Saturday, April 30, 2011

My C-SPAN Video

Here are all of the details about my recent appearance on C-SPAN.  If you watch the hour video, you will see that the skeptical audience comes around and eventually cheers on free market economics.  I tried my best to do a good job.  My old friend and co-author Joe Tracy showed up for my talk and he brought his daughter as well.  With friends in the audience, I felt a responsibility to sober up and crack some funny jokes for once.   For the C-SPAN video click here.  

Friday, April 29, 2011

The Economist Magazine Blog Has Good Taste

I was happy to see that The Economist has endorsed two of my recent papers (see this).  My wife is a long time subscriber so this must be their way of saying "thanks for being loyal".

Tomorrow, I will appear on C-Span.  For reasons I don't understand in my first 5 years in Los Angeles, I have not been able to parlay my cable TV appearances into an invite on the Leno Show or some other big time channel.  We moved to LA so I could pursue my acting career but to my shock I'm not succeeding.

Wednesday, April 27, 2011

Robert Fogel's New Book

Do you remember that Beatles song "When I'm 85"?   At the tender age of 85,  Bob Fogel is too busy writing to hum Paul's songs.  Fogel and his co-authors are about to publish a new book and it's main findings are written up today in the NY Times' Arts Section .  I guess that economics is 1/2 art and 1/2 science.   The Times writes a very nice review discussing Fogel's metrics of progress in our long run standard of living.  Angus Deaton is quoted making some smart comments on how he interprets the facts and what they mean for developing countries today.  The Nobel Laureate Fogel is an optimist that our world is making progress.   I have known him for 20 years now.  He was a hard working older guy in 1991 and in 2011 he still is a hard working older guy.

Fogel represents an outlier in the profession.  The Current Dean of Yale's business school (Sharon Oster) and Dan Hamermesh wrote this paper 13 years ago.


Economists' productivity over their careers and as measured by publication in leading journals declines very sharply with age. There is no difference by age in the probability that an article submitted to a leading journal will be accepted. Rates of declining productivity are no greater among the very top publishers than among others, and the probability of acceptance is increasingly related to the author's quality rather than the author's age.

I must say that in my case  --- I don't fit this profile.  I was tenured in 2003 and have gotten more work done since then versus in my first 10 years after finishing my Ph.D in 1993.   So, it's all a question of distractions and time allocation.  Robert Fogel has kept himself focused and hungry to learn more. We can all learn from his example.

Tuesday, April 26, 2011

UCLA as a Center of Academic Real Estate Research

West Los Angeles is always the place to be but this Friday and Saturday, the UCLA Ziman Center for Real Estate and the UCLA Economics Department will be raising the stakes by hosting this real estate conference.  Moshe Buchinsky, Stuart Gabriel and I have worked hard to put together an exciting research conference that focuses on real estate issues at the intersection between micro and macro economics.   Los Angeles attracts talent.  Only one scholar declined my conference invite and that's because he is on leave in England right now.   We are building up the research component of the Ziman Center and I have big plans for expanding its data collection and research efforts.

If this conference is a success, then we will do it again next year and you can join us in the sun and blue skies (with no humidity).  My Chicago teachers were wrong about one key point.  You can get work done in the sunshine.  I work harder here than I did when I was a graduate student in Chicago, or when I worked in New York City or when I worked in "glamorous" Cambridge.  The state's budget crisis will end, UCLA will become "self-sufficient" (i.e privatize) and order will be restored to the Star Wars galaxy.  This is paradise.  Life is too short to be miserable 9 months of the year (we did like Boston's May, September and October).

Monday, April 25, 2011

What Happens When a University President Runs a Field Experiment?

This is the golden age of field experiments.  Forget natural experiments, lags, propensity score "twins" and other corny ways to test hypotheses.   I have told my wife that the future of economic history is to run field experiments with her 19th century subjects (She agrees with you that my joke isn't funny but that actually makes it funnier).  With this point in mind, I am not surprised that the President of UC Riverside has gone deep undercover to find out what really goes on at his campus.  I think that Timothy P. White is a wise man.  I have argued that the UCLA Administration should walk the beat --- joining students in the classroom ,  joining lunch groups at the faculty club, calling me up to chat about the state of the school.  

This "auditing" would be useful.  When information is costly to collect within a complex organization, how do you collect it? Do you rely on Department Chairs to collect the info and report it to the Deans who in turn report it to the Provost?  In this game of telephone, valuable information will be lost and spun.  

My Return to "Book TV"

A few years ago, I interviewed Edward Hums about his book "Eco-Barons" on Book TV.  Now, I will get my chance to discuss my Climatopolis on Book TV.  I hope my mom watches!

While it is self-serving, I've been frustrated that people have not engaged with the key themes of Climatopolis.
Conservatives don't care about climate change because they view it as a "Al Gore" issue and liberals are worried that even starting to discuss adaptation is to admit "defeat" in the war on carbon. So, my readership has been my son, my mom and some angry critics who don't think I'm funny and who haven't taken intro econ.

To repeat the book's key themes;

1. The world is moving to cities
2. In these cities, people participate in the market economy
3. Urban growth has caused climate change because billions are achieving the American Dream and the global free rider problem precludes internalizing the nasty externality.
4.  Thus, climate change will take place and the key question is how it will affect urban quality of life in rich and poor cities.

5.  Most people on the political left look to "government" to protect us from climate change.

6. In contrast, I look to individuals and entrepreneurs and capitalism in general to help us to adapt to climate change.  We have strong incentives out of self interest to anticipate the challenges we will face and to look for individual solutions and market solutions to help to protect us against scary future scenarios.

7.  Government will only be part of the adaptation solution if politicians have incentives to help their cities to adapt. For example raising water prices in drought areas to reflect true resource scarcity.

My book highlights how a free market environmentalist thinks through how capitalism evolves in the face of an ambiguous and scary threat.  We know that we do not know and this creates opportunities to protect ourselves. My optimism is based on my confidence in human ingenuity and freedom of choice. Freedom to migrate, and participate in the multiple urban markets available to us.

My book seeks to show intelligent readers how a free market economist views the world and the basis for our "magical thinking" that our standard of living is rising over time and will continue to do so despite the very real threat of climate change.

I look forward to participating on Book TV.

Sunday, April 24, 2011

A Historical Perspective on President Obama's Investment in High Speed Rail

Did you short shares of airlines when you read about the Obama Administration's investment in high speed rail?  I didn't and it seems clear that Richard White didn't either.  In this NY Times OP-ED, he makes a number of interesting points and mentions the work of one of my heroes; Robert Fogel from the University of Chicago.

To quote the article; "Yet here we are again. The Obama administration proposed a substantial subsidy, $53 billion over six years, to induce investors to take on risk that they are otherwise unwilling to assume. Such subsidies create what the economist Robert Fogel has called “hothouse capitalism”: government assumes much of the risk, while private contractors and financiers take the profit."

In the first sentence of his piece, Richard White tells  you that he is a liberal who lives in California but he goes on to say that he is happy that the deep subsidies for HSR will be cut off due to federal budget cuts.

