Yale University's Law School produces stars.  Due to the diversity of the Yale Law School faculty, and the fact that students are randomly assigned to first year classes,  researchers have the opportunity to tease out whether taking Law classes with friends of Adam Smith shapes law students.   While Yale is known to be a liberal law school, there are some faculty sketching the benefits of pursuing "efficiency".  According to this paper,  students who were randomly assigned to the "neo-classical economics" sections for courses such as torts and contracts reveal themselves to be more likely (on average) to act like economic man.  If you look at the tables in back, you will see that the "Tiger Mom" is one of the instructors.  She is coded up as "neutral".  Future research should study whether attending her class has a causal effect in shaping students.

This research interests for 2 reasons.  First, it is funny.   Second, as a free market environmentalist --- I'm quite interested in how we set up institutions and incentives to encourage "green growth".   Why are people in Berkeley such liberal/greens?  Is it selection (i.e hippies choosing to live with each other) or is it treatment (i.e if Rick Perry were forced to move to Berkeley he would assimilate and start eating tofu and would eventually like it).   During this ideological age, where does our ideology come from? (our parents?) and how does it evolve over time?  

Somehow, liberal Democrats have triggered a perverse reaction by Republicans.  There is no reason that Republicans must now have a litmus test that all "green action" is communism and over-reach by the state but many in this group have adopted this view because liberal/greens have been so sanctimonious about environmental issues.  The enemy of my enemy is my friend?  

If we understood more about ideological dynamics (at the individual level), then social science would make progress in predicting and explaining voting behavior and in anticipating the political economy of what public policies could actually be supported by a majority.

The NY Times recently reviewed two books that go on at length that the U.S Southwest is an unsustainable hellhole that will soon suffer greatly because of climate change and drought.  What is striking about the article is that it never mentions the price of water in Phoenix, Las Vegas or other Southwest cities.  The Econ 101 solution to this real challenge is ignored.  

Here is a quote from the review about one of the books;

In this morning's SF Chronicle, Scott Ostler writes about Stanford QB Andrew Luck's choice to take easy classes this semester as he focused on his Saturday games and his chance to win the Heisman Trophy.  Here is the quote that caught my eye.

"Luck needs two more classes to graduate. He will skip the upcoming winter quarter to prep for an NFL career, then come back in the spring to pick up the classes.


So, Dr. Ostler --- you dare to mock "urban sustainability"?   Allow me to offer you a short course on this subject.

Macro economists do not have a monopoly on term "crowding out".  The NY Times uses it today in an article about the night use of Central Park.  As crime has fallen in the Big Apple and people are feeling safer, they are dropping their guard and taking more risks by walking in the park at night.  So, the cops, abortion, and anti-lead reduce the crime and this "public investment" in safe streets displaces "private self protection" as people unlock their front door and go for a walk at night.

Leah Boustan, Paul Rhode and I will present a new paper at the AEA meetings next week that will make a similar point.  We study U.S migration patterns in the 1920s and 1930s as a function of several variables including local natural disaster shocks.  Our current results suggest a similar "crowding out" hypothesis. Back int the 1920s before the New Deal and large place based federal transfers, young men were less likely to move to areas that had experienced natural disasters.  While in the 1930s and more recently, it appears that migrants are actually attracted to disaster areas as these areas are rebuilding and attracting Keynesian rebuilding funds.  Robert Barro would appreciate this result, do you?

If you like some math in your life, I suggest that you read this paper by Kousky, Luttmer and the Zech.  For lazy people, here is the abstract to their paper

"Hurricane Katrina did massive damage because New Orleans and the Gulf Coast were not appropriately protected. Wherever natural disasters threaten, the government—in its traditional role as public goods provider—must decide what level of protection to provide to an area. It does so by purchasing protective capital, such as levees for a low-lying city. (“Protection” also consists of prohibiting projects that raise risk levels, such as draining swamps.) We show that if private capital is more likely to locate in better-protected areas, as would be expected, then the marginal social value of protection will increase with the level of protection provided. That is, the benefit function is convex, contrary to the normal assumption of concavity. When the government protects and the private sector invests, there may be multiple Nash equilibria due to the ill-behaved nature of the benefit function. Policy makers must compare them, rather than merely follow local optimality conditions, to find the equilibrium offering the highest social welfare. There is usually considerable uncertainty about the amount of private investment that will accompany any level of protection, further complicating the government’s choice problem. We show that when deciding on the level of protection to provide now, the government must take account of the option value of increasing the level of protection in the future. We briefly examine but dismiss the value of rules of thumb, such as building for 1000-year floods or other rules that ignore benefits and costs." 

Washington DC will soon make a major investment in cleaning up its rivers.  The details are provided here.  Such infrastructure investment takes serious $.   As more cities, ranging from Chicago to NYC to Boston to London to Seoul, have discovered that beauty is one of their main "golden geese" for attracting tourists and keeping the skilled amenity seekers happy, they have strong incentives to invest in "greenness".  This isn't hippie stuff but merely good business.  

UC Berkeley's Dan Kammen has a strong editorial in the SF Chronicle focused on solar investments.  He points out that solar installation creates five times more jobs than the investment of a similar capacity natural gas plant. I didn't know that.  He also returns to one of my favorite themes.

As China grows richer, electricity demand will rise.  Given that China's urbanites are buying cars and that China is a net importer of oil, it appears to be a reasonable home market strategy for China's powerful state to nudge forward the production of electric cars.  As this article discusses,  the grid operators in China anticipate that the rise of the electric car will further increase the demand for their services.

