself by recycling some of my recent writing.

Lessons from the Moscow heat wave of August 2010  source

Recently, The Economist published a generally favourable review of Climatopolis but pointed out that I had ranked Moscow as likely to be a climate change resilient city (Economist 2010). In my short list of “resilient cities”, I had focused on cities unlikely to suffer from major sea level rise that are located at northern latitudes. Martin Weitzman’s work on climate change catastrophe and “fat tails” heavily weighted on my thinking and thus my rankings. The Economist was quick to point out that even “safe cities” can and will suffer due to climate shocks caused by climate change.

A major theme of Climatopolis is that as climate scientists continue to make progress with modelling climate change and as we individually learn about the day-to-day challenges climate change poses for different cities, their residents will take pro-active steps to adapt to changing circumstances. Yes, the Moscow heat wave was deadly but the “silver lining” of this shock is that the city learned that it is at risk and I predict that it will make costly investments now to lower the impact of the next heat wave. This basic logic is why I am optimistic about our urban future. We have the right incentives to learn and to adapt to our changing environmental conditions.

Friday, October 22, 2010

The Great AB32 Debate

Last night, the UCLA Institute of the Environment and Sustainability sponsored a fascinating debate on California's AB32.   Click on this link and you can watch the video!

Switching subjects,  if you want to see one side of Los Angeles at work then take a look at the story of Aaron Tonken.  On one level, this looks like a Horatio Alger story but on another it is an ugly story of Hollywood celebrity and the pursuit of cash.

Thursday, October 21, 2010

Some Self Serving Links

Frank Wolak's Stanford Climate Conference from 9/7/2010  ---  if you want to hear some bad jokes and hear my thoughts about climate change adaptation, please watch my video.

My debut on China Radio International --- I argue that the USA should thank China for violating WTO laws with their strategic subsidies of the green sector.  Their upfront investments will accelerate the growth of the "green economy" and this will eventually decarbonize the world economy. It is ironic -- sustainable growth due to Chinese investment and ingenuity.
Rob Stavins's excellent new post arguing that the Big Green R&D increase is an incomplete solution to achieving carbon mitigation in the absence of carbon pricing.  "Carbon-pricing – whether carbon taxes or cap-and-trade – will be an essential part of any truly meaningful national climate policy. Likewise, to address the “R&D market failure,” direct technology innovation policies will also be required. Both are necessary. Neither is sufficient. These are complements, not substitutes."

Robert Buckley's review of my Climatopolis  in the new issue of Nature.

The Tea Party's Distaste for "Green" Tea

Under what scenarios would the Republican Party have embraced carbon mitigation legislation?  The Tea Party is angry about the recession, the budget deficit, and be lectured for being "bad people".  Are there any political scenarios under which they would have "been in the mood" for pro-active carbon legislation?   The media has quilted together some fun quotes from a subset of them here at Green Politics and the Tea Party

Some of the comments are revealing.  Please note, that these are not my comments.

"Comment #17;  It would be fun to watch these self-proclaimed 'Christians' squirm in 20 years when the climate is really out of control, except that we'll be too busy trying to survive or killing ourselves to escape."

"Comment 20:  Amazing how uniformly stupid the tea baggers are. The bad news is that their stupidity may cause the death of our civilization somewhere down the line. The good news is that their grandchildren, great grandchildren or whatever will die along with the rest of the population, removing the gene that causes stupidity from the gene pool. "

"Comment 42:  The problem with the denialists is that there is very little downside to their lies. In 5 or 10 or 20 years, when we are really facing serious climate change problems, they will be the ones who "didn't inhale. No, I wasn't a denialist, I knew it all along..." I propose an escrow system, where any politician denying climate change now must put all of his or her assets into escrow. If there are no negative impacts in the future, their children can inherit. Otherwise, the money in escrow will go to combating further climate change. There needs to be a financial downside to these lies!"

Wednesday, October 20, 2010

Do You Have 3:54 minutes to Think About California's AB32 Carbon Mitigation Regulation?

Maybe I should stick to radio.  In this TV Video, I look wacky but I think I make some good points focused on why I support AB32 and oppose Prop 23.  Maybe Hollywood is never going to call me to play an economist.  Ben Stein has a monopoly.  We moved to LA to give me my chance in the movie business but I haven't been able to figure out how to get my first break.  Maybe I should try to be a stuntman?    

A Face for Radio

I will be a guest on the John Batchelor Radio Show at 7pm eastern time tonight to discuss my climate change adaptation book (Climatopolis).

On thursday at 4pm Los Angeles time, I will do a Beijing radio nterview on China Radio International.  This show is eager to talk to me about a recent blog post I wrote about China's industrial policy toward the "green tech" sector.  While the U.S domestic green tech industry and the WTO are very worried about China's 0% interest rates offered to its green tech sector and its free land for "green tech" factories,  I view China's policy as a "good thing".  As I discuss here,  we need "game changing" ideas and the basic R&D is a world public good. If China wants to pay for this R&D, I think this is great. They have free rode on us in the past and now we can free ride on their investments.  The bottom line is that such investment acts to decarbonize the world economy.  We need "green ideas" --- we need someone on the planet to pay for the basic R&D to make them happen.  The U.S has not stepped up. If China fills this void, then we are all made better off.  It is true that this new profit stream will end up in China's bank account but that is an equity issue not an efficiency issue and we economists care about efficiency!

I was sent the following memo:

"The US government has now picked the clean energy industry as the latest battleground with China over currencies and trade as it announced to proceed with an investigation into China’s support for its renewable energy industry, which could lead to litigation at the World Trade Organisation. Some Americans are worried that Chinese firms, using subsidized loans and free land provided by government, are "taking over" this exciting new growing industry. Is that true? And will China’s activist policy necessarily hurt the well being of the US?

