Today's Business Section of the NY Times had some wild stuff.  There was a large advertisement from the Stanford University Medical School announcing its new search for a Dean of the Medical School. Now, the interesting part was to announce this in the Business Section!  Maybe medicine and capitalism are connected?  There was also an article about Tom Sargent as he explained that he is both liberal and conservative but he doesn't like simple labels and slogans.

Finally, on the back cover of the Business Section was another Ad. The Ohio State University was announcing that it has borrowed a 1/2 $ billion dollars by issuing 100 year bonds to help it remain a great university.  As I read this, I asked myself; "Why isn't UCLA doing this?".  There are many great projects that we could invest in now (no, the New Hotel is not one of them) if we had the $.  If we could borrow and pay interest for 100 years and then pay back the balance, we could do great things with such $. Ohio State will pay 4.8% on its bonds. I believe that serious investments in UCLA will generate a greater than 4.8% percent annual return.

Now, I'm not a lawyer but I believe that the University of California can already issue bonds.  I propose that UCLA should be allowed to set its own tuition and that it be allowed to issue debt if it wants to.

Who would buy this debt?  UCLA has over 300,000 graduates. Many of them have never given a penny to the University and many paid very low tuition to attend.  Many of these graduates are successful and are looking for risk adjusted investments that pay a high rate of return.  The UCLA bonds would offer a safe investment that would offer a loyalty payout.  By buying our bonds, our graduates would be showing their support for UCLA moving forward.  Casey Mulligan has documented a similar loyalty effect during World War II when people were willing to hold U.S bonds at a low interest rate. Such UCLA patriotism would mean that we could borrow at an even lower interest rate.

Research by David Cutler and Grant Miller found that when U.S cities were able to issue debt to finance new infrastructure investments in the early 20th century that death from waterborne diseases fell sharply. I predict that UCLA will achieve similar greatness if it can invest now using your savings!

Google just directed someone to my blog who searched for "who is more likely to have a sex change a liberal or conservative" .    How is that for value added?

This article  sketches an interesting election decision this Tuesday.  Will the greens from Boulder, Colorado continue to buy their power from the "big bad" Xcel private electric utility or will they switch to a municipal provider?

The article provides some additional support for my old finding that greens do "walk the walk".


"Because of the intense environmental ethos here, for example, Xcel customers in Boulder have been disproportionate enrollees in the company’s existing solar energy and conservation programs. The city’s 48,000 Xcel customers account for only 3.4 percent of the statewide ratepayer base, but 15 percent of the solar participants."  That sounds like my Prius findings in Berkeley.

The funny thing is that Colorado has a differential RPS standard for private utilities versus municipal utilities. The privates face a more stringent RPS than the municipal utilities (this must be due to soaking the private firm's share holders rather than the municipal within state rate payers) so the greens may actually increase their state's carbon factor if they vote out the "capitalist pigs" on Tuesday.

If the wind blows at night but nobody is consuming electricity then, what is the value of wind farms?  Batteries are the answer.  Such batteries create a storage technology that breaks the link between when power is produced and when it is consumed.  this article highlights the point that the price of electricity varies sharply during a day.  A wise arbitrage move is to "produce low" and "sell high".  While batteries are expensive, their price is likely to fall with experience and scale of production.    Increased wind farm installation will increase the demand for batteries, this will help the electric vehicle industry as improvements in battery technology take place to serve wind farms. In this sense, these different "green technology industries are all interconnected.

This article claims that Prof. Kevin Murphy is a key "player" as he works with the NBA union in forming their bargaining strategy with the owners.  Will his economic analysis lead to a new JPE paper? Or to a full 82 game season? or both?

The Economics of new goods literature has tried to estimate how much our well being is improved by when for profit companies design and sell new cereals or new mini-vans or new drugs.  An analogous question can be asked about "new regulations".  Whether it is Bernanke's QE2 or California's anti-carbon AB32, how much will  these new regulations improve our quality of life?  As you can imagine, this is a tough question.