White argues that the intellectual case for using public $ to subsidize such an infrastructure project is weak;

To quote his historical case study, "Proponents of the transcontinental railroads promised all kinds of benefits they did not deliver. They claimed that the railroads were needed to save the Union, but the Union was already saved before the first line was completed. The best Western farmlands would have been settled without the railroads; their impact on other lands was often environmentally disastrous. For three decades California commodities could move more cheaply, and virtually as quickly, by sea. The subsidies the railroads received enriched contractors and financiers, but nearly all the railroads went into receivership, some multiple times; the government rescued others."

Environmental accountants can be brought in to quantify how much greenhouse gas emissions and local air pollution will not occur if the train substitutes for driving and plane use.  This should be quantified.  Such externality reductions (if large enough) would provide a justification for government subsidies.

Professor White understands the importance of having budget priorities.  During a time of scarcity, we can't "have it all".   He writes;

"Without bond guarantees, private investors, which so far seem more prone to due diligence than the California High-Speed Rail Authority, have yet to put up money. The most astonishing thing is that even as financial problems force California to dismantle its social safety net, eviscerate its educational system, and watch its roads crumble, it has agreed on a plan for high-speed rail that demands substantial local subsidies and certainly will involve further concessions by the state to attract private investment."

So, my intuition here is that HSR advocates viewed their projects as "too big to fail" and that they assumed they could rely on the federal government for more cash injections if private financing dried up.  But, the Republicans sound pretty credible these days concerning their eagerness to cut off the sugar.

What did Professor Fogel write about the railroads?  Here is a quick overview and some references.  He studied whether railroad investments had a major impact on the development of the U.S  economy and he challenged the conventional wisdom that they did.

Friday, April 22, 2011

Nisbet's "Climate Shift" Report

How does reading newspapers, blogs and watching television shape our world view?   Do we read for pleasure or to learn?  Once we leave school, we can choose what we want to read. Do people solely engage with material that confirms their prior world view?  Does anyone ever update their beliefs based on new information?  Do you have an open mind?

In the case of public policies intended to mitigate climate change, what information would nudge you to embrace costly carbon mitigation policies (such as supporting a $3 per gallon gas tax)?  Information that convinces you that climate change is a major challenge?  Information that convinces you that mitigating carbon emissions can be achieved at a low cost and thus is a cheap "insurance policy"?   The environmental community has argued that battling climate change is a policy imperative and that our economy will face relatively low costs in doing so.    These claims have not achieved much traction.  At the Federal level, there will be no carbon push.  The good news is that California's AB32 is going forward and I am optimistic that it will be a "green guinea pig".

How do we explain the failure of smart environmentalists to convince the majority to join the "climate hawks"?
An easy answer is to blame the "Vast Right Wing conspiracy" and to point to the causal polluting effects of Fox News and Friends on the American middle class.  Anyone who challenges this consensus view is going to feel some heat so I'm not surprised that  Joe Romm has some tough things to say about Prof. Matthew Nisbet's  new study of the media's role in influencing  the climate change mitigation debate.

Why has Matthew Nisbet's report generated such heat?   It appears to me that his core thesis challenges the rationale for the existence of blogs such as Joe Romm's "Climate Progress".

Some environmentalists claim that the reason that the median voter hasn't supported climate change mitigation legislation is due to biased media coverage. If this diagnosis were true, then the appropriate "medicine" is countervailing force.  Joe Romm has taken on this role with a gusto. I read Joe Romm's blog. It is both informative and funny (the comments people post are unintentionally extremely funny).   He appears to believe that he is a "David" in a righteous fight against the Goliath better known as Fox TV and the Koch Brothers and all of their lesser brethren.   His writing style suggests that he views the typical "Joe the Plumber" as having been artificially manipulated by the media.   This narrative assumes that Joe the Plumber has been brainwashed by an unrelenting campaign of misinformation.

If this logic were true, then a "liberal/green/scientific" coalition of Joe Romm and other truth tellers could save the world if they could collect the money to invest in an influential activist media campaign that could counter-act these special interests, by deprogramming the silent majority who do not know what to think about the costs and benefits of carbon mitigation.

But Nisbet questions whether environmentalists can fall back on the excuse that they are under-resourced and out gunned; to quote Nisbet's conclusion;

"As detailed in this report, the major environmental organizations are a $1.7 billion-a-year movement, with revenue streams that rival the most expensive presidential campaigns in history and the combined earnings of the world’s richest sports franchises.  In their efforts to pass cap and trade legislation, they spent heavily on general education efforts, engaging policymakers, journalists and the public.  They also invested considerable resources in mobilizing their more than 12 million members and in brokering alliances with some of the world’s largest companies, partners intended to augment their efforts at direct lobbying.  Through these means and others, environmental groups have closed the gap with their traditional opponents in terms of spending and influence.  Indeed, the effort to pass cap and trade legislation may be the best financed political cause in American history.

The organizations that led the effort on cap and trade legislation are unique among Beltway groups for their decade-spanning, linear growth in revenue and size.  Dominated by senior leaders and staff from the Baby Boomer generation, these organizations together employ a highly credentialed and professional elite numbering in the several thousands.  Yet the very nature and size of the environmental movement may pose challenges in adapting strategy and achieving success over the next decade."

So, if Nisbet is right that this interest group fight was a "fair fight" between two equally endowed foes --- what are we to conclude?

If we could sit down with Millions of Joe the Plumbers, how would they answer questions about why the scary issue of climate change doesn't move them?  Are they technological optimists? Risk lovers?  Unaltruistic towards people in poor nations? Impatient and not caring about the future?  By how much do they under-estimate the likely probabilities of future scenarios that a James Hansen is concerned about?  Do they acknowledge the risks but don't want to give Al Gore and friends the credit for leading the effort and having to admit that Al was right?

We need the recession to end and we need to make climate change a national security issue rather than an "Al Gore" issue.

Thursday, April 21, 2011

Green Words vs. Green Deeds

The recession has hollowed out demand for green products that you consume in private.  So, solar panels and the Prius are consumed in public but many other green products are not.  These inconspicuous products appear to be suffering from a sharp decline in sales.  Are economic booms "good" or "bad" for the environment?

The Climate Policy Wars and the Deep Recession

cross post about the challenges of fighting climate change during a recession.

Switching subjects, the Wall Street Journal has published an editorial that mocks the UN for making a big deal in 2005 about the possibility of millions of "climate refugees" by 2010. The WSJ argues that this is "proof" that climate "alarmists" overstate the impacts of climate change.

As I discuss at length in Climatopolis, I think that it is prudent for forecasters to announce possible climate change scenarios to act as a "heads up" for households, firms and governments.  The ironic item here is that by providing an early warning system, this actually lowers the probability that the events in question actually take place.  Expectations can cause investments that mitigate the damage that might have been caused had no pro-active steps been taken. In English, if the Titanic had seen the iceberg earlier -- it could have changed course.

So, the UN won't win a Nobel Prize in science and it would be great if they rely on the best consensus climate science but I have no problem with them issuing alerts about likely new challenges we will face in the future.  Investment under uncertainty will continue to be a major issue in economics, climate change adaptation and public policy.