To delve into the issue we are now joined by Prof. Matthew Kahn, an economics professor at UCLA.

1 Will China’s policy on clean energy necessarily hamper the US interest? Why do you think the US government initated the investigation?

2 Will the American consumers and manufacturers also benefit from the Chinese huge investment in green industries?

3 What senarios do you expect to play out in this row? And is it possible for both sides to cooperate to achieve a win-win result?"

Tuesday, October 19, 2010

Is Running an Escort Service a Necessary and Sufficient Private Sector Experience for Being an Effective Governor?

A quote from the dignified NY Times, "And Ms. (Kristin) Davis suggested that her experience running an escort service made her the candidate best prepared to reform the Metropolitan Transportation Authority.  “The key difference between the M.T.A. and my former escort agency is I operated one set of books and I offered on-time and reliable service,” Ms. Davis said to laughter and applause. "  see the NY Governor Election Debate

Monday, October 18, 2010

The Kennedy vs. Nixon Debate Revisited

Now that I'm starting to look like Walter Cronkite, it makes sense for me to be a panelist in this AB 32 Debate this thursday night at UCLA's Anderson School.  While I only have 7 minutes to speak, everyone who knows me --- knows that I will get my money's worth.  What is this debate about?  Whether Miller Light tastes great or is less filling?  No --- we are talking about climate change and how California can get its "groove back" and about "green guinea pigs" in a world where we need to learn and experiment where we need "heroes" to step up and be first movers.  To read a few more of my random quotes on this topic, read this.

Proposition 23 and the Future of California's Economy and Environment

Thursday, October 21
Korn Convocation Hall, UCLA Anderson School of Management
7:00 pm - 8:30 pm

Proposition 23 is a statewide ballot measure that would suspend AB 32, the Global Warming Solutions Act that requires reduced greenhouse gas emissions, until California’s unemployment rate drops to 5.5% or below for four consecutive quarters. Supporters call Prop 23 the California Jobs Initiative. Opponents label it the Dirty Energy Proposition. This debate will present both sides of the issue.


YES on PROP 23 Campaign

Dorothy Rothrock,
Senior Vice President Government Affairs
California Manufacturers and Technology Assn.
Co-Chair, AB 32 Implementation Group

No on PROP 23 Campaign
Terry Tamminen, CEO
Seventh Generation Advisors
Former Secretary of the California
Environmental Protection Agency and Chief
Policy Advisor to Governor Schwarzenegger

Introductory and Concluding Remarks by Glen MacDonald, Director, UCLA Institute of the Environment and Sustainability

Moderated by: Patt Morrison, KPCC and the Los Angeles Times

Panel of Experts:

Margot Roosevelt, Reporter, Los Angeles Times

Matthew Kahn, Professor of Economics, UCLA IoES

Ann Carlson, Professor and Shirley Shapiro Chair in Environmental Law, UCLA School of Law

Cosponsored by: UCLA Law Emmett Center on Climate Change and the Environment, UCLA IOES Center for Climate Change Solutions and UCLA Office of the Vice Chancellor for Research

Admission by Reservation only. Click here to RSVP.

Intellectual Debate and the Internet

The Freakonomics Blog is filling in a "missing market".  When an author writes a new book,  the best case scenario is for high profile outlets such as the Wall Street Journal, New York Times, Financial Times, and The Economist to review it and to sketch out the book's key ideas and perhaps say something nice.  But, these reviews (by definition) solely present the reviewer's opinion and offer no way for the author to respond.   The Freakonomics Blog has figured out how to allow the author back into the discussion and I am grateful.  Here is My Freakonomics Q&A.

I have found that in several cases such as;  Joe Romm, a review in the Toronto Star, and in Publishers Weekly that smart people haven't engaged with my book's substance at all but have reviewed it without really thinking about its arguments.  My book is about the microeconomics of climate change adaptation.  I make the case that microeconomics can teach us a lot about how climate change adaptation will play out. 

Insurance Price Dynamics and Climate Change Adaptation

In Climatopolis,  I present a microeconomist's vision of how our cities will adapt in the face of climate change.   I argue that a Homer Simpson does not have to have perfect foresight if for profit firms such as insurance companies send him price signals.  Intuitively, if climate change raises the risk of fires in a specific area, then profit maximization and insurance industry competition will lead to insurance rates rising in those fire zones and this will lead fewer households to live there and those that live there will build their homes out of materials that are more likely to withstand fires (so they can be quoted a lower insurance rate).  

So far, so good.  I have assumed that new information about new risks posed by climate change would become public knowledge as local officials and insurance companies would create updated risk maps and distribute them. But, this San Marcos case study highlights the suppression of evidence! 

"San Marcos city officials kept secret a color-coded map showing the risk of wildfire danger to various neighborhoods for fear insurance companies would use the information to justify raising rates or dropping policies, according to a newspaper report.  Officials opted to circulate a version of the map that omitted the marking of Coronado Hills and neighboring Attebury as deep red, which signifies “extreme wildfire hazard,” city leaders told The North County Times. Shadings showing five other neighborhoods with “very high” risk were also left off the map.  The map that was released showed all wildfire areas in a uniform shade of green.
The maps were produced after a study commissioned by San Marcos in 2005 to assess wildfire risks for the city’s communities."

There is a clear conflict of interest here.  An adaptation economist such as myself wants "new news" of risks to be discovered and disseminated.  The City was clearly trying to protect the pocketbook of existing home owners by not having them pay higher insurance rates.  Given that property tax revenue is a fixed % of the total value of local land, the city may have worried that its total tax revenue would fall with the new news.