A new study by the California Little Hoover commission tries to tackle this broad issue of how economic analysis should be incorporated into such prospective decision making.   A group of CGE modelers have earned good consulting gigs supplying such estimates but I have questioned their work's plausibility.  When you know that you do not know what will be the consequences of a new policy but your hunch is that it will work, how do you design it so that as you learn you can incorporate the new lessons into refining the regulation to make sure that it is cost effective and avoids unintended consequences.  Regulator learning and experimentation is an under-researched topic.

 Here I report the parts of the study's EXECUTIVE SUMMARY.  Take a look at page 25 of the study to see the discussion of my work with J.R DeShazo.


"California’s regulatory agencies are known nationwide as  trailblazers that set benchmarks that the nation as a whole often  follows.  Over the years, such regulations have produced huge  benefits for Californians in consumer safety, food security, worker protection, energy efficiency and air and water quality.
The state’s large population and its dynamic and complex economy  require a sophisticated, coordinated and thoughtful approach to  developing the regulations our society needs to ensure fairness and
protect California’s quality of life.

It is unfortunate on several levels then, that California’s approach to  developing regulations is uneven, lacks coordination and, despite an  independent agency to enforce the Administrative Procedure Act, lacks
the kind of thorough oversight that ensures efficiency and accountability.   The way California state departments develop regulations varies widely,  particularly in their use of economic analysis to determine what burden a  proposed regulation will have on a person or business affected by it.  California has been reluctant to adopt and use analytical tools employed  in other states and at the federal level.  This has produced a regulatory  approach that can focus intensely on solving problems in a single arena
without taking into consideration the broader context or consequences of  the solution it imposes or developing regulations that maximize benefits  in a systematic way.  In the course of the Commission’s study, it saw examples of where these  shortcomings either resulted in failed rulemaking efforts, the potential
imposition of costly conditions that could force painful tradeoffs, or  regulations undermined by an economic analysis that did not account for  real-time changes in the economy.  

An oversight system put in place to ensure that agencies weighed
alternatives to solving a problem and used an economic impact
assessment to choose the least burdensome solution simply does not
work.  The department checks a box on a form.  The box is examined to
see that it is checked.  But no one checks to see if the department did its
homework in assessing the impact or choosing the least burdensome
alternative.

These shortcomings have costs to the state, in time and money, as well
as in the state’s reputation for fairness and the legitimacy of the
regulatory process.  These shortcomings also have costs to the state’s
economy.


One area critical to this goal is greater use of economic analysis in the
development of regulations – already required by the state’s
Administrative Procedure Act – and greater oversight of the process to
ensure adequate assessments and consistency across agencies.  Though
economic analysis should not be the determining factor in developing
regulations, the work of building the analysis should force state agencies
to engage with all interested parties early in the rulemaking process,
develop and assess alternatives, and create a richer body of information
to put before the board members and department directors who
ultimately make the decision.  Such analysis also can articulate and
measure the benefits of a proposed regulation, providing greater context
for the public as well as decision makers.

In recommending greater use of economic analysis, the Commission
encourages a focus on prioritizing alternatives by their cost-effectiveness.
This would tend to result in the selection of the alternative that best
provides the benefit intended in the legislation but is least burdensome
to regulated stakeholders and to the people of California.  The emphasis
on cost-effectiveness assessments is not to short shrift discussion, or
assessment, of benefits.  In most cases, however, the benefit, often with
specific targets, is laid out in the legislation that the proposed
regulations are to implement.  All regulations should be required to show
how a preferred approach would produce the desired benefits.  