Wednesday, April 20, 2011

The Tortoise vs. the Solar Panel

Forget the hare, the tortoise faces a new foe in the arena called the Mojave Desert.  The people of California are in a deep discussion about this topic and when in doubt the experts are called in. With my deep wisdom about the desert and about the tortoise, I have been asked to participate in this San Francisco radio show.    While I may not know much here, this won't stop me.  I do have opinions.

Fortunately, economics offers some insights.

Point #1:  There is no "free lunch".  Scarce land should be allocated to its highest and best use.  A rational planner will compare the present value of the green power that will be generated from carpeting the Mojave Desert with solar panels.  Such green power will mean that California will need to generate less electricity using natural gas and this should reduce our greenhouse gas emissions.  We need to calculate the total tons of annual reduced GHG emissions and we need to multiply this by the price per ton of carbon dioxide avoided.  Where should this number come from? Should we use $35 per ton like in the Stern Report?

Point #2:  If tortoises lose their habitat, how much damage is caused? How do we price the priceless?  This discussion will be identical to the discussion of how much damage did the Exxon Valdez Oil Spill cause to the Prince William Sound in Alaska and how much damage did the BP Oil Spill cause to the Gulf of Mexico?  When non-market goods (i.e tortoises) suffer due to economic activity, how do we impute a cost measured in $ to this?    Why are economists so tacky and insist on measuring the costs in $?  We can only compare benefits (measured in $) to costs if they are in the same units (i.e $). You can measure each in slices of pizza but the units of comparison must be the same.

Point #3:  Can a "King Solomon" find a win-win here?  In this case, I will talk about mitigation banking. and the potential for offsetting the damage caused by the introduction of solar panels.

Tuesday, April 19, 2011

UCLA's Gene Block Serves Up an Ace

Gene Block is the Chancellor (i.e President) of UCLA.  In this Los Angeles Times Op-Ed , he makes a powerful case for supporting my favorite university. He lays out a stark tradeoff.  The people of California appear to want a "free lunch".   To keep this bad analogy going, they want a tasty high quality meal at a very low price.  Chancellor Block points out that this option isn't on the menu.

UCLA is an Ivy League quality institution that has been charging students roughly $11,000 a year in tuition.   Princeton's tuition is $37,000.   I have taught at the University of Chicago, Columbia, Tufts, Harvard and Stanford --- so I've been at some excellent schools and I think I know what I'm talking about.

How has UCLA been able to supply an excellent education while charging a much lower tuition than the Ivy League Schools?  The answer isn't endowment income.  UCLA's endowment is a fraction of Princeton's.  The answer is $ from California taxpayers.  Now, the taxpayers want to cut off their end of the bargain.  Guess what will happen next?  

What share of Princeton students are from California?   I would guess 10%.

In the near future, UCLA could have a California enrollment of 50% and an annual tuition of $25,000.  There are plenty of people from around the United States and from Asia who would be happy to pay this sticker price to be learning a lot while enjoying the sunshine and the great lifestyle of West Los Angeles.  

The California middle class need to make a decision about whether they will keep their end of the social contract to preserve excellent public universities.

My own preference is for UCLA to stop accepting state money and make the transition to being a private "Ivy League" quality school.  The Ivy League schools have the resources to offer generous scholarships to deserving students from poor families.  I am confident that UCLA can compete with the Ivy League schools for the best and the brightest and the resources that UCLA would collect from tuition would allow it to attract even better faculty that would further increase demand to learn in the sun.  NYU has shown how this model works.

I prefer this outcome because it ends the painful uncertainty about the future of my great school.  The transition will be "easy" once we know that we can't go back.

Family Dynasties: The Case of the Einsteins

Evelyn Einstein was the great man's granddaughter. Her obituary highlights how smart she was but goes on to sketch her challenges.  To quote the article: "Ms. Einstein spoke four or five languages and earned degrees from the University of California, Berkeley, including a master’s in medieval literature. But she worked as a dogcatcher, a cult deprogrammer and a police officer. After a bitter divorce, she lived in poverty for three months, sleeping in cars and eating discarded food as a self-described “Dumpster diver.”"

Social scientists have trouble creating long longitudinal data sets that follow a family across generations.  The PSID is a good start but I would like to see a sociologist pursue the following research project.

Start with a non-random sample; the Nobel Laureates who won the prize between the years 1910 and 1950 and trace their families.  Who were their children?  What occupations did they enter? What were their achievements? Who were their children's children?

Now, repeat this exercise for members of the U.S Senate over the years 1910 to 1950.  So trace what happened to their descendants.  I would be interested in seeing if a sociologist could test for "nepotistic ties" for the 2nd set relative to the descendants of the Nobel Laureates (so I'm thinking of the Kennedys or the Bush family).  As I have blogged about before, it appears that many with ties to Washington DC have children who work in "connected fields" related to what their father or mother did.   The Nobel Laureates wouldn't have this network. They would be leaders in the "nerd network" but it isn't obvious to me how this would translate into job opportunities for their following generations.

So what hypotheses related to "family dynasties" could be tested using this sampling design?   Both sets  had successful and smart grandparents but "social capital" may be more durable than "human capital".   I continue to come back to the millions of dollars that Mayor Rahm Emanuel earned as an investment banker after he left the Clinton Administration.  What skill did he have to generate such big  ( $16 million)?   My guess is that he knew some powerful people who would return his phone calls and this was valued by his employer.   Did Einstein have such connections?  Would he have wanted them? Perhaps there is comparative advantage.

Monday, April 18, 2011

How to Launch California's Carbon Cap & Trade System? The Guinea Pig Must Soar!

Margot Roosevelt writes good stuff for the LA Times and she isn't even writing about Kobe or Paris Hilton.  She is writing about climate change mitigation.  Today, California is trying to place 360 companies under a cap.  Now, all economists would say that this is great.  Climate change is a serious externality.  The rest of the world is free riding. If California is willing to be a guinea pig and experiment with some policies that provide a direct incentive for polluters to take a new look at their "business as usual" operations then the world will learn some valuable lessons from California's experience.  Perhaps it is possible to enjoy the double dividend of ongoing economic growth and decarbonization?  To test this hypothesis, we need somebody to jump into the pool!  I am a huge fan of the Air Resources Board's effort here to implement AB32.

Now a long time ago Laffont and Tirole started writing about incentive compatability and regulation under uncertainty. For those of you who haven't read their 500 page book, here is the point.   Profit maximizing firms who gain from the status quo policies (of being allowed to pollute) have every incentive to over-state how much they will suffer in terms of higher costs and thus lower profits if they were regulated and forced to reduce their emissions.  Such firms recognize that the probability that the regulation actually gets implemented (especially in a lingering recession where JOBS, JOBS, JOBS is our rightful focus) declines the more they huff and puff.

The challenge that honest economists face here is how to extrapolate about what learning will take place by the 360 firms under the cap when they face a new incentive structure that rewards them for decarbonizing. Predicting the direction of technological change is tough stuff. Did you foresee Google or Facebook or Smartphones?

We do know that as the carbon cap tightens (i.e as the state attempts to reduce its emissions by 80% below 1990s levels by 2050), that the price to purchase a ton of carbon will go up.  Anticipating this, the 360 firms will have incentives to invest in skilled people to manage their capital stock better and to invest in more energy efficient capital to reduce their energy consumption needs.   For any given firm, what is the shape of their "Marginal Abatement Cost curve" ? Our friends at McKinsey would say that the costs are negative!  I hope they are right because that would make Michael Porter happy.