Economists know that information is a public good.  The Obama Administration should invest in a "Google Earth" project for every parcel of land to delineate the risks its faces and post this on a national website. This would circumvent any conflict of interest problem.    In this San Marcos case, there is a clear conflict of interest.  The people of this city would not allow the insurance industry to create their own maps because they would claim that there is an incentive to lie and over-state the risks in areas in order to justify high insurance prices.

Sunday, October 17, 2010

Stumbling on Happiness: The Case of the Chilean Miners

The media is reporting news that the rescued Chilean miners are moving on and getting ready to return to their modest homes as the next phase of their life unfolds.  As I read this I thought about  Dennis Gilbert's Happy Thoughts.  Recall that he has written the big book on happy dynamics.  These miners offer a natural case study of his theories.  If this set of miners had been hooked up to a continuous time "happy meter", what would the data have looked like for each of these men over the course of this "event study".  At first,  it was a typical day .5 miles below ground in the dark, dirty mining area (I have never been to such a place).  What was their happy level at that point?  Then, there must have been a shock and a realization that they were in big trouble (how did happy level change?  what was the distribution of "happy" within the group).  As the cruel days passed by,  was there a divergence within the group with regards to personal happiness as some gave up hope of rescue while others "believed".  When the new news that a rescue could and would occur, what happened to happy levels?  As the day of the escape neared, what happened?  Now that they are out and free again, how have their happy levels evolved?  Would a happy expert such as Prof. Gilbert have ex-ante hypotheses that can be tested using this unique case study? 

Will these men participate in any social science research as subjects or is the hawthorne effect to present to make this meaningful?

Saturday, October 16, 2010

When the Media Mocks Economists, Does it Hurt?

The Fed is debating the merits of new actions to "jump start" our macro economy.   "But generally speaking, economists who thought it was a good idea at the time think it worked, and economists who thought otherwise beg to differ. And both sides make their cases with plenty of hard numbers.  Let’s leave aside the merits of these arguments and ask a question so basic it will sound naïve: Why do economists argue at all? Given that Fed members and economists are looking at the same data, and given the reams of evidence accumulated over decades — not to mention a few centuries of great minds, great theories and thick books that preceded this crisis — why isn’t a right answer self-evident?"  details here.

Suppose we knew the true data generating process for why GNP, the stock market, the unemployment rate evolve over time as they do -- if we had a scientific explanation for their dynamics then we would have a means of discussing "policy prescriptions" to affect these variables.  Micro economists have made more progress here because of our ability to evoke "ceteris paribus" and to identify the behavior of similar individuals with and without treatments of interest.   This ability to see the "counter-factual" distinguishes applied micro from applied macro.   A Princeton labor economist can attend a twins convention and observe one twin attend UCLA while others attend Stanford and then average over their later life outcomes to judge the relative effectiveness of a UCLA education versus Stanford. A Princeton macro economist cannot compare the U.S growth rate in 2011 if it engages in QE2 or not.  We only see one macro realization of the time series.  There is no control group.

The funny thing here is that all economists would agree that we have a well worked out theory of consumption and investment in competitive markets.  Rational, forward looking firms and households know their own objectives, and recognize the constraints they face and recognize that there are random variables such as when will we die?, will demand be high or low next year?  ---  Economists have worked out the basic mechanics of what are the "best" choices that maximizing agents will make in this case.  If there is heterogeneity in the population, we know how to calculate the equilibrium that will emerge and who will be the marginal buyer and seller in the market.

Trouble occurs when you introduce a "big", unpredictable government because in this case --- game theoretic issues cannot be ignored.  In perfectly competitive markets, all decision makers are small and the price mechanism (a la Hayek) co-ordinates economic activity.  Once government is introduced into the economy, all bets are off.

Government is unpredictable and unwilling to pre-commit to a specific course of action. It is unclear what it maximizes and elections and political whims pop up.  Rational investors, workers and consumers have no idea what Ben Bernanke will propose or what the sequence of taxes will be over the next 10 years.    Different people have different expectations over government future actions and make different bets based on their expectations and their current situation. 

In the case of the Fed, we don't know what model Big Ben has in his head of how the economy works. Consumers and workers can solve for the optimal responses to his choices but they need to form expectations of what they think he will do.  

We need to hear from some of the big game theorists about whether they are confident about making predictions of what dynamics we observe in a game played between small consumer/workers/investors, medium sized firms and a big government with a complex and changing agenda. 

If the same "big government" can pre-commit --- do we move to a better equilibrium?  Have we really tried "rules over discretion"?  To paraphrase John Lennon, "give  Prescott a chance".   If Government committed to a head tax and a fixed money supply rule,  what would business cycles look like?  what would economic growth be?

UCLA's Don Shoup is on the Front Page of the LA Times!

In California newspapers, you usually see such names as "Arnold" or "Kobe" or "Meg" on the front page.  But, today I see Shoup!   It is a rare day when a micro economist makes the front page.  The older generation tend to be men without much hair or glamour and we tend not to be newsworthy.  What did Don Shoup do to deserve this coverage?  He has consistently argued that scarce resources should be priced to reflect their scarcity!  In this case, we are talking about parking prices. If drivers faced market prices for parking, there would be less road congestion and wasted time, cleaner air and more revenue for local government.   As local governments face budget deficits, they are waking up and learning that there past inefficiency has been costly.  Crisis creates incentives to be efficient and to listen to economists!  That's a theme of my Climatopolis.  As climate change makes resources such as water more scarce, even politicians will have an incentive to price them to reflect this rising scarcity and such price signals will help us to adapt.  All hail Shoup!  All hail the nerdy micro economist!

What is the Elasticity of Demand for Attending Elite Public Universities?

Elite public universities in England and California are about to run the same "natural" experiment.  As government subsidies for public education are phased out, tuition will rise.  What will happen next?  Will good students continue to attend?  Could these public universities become stronger because of this regime shift?