Non-regulated stakeholders, particularly environmental groups and labor
advocates, have expressed concern about the potential abuse of
economic analysis to undermine the goals of regulation, and its ability to
create “analysis paralysis.”  In interviews and during a Commission
advisory committee meeting, they reserved a specific wariness for costbenefit analysis, which they said  can understate the value of such
benefits as clean water and air and human health, while allowing
industry to overstate its costs.
The Commission recognizes that some parties within an industry have an
incentive to game the process by withholding information or inflating
estimates of the cost of compliance.  It recognizes, too, the view that not
all benefits, or costs, can be assigned an accurate dollar value and neatly
fit into a cost-benefit model.  It recommends the state focus more on
cost-effectiveness assessments of alternatives that meet the goals of the
legislation the regulation is trying to implement.  A formal cost-benefit
analysis is time-consuming and expensive and should be reserved for
special cases or where required by legislation.  For regulatory packages
that have a significant impact on the economy, the state should have its
economic impact assessments peer-reviewed by a panel of anonymous
outside experts.  

The Commission recommends that the state start the process of
strengthening its rulemaking process by establishing a small Office of
Economic and Regulatory Analysis, that would reestablish the regulatory
analysis function which once existed in the now-defunct Trade and
Commerce Agency.   The primary duty of this small group would be the
review of economic impact assessments for proposed regulations.  This
function could be assigned to the Department of Finance, which already
has the task of assessing the fiscal impact of new regulations, or to the
Office of the Governor or the Bureau of State Audits, which would
provide independence from the executive branch entities overseen.  In reestablishing this function, the state can learn from the example of the
U.S. Office of Information and Regulatory Affairs, which is located in the
White House’s Office of Management and Budget.  The small cost
associated with re-establishing this function would be more than offset
by reducing the costs of failed regulatory processes, by reducing lengthy
challenges on methodology and the potential to improve confidence in the
rulemaking process.

One of the first tasks of California’s Office of Economic and Regulatory
Analysis would be to set guidelines for economic impact assessments
that would be used across departments to ensure consistency and
fairness.  The guidelines should be designed to accommodate a range of
scales for regulatory involvement, with the most rigorous reserved for the
most significant proposed regulations.  The state should recruit an
advisory body of economists and experts from other disciplines with
regulatory experience to help draft the guidelines.  The guidelines should
build on, but not be restricted by, work already done in California by the
California Energy Commission and the California Air Resources Board,
as well as the U.S. Office of Management and Budget’s Circular A-4.
Separate from the Form 399 filing
process, staff performing the
regulatory review function should
have the authority to check in with
departments as they are drafting
regulations to ensure that the
agencies are following the
appropriate guidelines for the level of
economic impact analysis required,
and that they are making every effort
to engage with all interested parties
inside and out of government before
the rules are put out for public
comment. As part of the review
function, this staff should determine
what level of economic impact
assessment is needed on the front
end.  When the economic impact
assessment is complete, as part of
the Form 399 process, the regulatory
review staff should make a
determination whether the
assessment is adequate.
The Office of Administrative Law,
which ensures that agencies follow
the Administrative Procedure Act
through the rulemaking process,
should be required to send back final
versions of proposed
recommendations that have not done
the necessary economic impact
assessment as determined by the
Office of Economic and Regulatory
Analysis.


A cost-effectiveness test approach to evaluating alternatives should be
emphasized especially where the desired social benefit and targeted goal
is spelled out in statute.  The guidelines also should include proper
methodologies for a more formal cost-benefit analysis in the event such
an analysis is required by legislation.


To the extent regulatory reform can build confidence and enhance
communication, transparency and  accountability, such reform can
improve the foundation for economic growth and bolster the legitimacy of
the state’s regulatory structure, protecting public health, consumers,
workers and the environment.  Done well, regulatory review should result
in fewer failed rulemaking processes, saving state agencies and
stakeholders alike time and money as departments implement the goals
of the Legislature.

The Commission’s goal is not to create less or more regulation, but
rather better regulation – rules developed through a transparent and
interactive process that meet the statutory purpose and that place the
least burden necessary on Californians and the California economy.