While I would love to see a cap & trade program up and running with a serious price of $30 per ton of carbon dioxide, I would not be shocked if this program starts as an "opt in" program --- in which progressive firms choose to enter the program to use it as a commitment device to "go green".  The Air Resources Board could offer human capital and intellectual support for such firms to ease their transition to being low carbon.

Such success stories might stimulate other companies to join the program and a chain reaction could be set off.


Sunday, April 17, 2011

Are Economists Under-Represented in University Administration?

Congratulations to Stanford's Alan Garber. He has just been named Provost of Harvard University.   Harvard has made a brilliant hire.   Reading this story reminded me that at my UCLA,  economists are under-represented in positions of administrative authority.  This is true in the Social Science Division, the Public Policy School, the Business School, and the Central Administration.  The Chair of the UCLA Economics Department is an economist!  That's a good start.  I believe that the same "economists void" also exists at UC Berkeley (except the Dean of their Business School is an economist).

Given that economics is the "rational choice" social science,  and given our focus on "tradeoffs" and our appreciation for free market capitalism, I would dare to suggest that we are the logical choice for running research universities.   But, it appears that somebody disagrees with me.

Now, an alternative is that few academic economists want to enter administration.  Our work is satisfying and our Professorial pay is relatively high but I would think that this is exactly the time when economists would be drawn into "Deanly" work.   This is a time of increased funding challenges so the pursuit of rational prioritization and thinking through intended and unintended incentive effects of different policies is extremely valuable.

There are a few salient data points available for testing out how we do on the job. The President of Northwestern is an economist.  The ex-Presidents of Harvard and the University of Chicago are great economists.  Michael Rothschild was a Dean at Princeton and UC San Diego.  Tom Bogart has just taken over as President of Maryville College in Tennessee.  The ex-President of Tufts is 1/2 of an Economist (he is also a lawyer).   The Dean of Yale Business School is an economist.   A loyal reader reminded me that the Provost of the University of Pittsburgh, Patricia Beeson, is an economist. I have cited her work on urban economics in several of my papers.

Economists have written on this subject.  I haven't read this piece but it looks interesting.

I expect that Provost Garber will be a great success at Harvard. Hopefully, he will help to make the case that economists can be trusted with power to guide the use of scarce resources to achieve an efficient allocation of resources across the university and to encourage sustainable growth of excellence in new knowledge creation and training the next generation of students and scholars.

What Would the Tiger Mom Say About U.S Undergraduate Time Allocation?

On page 4 of the The Education Life Section of the 4/17/2011 New York Times, there is a pie chart showing how full time college students age 15 to 49 spend an average weekday.  Out of 24 hours each day;  Activity #1: Sleep at 8.3 hours, #2 Leisure and sports (3.6 hours), #3 educational activities (3.3 hours),  #4 working and related activities (3 hours), traveling (1.5 hours), eating and drinking (1 hour), grooming (.8 hours), other (2.5 hours).

As an educator, I'm interested in whether my students study.   Let's look at the 3.3 hours devoted to educational activities.   This adds up to 16.5 hours per week.  If a student takes 4 courses per semester and if each class meets 3 hours a week (ignoring the possibility of a lab or a Teaching assistant review session), then this leaves 4.5 hours a week when a student is not in the class room but is engaging in educational activities. If this is the upper bound on studying, then the average student is studying roughly 52 minutes a weekday.  What would the Tiger Mom say to that?

If learning begets learning and skill begets skill, is the U.S staying "mentally" fit and ready for global competition or are we enjoying too much leisure?  This is the classic "consumption vs. investment" tradeoff that economists always discuss.

Are people in the U.S and Europe growing "intellectually fat and lazy"?  This New Yorker piece by Evan Osnos offers some insights. He joins a Chinese middle class tour that travels to Europe as a group.  The point of the article is to show the people of New York City (and other nerds who subscribe to this elitist magazine)  how Chinese "regular Joes"  view "us".   The tourists make their first trip ever to Europe and they like the shopping. They don't like our food and they are amazed by the amount of leisure time that we appear to take for granted.

To quote the article;

"Li urged us to soak our feet in hot water before bed, to fight jet lag, and to eat extra fruit, which might balance the European infusion of bread and cheese into our diets. Since it was the New Year’s holiday, there would be many other Chinese visitors, and we must be vigilant not to board the wrong bus at rest stops. He introduced our driver, Petr Pícha, a phlegmatic former trucker and hockey player from the Czech Republic, who waved wearily to us from the well of the driver’s seat. (“For six or seven years, I drove Japanese tourists all the time,” he told me later. “Now it’s all Chinese.”) Li had something else to say about the schedule: “In China, we think of bus drivers as superhumans who can work twenty-four hours straight, no matter how late we want them to drive. But in Europe, unless there’s weather or traffic, they’re only allowed to drive for twelve hours!”

He explained that every driver carries a card that must be inserted into a slot in the dashboard; too many hours and the driver could be punished. “We might think you could just make a fake card or manipulate the records—no big deal,” Li said. “But, if you get caught, the fine starts at eighty-eight hundred euros, and they take away your license! That’s the way Europe is. On the surface, it appears to rely on everyone’s self-discipline, but behind it all there are strict laws.”"

Read more

Friday, April 15, 2011

Dudes with No Dates in China's Big Cities

China's Urban marriage market is taking some predictable turns as young women are in scarce supply.  This article argues that the young women have the bargaining power and they want to date a man with a car and his own apartment. In the big cities, housing is so expensive that many young men can't afford their own apartment.

Here is a quote from the original NY Times article:

"“Sometimes I wonder if I will ever find a wife,” said Mr. Wang, who lives with his parents, retired factory workers who remind him of his single status with nagging regularity. “I feel like a loser.”

There have been many undesirable repercussions of China’s unrelenting real estate boom, which has driven prices up by 140 percent nationwide since 2007, and by as much as 800 percent in Beijing over the past eight years. Working-class buyers have been frozen out of the market while an estimated 65 million apartments across the country bought as speculative investments sit empty. "

So, the urban economists have a simple solution to this matter of the heart.   China needs an "escape valve".  In the United States, hundreds of millions of people have sought out new cheap housing in "new cities" and have been happy to settle in such places as Tampa, Dallas, Las Vegas and Phoenix.  These folks can travel to the "Superstar Cities" on the coasts or merely watch Kobe and Jerry Seinfeld on TV.  They have been free to choose to locate in a less expensive city and thus to be able to afford more housing.

Yes, Shanghai and Beijing are tremendously costly but within a system of cities with easy cross-city migration --- why won't new cities arise that are analogous to Houston or Las Vegas? One answer is that the powerful state may slow down this migration (either intentionally or unintentionally). In a free market capitalist economy, firms follow people and people follow jobs.  If both firms and people want cheap land then they can co-ordinate and locate in a Las Vegas.

In the case of China, is the powerful state guiding economic activity to specific locations (either through handouts or subsidies) or is it allowing free market forces to playout?  I predict that the dudes' problem will go away if the free market is allowed to operate in China.  China's population will spread out into new cheaper cities and romantic bliss will ensue.