Here is the story about what is happening at British Universities.  Here  are the facts about "fee" dynamics at the Univ. of California. 

First some public finance.  Imagine a world where everyone is identical.  You are taxed some amount that is used for various government expenditures including its transfers to universities.  In this case, you will not care if Universities are financed by low tuition and high taxes targeted to be given to the Universities or by high tuition with no taxes targeted to the Universities.  Contrast this with the case where there are young and old people in the society.  The old people will tend to support high tuition and low taxes because they do not have university age children or young children who will soon be university age.  As the population ages, there are more old people who will vote this "self interested" way.

Now, let's add more diversity. Let there be a group of people (regardless of age) who believe that there children have a little chance of being accepted at these elite public universities.  Perhaps the elementary schools have done a bad job of teaching their kids and they have invested little in their children's human capital.  This group will be less likely to support the "low tuition, high taxes" policy.

So, there are several constituencies in favor of rocking the boat and getting the government out of the public higher education subsidy game.

As government retreats, will the public universities fall apart?  If these universities are not allowed to raise their tuitions then yes!  Money does not grow on trees.  If these universities are allowed to raise their fees, how high will they go?   Don't forget "opportunity cost".   A student who is accepted at UCLA and Stanford will compare the price of attending each.  For a student from an upper middle class family, she may be offered no financial aid from either school.  If Stanford charges $40,000 tuition and if UCLA is as good a school as Stanford then UCLA's current tuition of $10,000 is quite a bargain.   This simple example highlights how much room elite public universities have to raise their tuitions.  Demand is "inelastic" --- UCLA can raise tuition without sacrificing the quality of matriculating students.

Given the role that human capital plays in the modern economy and given our desire for status and cool car bumper stickers,  leading universities will attract students even with the economy suffering and even at high tuition rates. 

As UCLA raises tuition -- its total revenue will rise and the quality of the institution will rise as this money is used for better faculty, graduate students, and facilities.    Given that the university has diversity goals, it will be better able to achieve those goals if it maximizes its revenue. 

Universities such as UCLA will be less likely to sacrifice the quality of the student base (as tuition rises) if a global applicant pool is pursued.  There are plenty of qualified students from NYC and Asia who would love to study at UCLA.  I believe that they would add to the diversity of the student body.

So, what is my point?  There is always a silver lining to any shock --- and this phase out of public sector money will soon allow the elite public universities to reinvent themselves in ways that will benefit all who are fortunate to be students and workers at them.  In what sense will they still be "public" institutions?  That is to be seen.  UCLA is doing its job for California every time we educate another student, come up with another new research idea, and win another sports title.     

If you bemoan the state of U.S and British Universities, then please consider the alternatives. Here is an article on how Iran is spending its $250 billion.   I could build a pretty good university system with that amount of cash.

Friday, October 15, 2010

One Perk from Working at UCLA

The Lakers' General Manager Mitch Kupchak is a graduate of the Anderson School.  Today, he was back on campus to talk to the Anderson Alumni. I snuck in and listed to 1/2 of his talk.  He revealed that very few people actually work for the Lakers. It is a family firm.  He told another Anderson graduate to discourage his son from becoming an agent.  Not everyone ends up like the guy from Entourage or like Tom Cruise in that "show me the $" movie.   He talked a little bit about the bad blood between Kobe and Shaq just before Shaq was traded to the Miami Heat.  He also revealed that he thinks like an economist.  He argued that you win titles with older players but with success that players want a big payout.  He hinted that at the margin Shaq was asking for too much $ and he had to go.  People in the audience wanted to attribute the Lakers' success to Dr. Jerry Buss.  I wonder if the great quality of life in LA is such that flamboyant players such as Ron Artest and Lamaar Odom are willing to sacrifice $ to work in LA.  The only weakness in this argument is how to explain the last ten years of the New York Knicks playing so bad.  Maybe management matters? 

After Mitch Kupchak's talk, the next speaker was even more impressive.  Who was he?  He is one of my heroes;  Professor Ed Leamer. Ed is funnier than I am and he has published many more pieces in Econometrica than I have.  Ed told me the bad news that his leading indicator index predicts bad news for the macro economy and the California economy. I asked him whether he had any good news to report and he said "no". 

Reading the news today that Dr. Bernanke is looking for more magic bullets to "save" our economy did scare me.  Sell your homes and stocks people. My mother is stocking up on thousands of pairs of women's shoes and she prepares for the coming barter economy.  Maybe the United States will become China's Charter City!

Thursday, October 14, 2010

Adapting to Climate Change in Syria

Water is becoming more scarce in Syria and this is affecting agriculture productivity.  This raises several questions about how Syrians will adapt in the face of climate change.  For those who migrate away from farm lands, where do they go?  If they move to cities, are they finding jobs there?  To answer this question would require longitudinal data to study who migrate away from farms and what becomes of them.   If Syria no longer can grow its own food, how does this affect the prices and the quality of food that Syrians eat?  Can they rely on globalization and trade in agricultural products to protect them from the vagaries of climate shocks? Does their own nation impose tariffs and quotas that impede such gains to trade? Is their government smart enough to relax such agricultural trade barriers as domestic production is hampered by climate change or is the political economy such that the Syrian government raises tariffs and quotas because domestic farmers are suffering?

The New York Times article that I cite above sketches an interesting problem but provides no insights into the coping mechanisms that Syrians have available to them. It makes a nice point that a historical way of life may no longer be available; "that Syria may no longer be a "bread basket" for the region" but taking this reality as given, what happens next?  War? or free trade and urbanization?

To answer the question; "how costly is climate change for a specific farmer?"  --- we need to have some sense of what his set of feasible coping strategies are and how easily he can transition to a new occupation or location.  This requires household level data and further research.