Recommendation 1: The state should require  departments promulgating regulations or
rules that impose costs on individuals, businesses or government entities to perform an
economic assessment that takes into account costs that will be incurred and benefits that
will result.
‰ The economic assessment must be completed well before the
proposed regulation is released for public comment.  
‰ Departments must demonstrate  how the proposed regulatory
action will meet the statutory purpose of the regulation.
‰ Departments promulgating the regulation should be required to
reach out to regulated and interested parties in the development
of the economic assessment prior to the regulation’s release for
public comment.
‰

Recommendation 2: The state should require departments proposing a major regulation
to perform a high-quality, rigorous economic analysis.

‰ A major regulation is a regulation that would impose an annual
cost of $25 million or more.  
‰ At the minimum, the economic analysis should be a costeffectiveness assessment of alternatives that meet the statutory
purpose of the regulation to determine the lowest cost alternative
to meeting this goal, prior to the release of the regulation for
public comment (possibly the alternative that maximizes net
social benefits).
‰ Proposed regulations that impose a substantially higher burden
on  an  affected  industry  or  industries, or have the potential to
materially reshape the state’s economy, should be subject to a
cost-benefit analysis that includes an assessment of costs as well
as social benefits.

‰ The department promulgating a  major regulation should be
required to make a substantial effort to engage all regulated and
interested parties in the development of alternatives that would
satisfy the statutory purpose of the proposed major regulation
prior to its release for public comment.  This should not prevent
the department from developing additional alternatives, or
refining its economic analysis, on the basis of information
provided through the public comment process.

‰ The state should require a department that is promulgating a
major regulation to demonstrate that its preferred alternative is
the most cost-effective approach to meeting the major regulation’s
statutory purpose or explain why another alternative was chosen,
or, in the case of a more substantial regulation that calls for a
cost-benefit analysis, demonstrate that the chosen regulatory
approach maximizes net social benefits.
‰ The department must respond to comments about its analysis of
the alternatives, including the selected alternative, made during
the public comment period.

People are well aware of the Thailand floods.  The WSJ is reporting  that a consequence of such floods is that global supply chains are being disrupted.  For profit firms have strong incentives to sign contracts with intermediate input suppliers who are not risky in terms of delivering promised products.   Why does this matter?  Suppose that you are a political leader of Thailand and you gain if your nation's firms sign more international agreements to participate in global supply chains. If you know that damage from natural disasters endangers these contracts (as Multinational Western corporations seek out safer locations to purchase inputs from), then you have strong incentives to adapt to natural disasters.   This is the logic of Climatopolis!  Self interest, not green ideology, guides the urge to adapt.  I predict that Thailand's firms and governments will make a series of self protective investments to reduce flood risk exposure.  What will be the net effect of these investments? How much flood risk can be offset?  We will see.

Both the National  Science Foundation and the National Institute of Health must be deeply concerned about cuts to their future budgets.  If the NSF and NIH experience a 15% annual cut, what research won't be funded? Universities such as UCLA count on the overhead $ (roughly 50% of the size of the grant) as revenue for the school.  The researchers applying for this $ use it to pay for equipment and to hire research assistants and Post-Docs. If this $ is cut sharply, then unemployment for nerds will rise.  Will the private sector fill this gap?  Yes and no.  While there is certainly private capital out there, these firms are not altruists seeking increases in basic knowledge.  These for profit firms will require the nerds they invest in to give them the intellectual output they generate.  There will be less "open source" knowledge under this model.

In today's Harvard Crimson, there is an article  that discusses the fact  that the Department of Defense gives Harvard's Physics dept a lot of research $.  If DARPA is pruned back then, this Harvard Dept's revenue will decline.

Many universities appear to be betting that Federal grant dollars will keep growing but what if this assumption is wrong?  What if the only folks with cash to hand over to Universities are upper-middle class parents who want a good education for their kids and companies who want to maximize profits?   How will research universities reconfigure themselves if this is the "new reality"?