In understanding the causes of high urban prices, we can't ignore the supply side and the ability of developers to build new housing and the incentives of those holding inventories of existing apartments to sell them. On the developer side, researchers such as Ed Glaeser and Joe Gyourko have argued that high home prices in the United States is associated with land use regulation.  Albert Saiz has documented that steeply sloped land is hard to build on.

I bet that these same factors matter in China.  If the state owns the land, how does it decide how much land to devote to development?  If it devoted more land in other cities to development, how would this affect apartment prices in those areas?

Why are speculators holding inventories of apartments and delaying selling them now.  They must have expectations of being able to sell them at much higher prices in the future.   If Chinese urbanites in non-superstar cities --- could contract with developers to build them simple housing, then market forces would create the equivalent of a Levittown in China's cities.  If such speculators knew that urbanites could build their own homes or contract with a low cost developer rather than bidding for a speculator's property, then this would convince the speculators to lower their prices and sell their stock of units.  Competition chips away at monopoly power.

Thursday, April 14, 2011

Intellectual Property Protection, Innovation and Climate Change Mitigation

On the topic of intellectual property rights, are you an open source hippie?  Or, are you an "old school" patents defender to provide dynamic incentives for recouping upfront irreversible investments?  The NBER economists are hard at work on doing innovative empirical work on this topic.  Here is the paper that Heidi Williams will present at UCLA today.


This paper provides empirical evidence on how intellectual property (IP) on an ex-
isting technology a ffects subsequent research and development (R&D). Theoretically,
IP could hinder subsequent R&D by imposing transaction costs, or could instead en-
courage subsequent R&D by providing incentives for efficient use of the underlying
technology. To shed empirical light on this question, I analyze the sequencing of the
human genome by the public Human Genome Project and the private firm Celera,
and estimate the impact of Celera's gene-level IP on subsequent scienti c research
and product development outcomes. Celera's IP applied to genes sequenced fi rst by
Celera, and was removed when the public eff ort re-sequenced those genes. I test
whether genes that ever had Celera's IP di ffer in subsequent innovation, as of 2009,
from genes sequenced by the public e ort over the same time period. A complemen-
tary panel analysis traces the eff ects of removal of Celera's IP on within-gene flow
measures of subsequent innovation, and a third analysis relies on variation in the
length of time a gene was held with Celera's IP. Taken together, the results from all
three analyses suggest Celera's IP led to reductions in subsequent scientifi c research
and product development outcomes on the order of 30 percent. Celera's short-term
IP thus appears to have had persistent negative eff ects on subsequent innovation
relative to a counterfactual of Celera genes having always been in the public domain.

So, if these findings generalize to climate mitigation innovation --- what does this mean?  If China figures out ways to cheaply grab our "green" IP --- do we conclude that this accelerates innovation and thus from an "ideas as public goods" vantage point -- this is "good"?

Wednesday, April 13, 2011

Detecting Tax Avoidance

It is tax season and Casey Mulligan's post has inspired me to talk about my one tax paper.  This is a paper that you have not read but you should!  My 2009 paper with Bill Gentry is not even listed on REPEC but here it is.

Understanding Spatial Variation in Tax Sheltering: The Role of Demographics, Ideology, and Taxes

  1. William M. Gentry and
  2. Matthew E. Kahn   

Taxpayers shelter income from taxation both through illegal evasion and legal avoidance. This tax sheltering creates a difference between a household's actual income and what it reports to the tax authorities. While tax sheltering is a central concern for designing a tax system, the private nature of this behavior complicates evaluating the magnitude and determinants of such behavior. In this article, we combine zip-code level data on reported income from the Internal Revenue Service and the Census Bureau to examine three types of determinants of tax sheltering: (1) tax policy variables, including tax rates (2) political attitudes toward taxation; and (3) demographics. Our estimates suggest that higher tax rates increase the amount of tax sheltering. In terms of political support, our results suggest that places with voters who are either more conservative or less supportive of tax increases actually shelter less income. 

So, the key idea of the paper was to take zip code data on income reported to the IRS and for the same zip codes collect data on income reported to the Census.  If people tell the Census the "truth" about their income and they shade down the income they report to the IRS, then our key dependent variable =  Income reported to IRS/Income reported to Census will be less than one.

We use cross-zip code variation to test for what observables correlate with more tax avoidance (i.e having a smaller ratio).

We find some funny stuff.  We find the usual results that self employed people and immigrants have a greater tax avoidance (a smaller ratio). More interesting is when we contrast adjacent counties that cross state lines; those counties located in the high state tax state --- have lower ratios (greater tax avoidance) than their adjacent county.  I thought that was interesting.  In terms of ideology,  more liberal areas have greater tax avoidance!  So, should the IRS do an audit of the people of Berkeley?  Now, it is important to note that tax avoidance and tax evasion are not the same thing but our approach yields a geographical map of where the IRS should be focusing its efforts.

Tuesday, April 12, 2011

Boiling Down Your Life to Two Pages

The NBER was kind enough to give me the chance to write a "readable" overview of my recent research on climate change mitigation and adaptation.  You can judge whether my work is interesting.    It was an interesting experience to take fourteen of my recent Working Papers and my 2010 Climatopolis book and to boil it down to two pages.   I am excited about this research program and I am optimistic that my "Green Cities" agenda focused at the intersection of environmental and urban economics will continue to be a "hot topic".

The Golden Goose: Mines or Tourists?

We all seek a sustainable income flow.  Most of us rent our human capital and time to others.  For example, this morning I may do some temp work (teaching) for UCLA.  Whether I show up or not is a random variable and I'm about to use a random number generator to make my decision.

In the case of places such as Appalachia, what is the best use of land there or in the Rocky Mountains?  During this time of high energy prices, do we drill or do we preserve natural capital and hope to create "sustainable tourism"?  Such tradeoffs fascinate me.

Here is a real world example that is about to play out. It highlights the role of environmental economists in public policy.

Independent Economic Study Tests Impact of Proposed Molybdenum Mine on Rocky Mountain Region's 'Amenity-based' Way of Life

The Center for Applied Research identifies those forces that
make Gunnison County's economy tick, and how they might be
affected by the onset of a mine; Skiing, Hiking, Fishing,
Biking ... Meet Mining

CRESTED BUTTE, Colo., April 12, 2011 -- In an attempt to
ensure that a region dependent on tourism doesn't
inadvertently kill the goose that laid the golden egg, a
group of citizens in the Gunnison-Mt. Crested Butte area of
Colorado have joined together to initiate an economic study
that will determine the potential impact of a large-scale
molybdenum mine on its existing "amenity-based" outdoor
recreation and arts economy.

The study is in reaction to US Energy Corporation's interest
in establishing a molybdenum mine on Mt. Emmons, the stately
peak that dominates the western skyline above this historic
mining town at 9,000 feet in the Rocky Mountains.

As popular in summer as it is in winter, Crested Butte is a
mecca for outdoor recreation. Fishing, hiking, hunting,
skiing, river rafting and mountain biking are enjoyed along
with music and arts festivals in what has been officially
dubbed "The Wildflower Capital of Colorado." But can this
amenity-based way of life continue to thrive in the shadow
of an encroaching industrial estate?