How Will California Small Business Be Affected by AB32? New Evidence from the Brattle Group

Jurgen Weiss and Mark Sarro of the Brattle Group have just released New Research investigating how California's nascent efforts at reducing its greenhouse gas emissions (AB32) will affect small business.  They have produced an excellent case study.    For a single grocery store located in Chula Vista, they investigate how each of the following will affect this small firm.  They are optimistic that AB32 will not impose serious costs on such small firms.

The proposed policies for reaching the 2020 emissions target include:

• Renewable energy standards
• A requirement to lower global warming emissions from transportation fuels
• Stricter efficiency standards for buildings, appliances, and vehicles
• A carbon cap and pricing program that would limit emissions from the state’s largest global warming pollution sources

In the name of full disclosure,  I should state that I am a Senior Advisor at Brattle.

What I really like about the Weiss and Sarro study is how it is data driven.  They got down and dirty in collecting unique firm level data. Such microeconomic detail is what has been missing in the "macro" AB32 Economic Scoping plan documents produced by the CGE scholars.

To quote the authors;

"In making financial projections for Mercado, we used the business’s financial records from 2007 to 2010 and publicly available data on energy prices and other relevant factors. We assumed that Mercado would invest in three costeffective efficiency upgrades financed through zero-percentinterest loans or “on-bill financing” through the store’s electric utility (with no up-front cost to the owner). All these upgrades would pay for themselves in less than five years . The upgrades would cover:

• General lighting
• Cooler and freezer lighting, fans, and monitoring equipment
• Refrigeration (including three walk-in coolers, a walkin freezer, and three 40-foot glass-front display cases)"

I really like how the authors are delving into the nitty gritty of how real firms confronted with a new regulatory challenge will re-optimize and search for new strategies to adapt to the new rules. The net effect of this re-optimization and taking a hard look at the firm's business practices will be that the firm will face lower costs of compliance and in fact may discover some cost savings that they were not aware of. I admit that I'm weary of this Porter Hypothesis but this is an experiment that we need to run.

The California Air Resources Board should think about how to commission similar research such as this study for a wide range of California firms. A key point in my original critique of the AB32 Economic Scoping Plan was that it ignored heterogeneity and uncertainty.  California's firms differ along a number of dimensions. Even firms in the same industry differ with respect to their capital stock and the skills of their managers in being nimble and able to respond to new regulatory challenges.   AB32 does introduce uncertainty. How will managers of different firms respond?  This Brattle Case Study highlights how to do this research and we need to see more of it.

I support AB32.  This type of microeconometric research raises my confidence that while this regulation will not be a "free lunch" that California businesses will be able to thrive and continue to prosper as we decarbonize this state's economy.

Wednesday, October 13, 2010

The Game Plan for Keeping the University of California Great

Here  is the recently released master plan for keeping the University of California great.  The short version is posted here.

Permit me to offer my alternative plan for keeping the University of California great.

1.  Given that Stanford and Harvard are UCLA's peer group, we will charge a tuition that is 25% lower than their tuition.  From a student's perspective, UCLA will continue to be a bargain.

2. Out of state students will be 40% of the entering class each.   This will allow us to continue to attract excellent students and attract new blood to California. 

3.  Given that faculty are the intellectual center of research and teaching at the UC,  funds will be used to recruit and retain excellent faculty of all ranks.   The university will make a serious investment in offering more PHD student stipends to attract excellent students.

4.  The UC will recognize that Sacramento will no longer be an important source of revenue for the University.  The University will mimic private universities such as USC, Dartmouth and Princeton and begin a a major effort to connect with successful past graduates. 

5.  The University will commit to each Department to a five year planning horizon so that each Department knows exactly how many faculty slots it will be allowed to fill each year.  Smoothed Budgeting will be implemented to insure departments against wild "boom and bust" cycles that lower morale and lead to anger and frustration.  This consistent planning will send clear signals to risk averse faculty concerning the direction for their Department. 

A Fair Review of Climatopolis Courtesy of Canada

The Gallon Env Letter is the environmental summary for Canadian environment sector.  Here is their review  of my new book.  It is much fairer review than the crazy review that was written in the Toronto Star a week or two ago. 


Most books about climate change are generalizations, covering the causes and effects but not much about the adaptation that will be required. Climatopolis, by Matthew E. Kahn, professor at the UCLA Institute of the Env ironment, is one of the first of what GL hopes will be a genre of books about adaptation.

When we first picked up the book the title gave us the idea that it was likely yet another bunch of nonsense from the deniers. How wrong we were! This fairly small volume is based on the precept that global GHG emissions are not likely to decline anytime soon. As our world gets hotter, urban life will have to adapt to survive. Kahn is an optimist - he is confident that human ingenuity and adaptability can do what is necessary but he does not present it as easy. There will be winners, including such places as Salt Lake City and Moscow, and losers, such as New York City and Phoenix. He says that "the innovative capitalist culture will allow us to make a Houdini-style escape from climate change's most devastating impacts."

Kahn draws on history and on his education as an economist for seven lessons:

Destruction often triggers [an economic] boom. For example, Hiroshima and Nagasaki have experienced an amazing postwar comeback.

A Federal Government "Jump Start" Is Not a Free Lunch. High taxes to pay for recovery come with all sorts of problems.

Government Activism Can Put More People at Risk. For example, along the Mississippi River, government reconstruction programs have put replacement housing in many places that are certain to flood again.

What Doesn't Kill Us Makes Us Stronger. One architect has developed homes for use in flood prone areas that can float when the next flood comes.

Don't Forget the Little Guys. For a city to recover from a disaster, millions of people must collectively decide that, despite the tragedy, the opportunities and quality of life in that city are better than elsewhere.

We Are Not All in the Same Boat. If climate change is viewed as a poor person's problem, then it is unlikely to attract middle-class support.