The editorial writers at the Harvard Crimson offer some thoughts about how to improve the educational experience there.  Their piece raises some mildly interesting issues.  What would motivate the lazy faculty at leading schools to try harder in the classroom?   As UCLA raises its tuition, we need to raise the quality of our undergraduate educational experience.

Here I offer my magic recipe for cooking some fresh high quality teaching.

First, there is selection.  University faculty have to become younger.  Mandatory retirement at age 70 would improve teaching on average.  Excellent teachers over the age of 70 could be recalled.   I am 45 and I plan to retire at age 62.  At that point, I plan to visit a different university each year and let the market decide where I will go next.

Second, Universities need better graduate students who are motivated to do a good job as Teaching Assistants. This takes $.   I would love to see UCLA engage in major fund raising targeted to providing better deals for Ph.D. students.    This is a case where I believe in efficiency wages.     Teachers have lots of discretion.  A well paid teacher is a happy teacher who will not cut corners and go the extra mile for the students.   As my father says; "Cheap is expensive".  More $ for Ph.Ds would increase the # of Americans entering such programs and language skills matter in undergraduate teaching.

Third,  Deans should figure out how to have professors co-teach a course where they actually show up for the other's lectures.   When my colleagues are in the room for my undergrad talks, I raise my game. I want to show my colleagues how I play the game (and they are impressed).

Fourth;   Undergraduates could be given a research pot of $ which they will paid if they sign a research contract with a professor.   Professors who need research assistants would then have an incentive to compete for these students and would respond by giving more interesting lectures to attract students to want to work with them.  So, such research grants could be given to students with a GPA greater than 3.7 and faculty would compete for this subsidized smart labor.  More generally, encouraging undergraduate researchers with Profs would improve the undergrad experience.

Fifth;  Professors who stink in the classroom should be identified and punished.  There are lots of crappy jobs that have to be done in Departments.  Give these assignments to the profs who stink in the classrooms .   I recall that when I was a student at Chicago, there was one prof who had only 1 student registered for his class. He was rewarded for doing a bad job by having no work to do.  Bad incentives!  To pull this off requires a Chairman of the Department who is tough enough to deal out punishment.   Most profs play nice but this holds back the university.   Departments need enforcers.  Charles Oakley should make a comeback.

Six:  The University's Deans, Provost and President should all have to teach a course every 2 years so they don't forget the reason they entered academia in the first place.

Seven;  Teaching evaluations?  I don't think that these are the answer.  I'm not convinced that profs read them.  At UCLA Econ, each faculty member receives his own ranking and how he compares to every other Prof in the department.  The sheet is reported sorted by "overall score".  Does any department engage in "shame and ostracism" in which the faculty member with the lowest scores is mocked?  I don't think so.  Each individual faculty member must judge him/herself .    At UCLA, we have a step promotion system and teaching is one of the categories that is part of the evaluation for step promotion.   I'm not convinced that this incentive system yields more faculty effort.

Eight:  The Deans could figure out how to have faculty "teach" outside of standard classes.  At UCLA, other faculty are always asking me to give guest lectures.  The great Deans of UCLA should have a pot of $ and offer a payment to faculty who give a big lecture for the whole community.  If 500 people show up to hear Math Genius Terrence Tao talk about math then he has contributed to the teaching experience at UCLA and he should be rewarded.

Nine:  The Deans need to promote Loyalty to the University.  Faculty have discretion and private information about their classroom effort.  How do universities minimize shirking?  When I was a Visiting Prof at Harvard btwn 1996 and 1998, I noticed how many faculty were graduates of Harvard and had children who were attending Harvard.  These folks expected to spend their whole careers at Harvard and they were loyal to Harvard and sacrificed for the common good.   When a person does a "good deed" without explicit cash compensation, are they a hero or a sucker?

Ten:  Smaller classes for upper-division electives.  Faculty have to get to know students.  In smaller classes, students will talk more.  Students are not eloquent public speakers. They don't receive enough practice but speaking is more important than writing essays in the real world.