While new economic activity and jobs are highly desired,
what impact will a mine have on the existing economy? Will
the character of the area be significantly altered to the
point of discouraging tourism?

To drill down on these questions, a three-part economic
study is being conducted by the Denver-based Center for
Applied Research. The first phase, completed in 2010,
estimated that more than 65 percent of the basic jobs in the
area are attributable to amenity resources.

The project's second phase, a survey to begin shortly, will
target a cross section of the population from full- and
part-time residents to businesses and tourists.

"What's unique in this study is our comprehensive approach
in determining an economic baseline," says Robby Robinson
founder of the Center for Applied Research. "We're looking
at what a potential mine would do to people's economic
behavior and how that might change after the onset of a
mine. Believe it or not, it's often this big, unbiased view
that gets missed in traditional impact analysis."

Am I a "Perfect Substitute" for Ed Begley Jr.?

This Friday at 930am in Hollywood, CA I will be speaking in this roundtable.  I see that I'm taking the place of Ed Begley Jr..  

Who is "Dr" Begley?

Edward James "Ed" Begley, Jr. (born September 16, 1949) is an American actor and environmentalist. Begley is perhaps best known for his role as Dr. Mark Craig's intern, Dr. Victor Ehrlich, on the television series St. Elsewhere, for which he received six consecutive Emmy Award nominations. He currently has a reality show about green living called Living With Ed on Planet Green with his wife, actress Rachelle Carson.

Begley's numerous works in television and film include one of his earliest appearances as a guest actor on Maude. He had recurring roles on Mary Hartman, 7th Heaven, Arrested Development, and Six Feet Under and starring roles in Stephen King's Kingdom Hospital, St. Elsewhere, and Wednesday 9:30 (8:30 Central). He has played significant roles in the mockumentary films Best in Show, A Mighty Wind, and For Your Consideration. Additionally, Begley played Viper pilot Greenbean on the original Battlestar Galactica TV series, Boba Fett in the radio adaptation of Return of the Jedi, and Seth Gillette, a fictional Democratic US senator from North Dakota in the television drama The West Wing. In 1995, he played The Riddler's boss in Batman Forever but is uncredited. Since 2000, he has been a member of the Board of Governors of the Academy of Motion Picture Arts and Sciences.

He has guest-starred on shows such as Scrubs, Boston Legal, and Star Trek: Voyager (Future's End, parts I and II). He had a recurring guest role in season three of Veronica Mars. Most recently, he appeared in the 2008 HBO film Recount, which profiled the 2000 Presidential Election and its aftermath, which was decided by the state of Florida's electoral votes. Begley also made an appearance on Tim and Eric Awesome Show, Great Job! Season 3, Episode 3, as a spokesman for Cinco.
In 2003, Begley wrote and directed the musical Cesar and Ruben. It was performed at the El Portal Theatre in Los Angeles and was revived in 2007.  Begley's latest acting role is in the CBS sitcom Gary Unmarried. Begley plays Dr. Walter Krandall, the protagonist's former marriage counselor and fiancé of his ex-wife.
Since 2008 he has appeared in a series of DirecTV commercials as a "Cable Corp." executive.[4]

Environmental activism

Since 1970 he has been an environmentalist, beginning with his first electric vehicle (a Taylor-Dunn[5] golf cart style vehicle), recycling, and becoming a vegan.[6] He promotes eco-friendly products like the Toyota Prius, Envirolet composting toilets and Begley's Best Household Cleaner.

SO , in Los Angeles --- hundreds (dozens?) of people will show up to see him and instead will see me.  Do you remember The Who's Song "Substitute"?

People ask me; "why did you leave Boston?"  Well, it is sunny and 60 to 70 degrees in LA 310 days of the year, and I get to impersonate celebrities.  What else is there to do in life?

Sunday, April 10, 2011

Fundraising for UCLA

For those of you who are friends of UCLA and live close to California's Orange County, I encourage you to attend this UCLA fundraising  event on April 12th.  Glen MacDonald and I will both have interesting things to say about Climate Change solutions and challenges.  While my inner-economist tells me to free-ride and say "no" to all requests I receive from my university concerning talking to parents, alumni and friends of the school, I actually say "yes" to almost all of them.

Why?  I'm a funny guy and I know how to interact (in a two way conversation) with people who do not hold lofty doctorates from fancy places.  Most professors are not social animals and prefer to talk rather than to listen. I hear what you say.   

I also believe that UCLA is at a key point in its history.  I have told senior members of the University's administration that we should accept $0 per year from the state.  We need to go "cold turkey" and not take another dime.  Cutting our "financial lifeline" would liberate us from silly Sacramento rules and signal to our thousands of alumni that it is up to them to step up and play a leadership role in supporting the school.  The politicians in Sacramento have other priorities -- somehow excellence is not one of them.

UCLA pays its basketball coach and its football coach over $2 million each.  This signals that either we really think that is valuable stuff or that we believe that it promotes donations to the school.  In my vision for the "new UCLA", the faculty will step up and make a serious case for why UCLA will continue to be a great school and in fact that we will improve as a research university because we have embraced free market principals.

In capitalism, higher quality products feature a higher price tag.  To justify the prices we will charge for attending UCLA, we need to deliver quality.  What is quality?  It is both research and teaching excellence.  Our students at both the undergraduate and graduate level must become better problem solvers and be able to convey succinctly and clearly the ideas they are proposing.  They must be able to "crunch data" and be able to test hypotheses rather than simply rehashing opinions based on their passions.

The faculty must show that we are serious professionals who are working on hard, relevant problems and not merely an elite leisure class who indoctrinate the next generation with hip ideas.

Show up on 4/12 and get a taste of what I'm trying to do.

Adapting to Water Scarcity: Some Phoenix Home Owners Paint Their Lawns Green

In Climatopolis, I write at length about the "small ball" decisions that self interested and forward looking households and firms will make to help them to adapt to climate change. I argue that these individual choices will add up and go a long way to helping us to adapt to this scary threat.  Today's NY Times offers a salient and funny case study. Phoenix doesn't have much water but deep subsidies have encouraged its overuse.  In Climatopolis, I argue that water prices should rise and some households will substitute away from green grass and aggregate demand for water will decline and the "water shortage" fears will vanish.  This article highlights how capitalism responds to price signals.  Some tacky households are painting their front lawns green. While I wouldn't do this, it does economize on water!  This is a funny example of my "small ball" optimism.

Note that in this case there isn't a President Obama or a FDR leading us to a government involved solution here.  It's the little guy -- aware that he faces a new set of prices and looking for simple solutions.  The net effect is adaptation. Of course, it won't be this simple in other cases that climate change will pose but the same dance step logic will apply.

Friday, April 08, 2011

Innovation in Adapting to Natural Disaster Risk: The Case of Fargo

I thank Neil Lessem for pointing me to this article about the adoption of new techniques for adapting to Fargo flooding.