People Migrate in Response to Shocks.

The book analyses public reaction to climate change in several important ways. For example, if people perceive that a city is not at risk from climate change then that city's landowners, politicians and incumbent industries will benefit. This provides a financial incentive for climate change denial within the community. However, external opinions can lead to a city being left behind and losing economic opportunities as a result. [Alberta?] Kahn argues in quite a compelling way that green leaders and green communities often provide a better social and economic environment than communities with tr aditional leadership.

To succeed in a climate challenged area, cities are going to have to adapt both their own actions and those of their citizens in significant ways. For example, climate change will force Californians to have a serious policy discussion about water. Distaste for the concept of water flowing from toilet to tap may have to be set aside to ensure adequate water to support the population. Communities that are at high risk of forest fire may have to pay the full cost of fire services as those in safer areas decide not to support fire service for those who locate homes and industries in high risk locations with greatly increased rates of fire. People will have to use public transit instead of personal automobiles because congestion, air pollution, and climate change will make the one-passenger car unacceptable to the community as a whole.

Kah n provides a solid description of the social, infrastructure and technology elements which he sees as necessary for the North American city in a climate challenged future. He suggests that we need not one strategy for winning this war but instead a billion mutinies against climate change. He concludes "In a world with billions of educated, ambitious individuals, the best adaptations and innovations will be pretty good". GL could not find too much to quibble with - even if you are involved already in development of green community policies and plans we are sure this book will provide you with more ideas and food for thought. We commend this well-referenced book to all who are interested in visioning the city of the future.

Kahn, Matthew E. Climatopolis: How our cities will thrive in the Hotter Future. New York, New York: Basic Books (Perseus Books Group), 2010.

Exceeding Expectations

This article about the Chilean miner rescue has a revealing quote.  "McAteer said he gave "very high marks" to the Chileans (government officials) for creating lowered expectations by saying that it might take until Christmas to rescue the men — and then consistently delivering results ahead of schedule."

Now keep in mind that  Davitt McAteer directed the U.S. Mine Safety and Health Administration during the Clinton administration. 

Mr. McAteer appears to believe in behavioral economics.  In his view, a good government official lies to the people to calm them down by providing misinformation and then once they expect nothing -- you surprise the people with an unexpectedly strong performance.

This raises at least two questions.  1.  What is the best behavioral econonomics work documenting this effect?  2.  Does our government actually follow this policy?  Are there any unintended consequences of following such a "let's lower expectations" strategy?

Monday, October 11, 2010

My Upcoming Public Speaking in Los Angeles

Is Los Angeles a nerdy town?  Somehow, it seems that Economics Profs rank below the Lakers and Hollywood types in terms of status in this town.  Over the next couple of weeks, I will have my "15 minutes" in several different settings.

AB32 Debate on October 21st

Zocalo/Luskin Center Event on October 26th

Sunday, October 10, 2010

What Does a $150 Million Dollar Home Look Like?

This expensive home in Little Holmby is on sale and it has 27 bathrooms.   Think of the possibilities!  You would be my neighbor (we live a 1/2 mile away) but the monthly mortgage payments would be pretty high.

At a 5% interest rate, if you put 10% down --- I'm calculating that you would have a monthly mortgage payment of $724,700.  That's pretty serious for most UC faculty. I can think of only a few of my colleagues who are paid enough to cover this. 

Internet Traffic Congestion

Can we build enough new roads to reduce traffic congestion?  The answer is no.  The same issue arise in the case of Internet capacity.  As usual, we look for engineering solutions rather than demand side management pricing efforts.  Time of day pricing could certainly help but I don't know how users would be charged.  It would also interest me to learn whether "traffic congestion" and "internet traffic congestion" are really the same thing?  What is the externality in each case depending on the physical realities that must playout to get from point A to point B on a road versus in a light beam.

Switching Subjects:

I was thrilled to read that the Chilean Miners may soon be rescued.  I have wondered if the expectation that they will be rescued and will be heroes and celebrities has affected their social interactions underground?  If I knew that a movie would be made based on my lecture tomorrow at UCLA, I would "play nice".   Maybe this is the right dynamic incentives for a subset of men who know each other. If they must be forced to be with each other for months in a very scary environment, maybe you do want both social incentives and future expected pay incentives (being a celebrity) to nudge you to be co-operative and sane.   If there is a villain in the set of miners, will he be shamed?

Switching Subjects Again:

I just had the opportunity to spend two days at BYU in Provo, Utah.  Their Department of Economics is strong and has an active research group. They do not have a graduate program but instead seek to produce at least 15 undergraduates to place in top PHD Econ programs each year.   What struck me over the course of my visit is the group loyalty.  Most of the faculty at BYU are graduates of that university.  Yes, they also share a common religion but I think that it really matters that they are all graduates of the institution.   When I was a student at the University of Chicago, many of the faculty had Chicago degrees and I think this had the same effect. In contrast, I have taught at several schools where the faculty do not hold degrees from their institution.  At these schools, there is an aspect of "free agency" --- The rational "free agent" builds up general human capital but not firm specific human capital.   I'm now starting to see that serious universities need both types of skills and that in this era of high faculty turnover that ambitious universities may end up with a lack of the 2nd type of "capital".

Friday, October 08, 2010

At Least 13,000 Have Watched This Video

My UCLA Colleagues keep telling me that they have seen me on University of California TV (UCTV) giving this speech  on my climate change research.  I had assumed that this channel is like Wayne's World but more than 13,000 have watched it.  It is 1 hour long.  Assuming that people value their time at at least $10 an hour, then I have generated some consumer benefits --- so I will keep talking. 

What do I talk about?  I crack some bad jokes, wave my arms around,  and I talk about this and this.  The video is rated G and there are no pictures of Paris Hilton or Lady Gaga but people still watch. 