Teaching and research go hand in hand.  For U.S universities to stay several steps ahead of China's and India's universities, we will need to continue to innovate.  A tenured, comfortable faculty need to be confronted with carrots and sticks!

Now, why do my opinions matter? I've been a prof for 20 years and I like to teach.  67,000 have watched me give this talk about climate change adaptation.  I am also the son of a famous teacher at NYU's Medical School.   For most of my adult life, my father has stressed to me the importance of being a teacher and what it means to be a teacher.

As Tom Friedman and other wise people ponder what jobs will remain in the U.S, the New York Times offers a new industrial category for the NAICS to incorporate.  They introduce the "eco-concierge".    Could there be tens of millions of these consultants buzzing around in the near future?  In past blog posts, I have discussed the Good Guide and other information websites that talk to your smart phone and provide information focused on what products are "naughty and nice" from a green's point of view. This article appears to take this concept to the next level.


To quote the article;

"They will run your errands by bicycle, recommend a spa that gives vegan manicures or buy organic clothes for you and your dog. They will even book you a dream vacation and buy the appropriate carbon offsets.
Green living is just so much easier when you have your own personal environmental concierge.
“The problem with going green is that people think it takes so much work, so much effort, so much conscious decision-making,” said Letitia Burrell, president of Eco-Concierge NYC, a year-old business in Manhattan that tries to make it easy for people to rid their homes of toxins, hire sustainable-cuisine chefs and find organic dry cleaners.
Memberships range from $175 a month to $3,500 a year, depending on the level of service. Or you can opt for à la carte service at $25 to $50 an hour.
It is a niche business, but a clever one. At least a half-dozen services of this type have sprung up around the country in recent years, both to help time-starved consumers manage their lives and to assuage the guilt of those who worry that they are letting the planet down."

Will this business emerge in any poor parts of town?

There is at least one demander out there;


"Tracy Stamper, a fitness instructor in St. Louis, hired Herb’n Maid a few years ago for green cleaning after products used by a conventional service aggravated her husband’s asthma. That set her on a slippery green slope. Ms. White referred her to a hairstylist, within walking distance, who would color her hair with natural dyes. Instead of using Drano to unclog bathtubs, Herb’n Maid gave her a less harsh product.
Then Ms. Stamper’s husband bought a solar-powered fan for the attic; the neighbors wanted one, too. Next up for the Stampers may be switching to organic clothing made with no chemical dyes or pesticides.
“My husband and I both look for ways to up the ante,” Ms. Stamper said."


Will the planet notice such "small deeds"? Will Gernot Wagner notice?

Here is another quote;


"Do such small steps add up to a larger difference? Some climate experts say not really, explaining that only nations and industries have the collective might to dial back global warming.
“The changes necessary are so large and profound that they are beyond the reach of individual action,” Gernot Wagner, an economist at the Environmental Defense Fund, wrote in a recent New York Times Op-Ed article. Eco-concierges see it their way — that every contribution counts. "


To be serious for a moment.  We live in a diverse world. A gross exaggeration is that there are liberal/greens who want to "walk the walk" because they internalize the social costs that conventional living causes (think of power generated from coal).  There are other Rick Perrys of the world who do not concern themselves with such issues. This doesn't mean that Perry is bad. He simply needs an incentive to be good and the right incentive is a pollution tax.

Can liberal/greens save the world on their own?  They could if there is a strong enough contagion effect such that the Rick Perrys of the future will embrace the liberal Berkeley lifestyle once they have given it a try or seen their friends on Facebook vouch for it.  Alternatively, if green products become cheaper to produce and become higher quality, then some Rick P's will substitute to them merely out of self interest.  This general topic of "Greens as guinea pigs" fascinates me.

But note, that this article is all about Rich Greens trying to optimize their lives.  Tomorrow, I will teach my undergraduates from UCLA's Institute of the Environment and I will start my class by asking my students whether they want to work in the Eco-Concierge industry.