"As Fargo, N.D., confronts its third major flood in three years, local governments, businesses and residents are shifting to a number of modern alternatives to hold back the waters of the Red River.
“I’ve seen enough sandbags for a lifetime,” said Alan Kallmeyer, who enlisted dozens of friends and co-workers the last two years for a full day of this grueling masonry, filling and stacking thousands of sandbags around his riverside house.
This year, Mr. Kallmeyer bought a device, already used by several of his neighbors, that rings his house with a four-foot-tall tube of water. The device, known as an AquaDam, cost nearly $8,000. But it took just a few strain-free hours to set up and will be just as easy to take down."

How effective will these new strategies be?  This remains to be determined but this case study is exactly what I sketched out in my Climatopolis.  Critics have said a lot of silly stuff about my book.  They dismiss the power of  free markets, self interest, and innovation to help to protect us from predictable natural disaster risk. Instead, they want to argue that we are helpless "children" who are doomed to experience repeat suffering from disasters over and over again.  This is a fundamental debate over whether we have control over our lives (even though random disasters do occur and will increasingly occur because or climate change) or are we passive victims who are doomed suffer the same blows over and over again until we are wiped out?

As I have stated several times, climate change poses uncertain challenges for us but its risks are partially predictable and we can prepare for these ambiguous scenarios and we have the right incentives to do so.  Our anticipation and fear of new challenges creates opportunities for capitalist innovative firms to step up and come up with new products that are effective in mitigating risk.

Climatopolis is not an exercise in wishful thinking. Instead, it states a bold testable hypothesis and I look forward to the verdict!

Green China Once More and an Interview with Elinor Ostrom

Why am I optimistic about China's "green" future?  While I don't take the Environmental Kuznets Curve too literally, I do believe that China's rising educational attainment and rising per-capita income means that there is a growing urban constituency who want clean air, clean water, clean skies and green parks.  Many of these individuals have been to the United States and know the benefits of living in "green cities" both in terms of quality of life and in terms of being healthy.  While China has a one party system, this party has the right incentives to be responsive to the median household's desires to be happy and healthy.  

Since it is growing richer, China has a massive need for more energy and electricity.  Adopting a portfolio of different strategies to meet this power demand, they are investing in green tech. Some of these ideas will fail and some will succeed. They are playing the guinea pigs here and they are investing in basic research. Given that ideas are public goods and that good ideas can diffuse around the world, we should be grateful to them. We gain when they invest.  Of course, they are making these investments out of narrow self interest but so what? Those green ideas that succeed will offer our firms and households cheaper access to green products and this will help to decarbonize our economy.  Globalized trade will be a friend of climate change mitigation and adaptation.   Urban planners continue to hope that "mayors" will be the star of the show in helping us to mitigate and adapt to climate change.  I see studies in the popular media such as this one and they look goofy to me. People and firms make decisions; not "cities".  My Climatopolis seeks to focus the discussion on how actual people live their lives as climate changes and the way they rely on free markets to cope with change.  Governments can help to accelerate this process but it is a mistake to look to them for "leadership" on this issue.

Switching subjects:

Elinor Ostrom is a UCLA graduate and a Nobel laureate. You should read her interview with Meg Sullivan.

Wednesday, April 06, 2011

Corporate Sustainability Efforts

I am participating in Fortune's Brainstormgreen Conference.  I woke up this morning at the beach side hotel and watched surfers paddle out into the Pacific Ocean.  Listening to the panels and talking to individuals about their for profit firm's sustainability efforts, I am optimistic.  There are a large number of initiatives being pursued in the name of devising new products and to lower corporate costs.  To provide just one example, consider Kohls.  This department store is in deep thought about how to control its electricity bills.  I was quite impressed with how they are using basic statistical analysis and keeping up in real time about the operating cost performance for each of their stores scattered across the country.  The Corporate Headquarters knows when a store has high bills and in fact HQ controls the heating and cooling for the individual stores.   Individual stores do not have discretion over how the thermostat is set. 

I've also met entrepreneurs creating alternative fuels to compete with conventional gasoline.  As California rolls out AB32 (that sharply reduces the state's GHG emissions), these fuels will be able to compete with gasoline if they are certified to be "low carbon fuels".  Since AB32 will introduce carbon cap and trade, a fuel that is "low carbon" will require fewer permits to cover its use.  This example highlights the synergy between government policy and "green" start ups.

My "Green China" session will start soon and I will play the "bad boy".   China's investments in the green economy are a good thing for California and the United States. Ideas are public goods and such public goods are usually under supplied in a competitive market as everyone tries to free ride. If China is willing to finance these knowledge investments, then we should thank them and from a self interested U.S perspective, we should think about complementary investments we can make.

Here is my NY Times blog post  on this issue. 

Monday, April 04, 2011

Krugman on Climate Policy Gridlock

In this piece, the Nobel Laureate writes; "But it’s terrifying to realize that this kind of cynical careerism — for that’s what it is — has probably ensured that we won’t do anything about climate change until catastrophe is already upon us."   Paul Krugman and I agree that there is "too much gas" and that global GHG levels will continue to rise.

We disagree over whether we will experience a "catastrophe" as climate change plays out.  As I have written before, he appears to view us as the Titanic lulled into feeling safe while the iceberg floats and gets ready to cut us.   But thanks to "early warning" systems such as Krugman and Joe Romm and real life climate science research, we know increasingly more about what risks climate change will pose.  Such information allows us to make better plans at the household, firm and government level.  This is the "small ball" of adaptation.  The anticipation of danger creates opportunity and prudence in choices that shield ourselves from harm.

Now, I must admit that I am assuming that our climate scientists will converge on the "true model" of what risks climate change will pose. If their ongoing research leads them to diverge in their assessments and to make different predictions, then of course Joe the Plummer, Matt Kahn , and Homer Simpson will be confused and won't know what actions to take or how to cope.

Catastrophe occurs when we think there is a zero probability of a scenario taking place but in truth its likelihood is growing.  We cannot prepare for this.  Paul Krugman should write a column on what public goods he thinks need to invested in to protect us from climate change.  Increases in basic National Science Foundation research $ would go a long way in improving predictive models and investors and households would make better decisions armed with this information and this would ease the adaptation process.

People are afraid to discuss adaptation because they believe that even broaching the subject chills interest in carbon mitigation.  In his column today, Krugman is quite honest about the mitigation challenge but now he needs to take the next step  and join the adaptation discussion.  As a leading economist, he should step up and highlight how free market capitalism will evolve to help us cope with this challenge. How does he know that climate change will be a "catastrophe"?  If we anticipate that it will be a "catastrophe" and if we have 20 years to get ready, does this mean these fears will be realized?  In Climatopolis, I argue that the answer is "no".

Switching subjects, I hope to see you at this Brainstormgreen conference.  Look for me at 930am wednesday on the "Green China" program.

Sunday, April 03, 2011

Some Reasonable Concerns about Climate Change Adaptation Optimism

As I have written about many times, I view climate change to be a major coming challenge.  I would love to see us collectively reduce our GHG emissions but I don't believe that it will happen until mid century when technological progress (nudged on by some form of carbon pricing) will have taken place.   In writing Climatopolis, I have sought to start a debate focused on the fact that the majority of us now live and work in cities and that we are always rebuilding our cities. If we anticipate that climate change is a real threat, we will make investments now so that we can continue to thrive in our hotter future.