From an environmentalist's standpoint, they must "pick their poison".   From a carbon mitigation perspective, do they prefer Chinese cars to run on oil (and hence bid up the price of world oil and this may trigger innovation for more fuel efficient vehicles) or for Chinese cars to run on electricity generated by dirty coal fired power plants? Of course, the greens will prefer that the cars run on electricity created by renewables but we haven't reached that point on the cost curves yet.

With several co-authors, I recently published a paper on Chinese urbanite resource consumption using their 2006 National Survey.  For a copy of the paper, click here.  This paper was published in the Journal of Economic Geography in 2011.

You know that you are growing older when the obituary section is your favorite part of the newspaper.   Say what you want about the NY Times but it has a very solid obituary section.  When I was a 5th grader, we took a class trip to the NY Times and I was shocked that they already had written 80% of many leading living people's obituaries. I recall that they showed us the lead in for some baseball player who I admired.

Why do I tell you this?  Well, this obituary impressed me.     Mr. Farrell must have been a modest man. He knew that "he didn't know" what people wanted by the way of endings to Hollywood movies.  So, rather than taking a gamble and allowing the artists who made the movie to choose their ending; he polled actual movie viewers to see whether they liked an ending and if the focus groups said "no" -- he nudged the movie makers to adjust the movie. In the case of Fatal Attraction, this worked perfectly (in terms of making $).  While I had never heard of Mr. Farrell, he embodied a key element that we all need --- humbleness.  I am only pessimistic about those people who think they know but truly don't.   Those who don't know that they "don't know" will have much more trouble adapting in the face of change.

I can also report that Berkeley in late December is a delightful place to be. No rain this winter, and daily high temperature of around 65.  My basketball game is pretty good these days and my son is hitting jump shots from between the free throw line and the top of the key.  For a 10 year old kid, that isn't bad!  He is now wearing a shark tooth necklace and appears to be pretty cool.  He also now has a pair of sunglasses that allow him to make movies as he looks at you (there is a video camera in the sun glasses).  We are stimulating the economy.

I am trying to write something for the Journal of Economic Literature but I'm tired of talking about other people's work.  I am being nice and only saying nice things about everyone.  I'm trying to set an example for the rest of the profession.

I am making plans to visit Fudan University in Shanghai this summer.  To prepare for this trip, I enlisted Google to teach me a bit about its economics department.  Since I can't read Chinese, I have to rely on English translations and I found one here.  Permit me to quote the first 2 paragraphs and please read the 2nd paragraph which Dora and I both think is very funny.

This book chapter taught me several facts.  Based on its Table 2.1, 3.9% of workers worked for government in 1900 and this percent grew to 6.7% in 1935, 15.1% in 1970 and shrunk to 14.1% by 1984.  The military is not included in these percentages.  Here is the break out of employment in 2010 by sector for state employees.  If I'm reading this BLS table correctly, roughly 17% of national employees work for government in the year 2010.   As government seeks to reduce its deficit, how many government jobs will be shed?

As federal, state and local government reduces its employment, who will bear the incidence of these declines?  Are center city residents more likely to work for government and local hospitals than suburban residents.  Are minorities more likely to hold these jobs?   This issue matters for public policy because cities such as Detroit face tough choices over how to reduce their deficits.  Mayor Bing is likely to turn to President Obama and HUD for some financing.  Will Republicans push back and say that local deficit reduction must be financed with reduced expenditure rather than increased Federal transfers?   Economists have examined public employment as a form of local redistribution. Here is a well known paper.  During this time of "Occupy Wall Street", I believe that this issue will arise again.

If center cities respond by raising their taxes, will we observe a new "Laffer Curve" as this will create tax flight as mobile skilled people and firms will suburbanize even faster?

2012 will be an election year and in the Summer of 2012 there will be an intense focus on London and its Olympics and whether the Miami Heat will win a NBA title. Putting these issues to the side, I predict that in 2012 that there will start to be a serious discussion about climate change adaptation.  Articles such as this one by CNN will mushroom.  Where economists can inform this debate will be discussing whether free market capitalism will lead the charge in protecting us (both urbanites and farmers) from the expected and unexpected shocks caused by climate change.  To return to a key theme in economics, is the private sector and government intervention complements or substitutes in reducing our risk exposure?

In my Climatopolis book,  I argue that because information is a public good that government should specialize in funding new climate science work and then sharing this information using GIS maps and reports so that nobody can claim that they are unaware of the new risks they will face.  But, the free market plays a key role here. One person's misery is another person's opportunity.  As people become aware of the new risks they will face, some firms will step up and supply products and solutions to help people cope.  This is the evolutionary feature of capitalism.  After all, we only needed one Mark Zuckerberg to have Facebook.  We need a few entrepreneurs to step up a long a number of fronts such as;  air conditioning efficiency, renewable power generation, water desalination,  building design that minimizes risk of extreme heat and flooding.  We need new agricultural crops that are more resistant to drought and extreme climate conditions.  Are you betting against human ingenuity?  I don't.  We have enough lead time here and there is enough profit to be earned by stepping up and addressing these issues that I'm quite optimistic that we will adapt to our hotter future.

I would love to see us reduce our GHG emissions now but when I travel in China --- I see a lot of gas.  It is time to start thinking hard about adaptation.