Thursday, October 07, 2010

Dangerous Ideas and Public Policy Discourse

In my new book Climatopolis,  I take it as given that world greenhouse gas emissions will continue to rise.  While I would love to see a carbon tax or a credible cap and trade program be enacted at the global level, the free rider problem will not go away.  I hope that California's AB32 will live on and it will act as a demonstration effect showing that California can continue to thrive as it tries to cap its carbon emissions.  This guinea pig example will hopefully prod other progressive places to mimic California and this could help to attenuate the relationship between GHG emissions and economic growth.  But, this mitigation process will take time and overall GHG emissions will continue to rise.

Given that more people, earning more money facing no carbon incentive will continue to produce more GHG, what will happen to our cities and to the urbanites who live there?  Climatopolis explores the microeconomics of adaptation to climate change.  Many of the leading environmental economists use macro general equilibrium models to study climate change.  This is not my skill and I believe that these integrated models assume away many substitution margins that help us to adapt to climate change. While Climatopolis is written in a "fun, light" way --- it is meant to start a serious policy discussion and research ageneda.  Adaptation is part of the solution to the climate change problem. 

What are the policy implications of Climatopolis?  I would hope that it nudges a "swing voter" to support a slow steady ramp up in carbon prices. read this Stavins piece   .  The book highlights pathways through which we can protect oursevles but none of these are free.  They will involve costs and sacrifice.  The book posits that directed technological change will go along way to reduce the cost of reducing GHG emissions without sacrificing per-capita income or quality of life but these discoveries will take time and investment.

Activists have attacked the book (without reading it) because they recognize that even discussing optimism about our ability to adapt is a dangerous idea because it may lull the swing voter into thinking that we don't need to mitigate at all.  We do need to mitigate our carbon emissions but we need to have a rational discussion about the costs and benefits of doing so --- microeconomics is informative about what will happen to us under the "business as usual" scenario.    There are many unknowns --- how quickly will atmospheric CO2 increase? If it reaches 600 PPM, what impacts does this have on the climate?  My point in Climatopolis is --- regardless of which these scenarios play out, self interested households will make choices to protect themselves. Forward looking entrepreneurs will plan ahead anticipating new opportunities -- they will interact in free markets and their trading will lower the cost of climate change as they adapt.  By how much will they be able to protect themselves?  Now, that is a hard welfare question.  But, I actually believe a fair bit.   Activists want to argue that urbanites have no control over their destiny in the face of climate change. I don't believe that. The whole idea of cities is to insulate ourselves from anticipated and unanticipated shocks thrown by Mother Nature.  A diversified world food supply, food inventories, and nimble farmers will help to protect that sector from climate change.

I have blogged in other places that I am not "Jimmy the Greek".  I did not foresee the Moscow Heat Wave -- but the next heat wave there (I predict) will kill few as they will buy air conditioners and adapt.  We are constantly learning and re-optimizing.  

At the end of the day, my book is meant to start a dialogue on the role that human capital plays in offsetting shocks to natural capital.  Don't forget Robert Solow's piece on defining sustainability. On some level, I am raising a similar idea.   How we respond to risk and uncertainty is a fundamental question in micro economics, Climatopolis seeks to pose this same question in the context of cities where the risks are from climate change.

Here is another fair review.

"As the scientific consensus continues to grow about Earth’s dramatically rising temperatures, the media’s vision of global warming’s likely catastrophic effects on mankind has become increasingly gloomy. Kahn, a UCLA environmental economics professor, doesn’t question most climatologists’ dire predictions, but argues here that mankind is resilient enough to adapt and even thrive despite the coming geographic disruptions. Kahn’s main focus is on urban areas where he anticipates that forward-looking entrepreneurs will take advantage of crisis-driven opportunities to offer innovative goods and services. Kahn begins by looking at historical examples of cities that bounced back from war and natural disasters, and moves on to analyze “green” cities and water usage economics as a windup to forecasting how specific cities like L.A. and New York might adjust to scorching temperatures or flooding. Kahn makes several assumptions that will no doubt anger environmentalists, including the notion that globalization will compensate for widespread agricultural failures. Yet compared to the global warming worst-case scenarios offered by Hollywood, his optimistic emphasis on humanity’s ingenuity and adaptability is refreshing." --Carl Hays

Wednesday, October 06, 2010

Some Links

It is raining in Los Angeles. If I had known that it could rain, I would have kept living in Boston.  We do have a roof on our modest home and it appears to be working. 

The Smart Grid's Impact in Different Cities

Another Fair Climatopolis Review

Would the University of California mimic Sam Zell's employee handbook at the Tribune?

"One of their first priorities was rewriting the employee handbook. “Working at Tribune means accepting that you might hear a word that you, personally, might not use,” the new handbook warned. “You might experience an attitude you don’t share. You might hear a joke that you don’t consider funny. That is because a loose, fun, nonlinear atmosphere is important to the creative process.” It then added, “This should be understood, should not be a surprise and not considered harassment.” "  NY Times View of Sam Zell

So, could the University of California be an even greater research university if we embraced this concept of a "loose, fun, nonlinear atmosphere"?  Perhaps our wise leaders in Oakland should get rid of the hours of training on ethics and other subjects that UC employees are required to take each year.  Should Sam Zell meet with Mark Yudoff to discuss how we could merge our respective operations?