My critics want to play down the power of individual choice, free markets and foresight in helping to protect us. In the name of forging political anti-carbon constituencies now, they want us to view ourselves as in a death spiral caused by coming climate change.   I appreciate their political agenda but a social scientist has to do his/her job.  

I would be more impressed with their points if they focused on the possible weaknesses in the logic.  One possible weak point is abrupt climate change.  I have recently blogged about the challenge of  abrupt climate change  .

A second possible weak point is to appeal to behavioral views that we cannot imagine the future.  If we don't imagine, then won't we have trouble preparing?

A recent NY Times book review of Margaret Heffernan's Willful Blindness is useful here.  In her review, titled "Why Red Flags Can go Unnoticed",  Nancy Koehn says some interesting stuff.

HERE is a quote form Koehn

IN the wake of recent disasters — from nuclear reactor failures to oil spills to the collapse of the subprime mortgage market — we have focused on which people and institutions might be to blame. How, we ask in hindsight, could people and institutions have failed to foresee clear signs of trouble — even in the face of warnings?

In “Willful Blindness: Why We Ignore the Obvious at Our Peril” (Walker & Company, $26), Margaret Heffernan argues that such failures are part of a “human phenomenon to which we all succumb in matters little and large.”

She wants to know, for example, “What are the forces at work that make us deny the big threats that stare us in the face?” and “Why, after any major failure or calamity, do voices always emerge saying they’d seen the danger, warned about the risk — but their warnings had gone unheeded?” 

But Ms. Heffernan is chiefly concerned with the dangerous effects of this blindness. She offers a wide range of examples, including spouses who ignored evidence of a partner’s adultery, homebuyers who took on excessive mortgage debt, and companies whose compliant employees assumed “levels of risk beyond their ability to recover.”

Writing in clear, flowing prose, she draws on psychological and neurological studies and interviews with executives, whistleblowers and white-collar criminals. She analyzes mechanisms that limit our vision — individually and collectively — and thus jeopardize our safety, economic well-being, moral grounding and emotional wholeness.

Love, ideology, fear and the impulse to obey and conform all play important roles in rendering us blind to the makings of personal tragedies and corporate collapses.

Information overload is also a big factor, especially in our technologically sophisticated age. Ms. Heffernan explains how multitasking and excessive stimulation, combined with exhaustion, restrict what we see and do."

AS I discuss in Climatopolis, there certainly are such "Homer Simpsons" who ignore the clues that Mother Nature is presenting while there are others who recognizing patterns to climate events and day to day quality of life change their lifestyles to protect themselves.

I make a more subtle argument in Climatopolis.  If there are enough of these "Red Flag Ignorers" , then a for profit firm could become very rich selling products to these naive Homers when they suffer as the days of pain begin.

So, the irony here is that the more silly Homer Simpsons there are then this actually raises the probability that firms will invest more in solutions because there is a larger market share of "future victims" to sell climate adaptation products to.

Friday, April 01, 2011

China Goes Green?

I am looking forward to participating in this Fortune Brainstorm Green 2011 conference.  Tuesday night, the keyboard player from the Rolling Stones (Chuck Leavell) will play and on Wednesday morning I will participate in this panel;


This fast-growing nation has become the largest producer of solar and wind energy and has pledged to become the leading global maker of electric cars. In part China accomplishes these goals by offering cheap government loans, land, and other subsidies to boost its green industries. What lessons can be learned from China’s green stampede?

Discussion leaders:
Matthew Kahn, Professor, Department of Economics, UCLA
Li Lu, Founder and Chairman, Himalaya Capital Management
Zongwei “Bryan” Li, Executive Director, Vice President, and CFO, Yingli Green Energy Holding Co. Ltd.
Michael Elliott, Deputy Managing Editor, TIME Magazine

What will I say?

As you know, I've written several pieces about China's green cities.  Here is the full set including some new stuff;

Paper #1  (new!)

Paper #2  (Zheng and Kahn 2008)

Paper #4  (Zheng, Wui, Glaeser and Kahn 2011)

Paper #5  (Zheng, Wu, Deng and Kahn 2011)  --- presented at the Maastricht Conference in March 2011

If you don't have the time to read all of this stuff, let me summarize.  China's cities are home to millions of educated increasingly wealthy people. Many of them have lived and worked in the United States.  The educated want to live in Green Cities and will demand policies to increase city "greenness".  China is urbanizing and is building new capital right now. New public transport, new buildings -- you name it. New capital is more energy efficient than old capital.  China is investing in green tech now because it knows that it needs energy and it wants to have a diversified portfolio of sources.  It also smells a nascent export market if it makes progress in renewables power technology. 

Lulling and the Last Lecture

I was going to blog about this article that argues that confidence in Japan's seawalls created a moral hazard effect such that government's well meaning actions increased the risk exposure for its people.  I talk at length about this unintended consequence of government activism in Climatopolis.   But, to spare you this --- I've instead decided to discuss the contents of "My Last Lecture."

Why? I just received this email.

Dear Esteemed Faculty of UCLA,

The UCLA Alumni Association and Alumni Scholars Club cordially invite you to 

to attend the 2nd Annual My Last Lecture Award Ceremony on April 18, 2011, honoring Professor Richard Hovannisian from the Department of History.

The My Last Lecture Award was inspired by the “My Last Lecture” series that occurred on the UCLA campus in 1955. The series featured six speeches from the university’s greatest and most inspiring minds. Professor Kenneth Trueblood and Coach John Wooden were among those who gave their own lectures concerning the following topic: If you had one last lecture to impart upon your students all of the knowledge and life lessons you have learned, what would you say?

Last year, the UCLA Alumni Association and Alumni Scholars Club revived this tradition by holding a campus-wide election for students to nominate a professor they found to be particularly inspiring. Dr. Asim Dasgupta, from the Department of Molecular Biology, Immunology and Molecular Genetics, received the most nominations and was the recipient of the award.

This year’s My Last Lecture Award will be presented to Professor Hovannisian on Monday, April 18, 2011, at 6:30 p.m. in Moore 100. In addition to accepting his award, Professor Hovannisian will contribute to this tradition by giving his own lecture pertaining to the topic used by the speakers in 1955. 

SO,  someday soon, I will give my last lecture.  I expect to be invited to give a lecture in this series!  I had planned to wing that lecture but now I'm thinking that I will address the following topic: "If you had one last lecture to impart upon your students all of the knowledge and life lessons you have learned, what would you say?"

I would repeat word for word what the Professor says in  this   lecture in Rodney Dangerfield's Back to School.

After starting my talk with this stuff, I would then read a short section from each of my published papers to show the audience the evolving thinking of a Professor in his 20s, 30s, 40s, and 50s.    The audience could judge whether I made intellectual progress over time.  I would talk at length about the teachers who made an impact on my education and contrast the University of Chicago's "tough love" approach with the kindler and gentler approach adopted at other places. 

I would then read a random set of my blog posts written over the years.  

 I would end my talk by making some suggestions for how to improve UCLA -- in particular focusing on which departments should shrink in size and how the budget could be allocated more efficiently in the sole pursuit of academic excellence.  I figure that at this part of the talk -- the electricity would be cutoff and I would sit down a retired man.

People would leave my lecture dejected because they had wasted their time listening to a guy who had nothing inspirational to say.   I apologize for that.