Monday, October 04, 2010

The Weakest Link: The O-Ring Meets the Red States

High Speed rail is an interesting network problem.  Any state along the route can make the entire network less attractive by not making the investments required to "keep the trains moving".  Certain Republican governors are threatening not to invest in Fast Trains.  Their ideology and commitment to smaller deficits means that their threats are credible.  So what happens next?  Will train boosters mail checks to these leaders to encourage them to avoid Amtrak speeds?  Is bad behavior always rewarded in our political system?   Now, this network isn't literally an O-ring.  In that case, you are only as strong as your weakest link but in a high value of time economy --- how will trains compete if they go 200 MPG for part of the ride and 70 MPG for the other part?  Average speed over the journey will determine the one way time and how the train will really compete with the incumbent planes. 

Perhaps geographers can create a new "straight line" across country through only Blue States showing how the fast train will proceed. If only liberals want to ride the fast train, then this ideological placement of the train may be efficient?

A Serious Man?

If you enjoy laughing at economists, then you should read My Profile here.  I am what I am.

Sunday, October 03, 2010

Casey Mulligan vs. Robert Reich on How to End this Recession

Maybe television is worth watching.  Check out this TV Clip  .

In a series of papers,  Mulligan has highlighted the importance of not forgetting the "supply side" when thinking about why employment and income is low right now.  The Keynesian focus on "aggregate demand" means that part of Marshall's framework (supply) gets too little time.

Both Berkeley and Chicago can learn from each other. Maybe the Schools should merge?

How Did Bono and Larry Summers Become Buddies?

Now that economists are celebrities, we need to know how the "Social Network" works as our web expands.   If you want to know, read this Source .  Sheryl Sandberg has powerful friends.  While the NY Times was unable to explain what she really does at Facebook, the article does offer a great quote:

"Mr. Summers became her thesis adviser and later hired her to work with him at the World Bank and at the Treasury Department. Although she was still in her 20s, she played pivotal roles, like helping ramp up aid efforts to Africa by opening Treasury’s door to Bono of U2.

“I had never heard of him and said to Sheryl that I only meet with people who have a first name and last name,” Mr. Summers recalls. At Ms. Sandberg’s urging, he finally agreed. Debt relief in Africa “wouldn’t have happened if she hadn’t insisted I meet Bono and persevered on this issue,” says Mr. Summers. "

I'm hoping that Facebook will allow me to talk to Soundgarden and the White Stripes.  There must be some mutally beneficial synergies that we could figure out or at least I could get some autographs. 

Saturday, October 02, 2010

2010's Ten Distinguished Alumni of Scarsdale High School

This is a honor that I didn't expect.  Here is this  year's set of "distinguished" graduates of Scarsdale High.

Dan Biederman

Howard Bloch

Elissa Brown

Steve Durst

Henry Fountain

Matthew Kahn

James Reiffel

Alan Schwarz

Tim Seymour

Andrew Ross Sorkin

Of this list, I only know Tim Seymour. He was the goalie on my soccer team and I was the center fullback.  We were a good team but I haven't seen Tim in 25 years.  I have heard of Mr. Ross-Sorkin --- I skim his NY Times piece in the business section as I seek out the sports news.    I'm not sure how this list was generated but it is clear to me that the other 9 on this list are quite accomplished --- so I'm proud to be here!

The Income Elasticity of Demand for a High Quality Toliet

Engel curves interest economists.  As we become richer, how much does our probability of buying a car increase by? That's an example of an Engel curve.  Today, the deep question is the relationship between income and the quality of a toliet in your home.  This LA Times Article provides details for China. As China's cities grow richer, household bathrooms are undergoing  a radical improvement.

This article hints that they are a status symbol.  Maybe it is a way to make new friends as they drop by your place to use your toliet?  When I visited Beijing in September 2009,  I thought that the toliets were great.  At Tsinghua University's Real Estate Department, the bathroom had the title "Man Room" -- I liked that. It was manly in there and clean.    There was a guard stationed outside of it. I didn't know what he was doing there but we got on just fine. 

This article speaks to the larger question of how do we "measure progress"?  China's transport infrastucture (roads, subway system),  building infrastructure (housing towers) are all undergoing massive investment.  Beijing's infrastructure looks better than New York City's old infrastructure.  Critics will correctly point out that China's cities are dirtier than U.S cities. But, I predict this is not an equilibrium. Rising income will create a middle class who want their "human capital and health capital" to remain high and they know that pollution causes trouble, this group will push their strong authorities to tackle the pollution problem and just as the "J" curve predicts --- we will see air pollution falling in China's growing cities.  Now, this doesn't mean that greenhouse gas emissions will fall. I'm talking about smog and local pollutants. 

Why am I so confident?  Because, I have read the two papers I have written on this subject;



Friday, October 01, 2010

Green Cities Revisited

This CNBC Magazine Story on Green Cities is fun stuff.  For a microeconomic perspective on the causes and consequences of "Green Cities" --- I'd suggest reading this Green Cities (Brookings 2006)

The Financial Times Review of Climatopolis

This Financial Times Review   is perfectly fair.  Yes, I do believe that climate change will accelerate certain directed technological change.  

As people begin "to see" climate change over the next 30 years, even political moderates will become more supportive of carbon mitigation policies.  This shift in the median voter's priorities will send clear signals to venture capitalists to invest in technologies that decouple energy consumption from greenhouse gas production.

On the adaptation side, climate change will accelerate technological advance for engineering breakthroughs and products that allow urbanites to remain comfortable and productive and safe in our riskier world.

This doesn't mean that "climate change is good for technological progress". If our nerds are focused on helping us to adapt to climate change, then this displaces their efforts from other problems they could be working on (perhaps human cloning?).    It does mean that technological advance focuses on issues where there can be significant profits earned and collective concern with adapting to climate change will create a large market.  Note the role of expectations here.  The expectation that there will be a world market for products that help us to adapt create increases incentives for entrepreneurs to design those products today.  Expectations affect investment patterns and investment patterns affect the probability of a breakthrough.  Once we have a breakthrough, it can diffuse widely and reduce the costs of adaptation.