Wednesday, August 31, 2011

Casey Mulligan on the Economics of Hurricane Irene

Paul Krugman will agree with this Casey Mulligan post?  While these two leading economists do not always agree, I am confident that there is a microeconomic consensus concerning how self interested individuals respond to new risks.  I must admit that I like what Casey had to say about my Climatopolis book at the end of his article.

Economists are optimistic about our future.  This optimism doesn't simply represent wishful thinking.  Instead, we posit that both people and firms have strong incentives to think through what new risks climate change will pose.  People will respond using their knowledge and resources to reduce the threats they face. For profit firms will respond by investing and developing products that people will want to buy that will help them to cope in our nastier future.  The net result of this dynamic process is that capitalism will be a very good friend of climate change adaptation.

Tuesday, August 30, 2011

Old School

As a "Tiger Dad", I try to find something in the NY Times for my son to read each day.  This entry caught my eye.   What lessons will my son learn from this article?  As a believer in "credible threats", I view Mr. Briles as quite "old school".

"A Southern California man was arrested Sunday after he threw his crying 7-year-old son off a sightseeing cruise boat during an argument that shocked passengers on the boat, the authorities said. Sloan Briles, 35, was arrested for investigation of child endangerment and resisting arrest, said Jim Amormino, a spokesman for the Orange County Sheriff’s Department. The police said Mr. Briles, his girlfriend and his two sons from a previous marriage went on an afternoon cruise around Newport Harbor on a boat carrying 85 people. Mr. Briles argued with the girlfriend and then with his 7-year-old son before throwing the boy over, the police said. The boy was rescued by another boater, and the father also jumped in to save him. The boy and his brother were returned to their mother’s care. Mr. Briles was released Monday."

Don't Mess with Nursing Mothers

Social scientists are in deep thought about breast-feeding.   Leading economists have worked on this topic and now UCLA psychologists are working on this.  While I don't plan to work on this topic, I reserve the option of doing so in the future.  Here is the headliner for the new UCLA research; "Women who breast-feed are far more likely to demonstrate a "mama bear" effect — aggressively protecting their infants and themselves — than women who bottle-feed their babies or non-mothers, according to a new study in the September issue of Psychological Science, a journal of the Association for Psychological Science."

Aug. 30, 2011

Like mama bears, nursing mothers defend babies with a vengeance

Letisia Marquez,
Women who breast-feed are far more likely to demonstrate a "mama bear" effect — aggressively protecting their infants and themselves — than women who bottle-feed their babies or non-mothers, according to a new study in the September issue of Psychological Science, a journal of the Association for Psychological Science. 

And when breast-feeding women behave aggressively, they register a lower blood pressure than other women, the study found. The results, the researchers say, suggest that breast-feeding can help dampen the body's typical stress response to fear, giving women the extra courage they need to defend themselves. 

"Breast-feeding has many benefits for a baby's health and immunity, but it seems to also have a little-known benefit for the mother," said Jennifer Hahn-Holbrook, a postdoctoral fellow in the UCLA Department of Psychology and the study's lead author. "It may be providing mothers with a buffer against the many stressors new moms face while at the same time, giving mothers an extra burst of courage if they need to defend themselves or their child." 

But the aggression demonstrated by breast-feeding mothers has its limits, Hahn-Holbrook added.   

"Breast-feeding mothers aren't going to go out and get into bar fights, but if someone is threatening them or their infant, our research suggests they may be more likely to defend themselves in an aggressive manner," she said. 

The breast-feeding mothers' reaction is known as "lactation aggression" or "maternal defense" in mammals.

Hahn-Holbrook was aware that non-human female mammals, including macaques, rats, mice, hamsters, lions, deer, sheep and others, display more aggression when they are lactating than at any other reproductive stage, but she couldn't find any research that tested that reaction in people. So she decided to set up the first experiment to study lactation aggression in humans. 

For the study, researchers recruited three groups of women — 18 nursing mothers, 17 women who were feeding formula to their babies and 20 non-mothers. Each woman was asked to compete in a series of computerized time-reaction tasks against a research assistant posing as an overtly rude study participant. The women's infants were supervised in an adjoining room. 

Upon winning a round in the competition, the victor was allowed to press a button and deliver a loud and lengthy "sound blast" to the loser — an act of aggressiveness. The researchers found that breast-feeding mothers delivered sound blasts to the rude research assistant that were more than twice as loud and long as those administered by non-mothers and nearly twice as loud and long as those by bottle-feeding mothers. This was true both before and after the breast-feeding mothers nursed their infants. 

The researchers also measured participants' stress levels via blood pressure during the experiment. Breast-feeding mothers' systolic blood pressure was found to be approximately 10 points lower than women who were feeding formula to their infants and 12 points lower than non-mothers. 

Previous research in non-human mammals has shown that lactation enables heightened defensive aggression by down-regulating the body's response to fear, a phenomenon that benefits the survival of both mothers and their offspring. The lower blood pressure seen in the breast-feeding mothers during acts of aggression, the researchers say, is an indication that the same mechanism is likely at work in humans as well. 

Co-authors of the study included Julianne Holt-Lunstad, a psychology professor at Brigham Young University; Colin Holbrook, a postdoctoral fellow and research associate in the UCLA Department of Anthropology; Sarah Coyne, a professor of family life at Brigham Young University's School of Family Life; and Ernest Lawson, a professor at Queen's University Belfast. 

Monday, August 29, 2011

A Recipe for Increasing Domestic Manufacturing Jobs

Alan Krueger is a great choice to lead the CEA but is it his job to figure out how to "create jobs" for the U.S economy?   I don't think so.  The NY Times wants us to have more manufacturing jobs and it has vehicle batteries on the the brain.   Such Michigan investments may help but the jury is still out on whether industrial policy is a wise investment.  Can you pick winners?  At the horse track maybe, but in a multi-trillion dollar economy?

Fortunately for the world, Erin Mansur and I have written an applied paper investigating where U.S manufacturing agglomerates.  If you want more manufacturing jobs, then you need to vote for;  1. low industrial electricity prices,  2.  lighter labor regulations,  3.  careful enforcement of the Clean Air Act.

To be a little bit more precise,  industries that are energy intensive avoid high electricity price areas.  Industries that are labor intensive avoid union states and industries that are pollution intensive avoid areas that are not in compliance with the Clean Air Act.

A cleaner test of our findings would be if counties in the United States could be randomly assigned their bundle of industrial electricity prices, labor regulations and Clean Air Act regulations.   Suppose that the random assignment would last for a fixed amount of time such as five years.   Firms would recognize this policy commitment and would choose their profit maximizing locational choice and the number of jobs they would want to create.  From observing where firms locate and their job creation as a function of randomly assigned policies, we would have air tight evidence on the role that these 3 factors play in determining the geography of jobs.  Will Alan Krueger endorse this experiment?

So, under random assignment; some U.S counties would have low energy prices, low labor regulation and low environmental regulation while others would feature the opposite  If we make this discrete, counties would be randomly assigned to 8 mutually exclusive and exhaustive categories (high or low prices, high or low labor regulation, high or low environmental regulation).

I am taking the field experiments literature quite seriously but I'm applying it to "macro policy".

Revealed Preference Evidence Concerning What Economists Actually Do All Day Long

My mom still hopes that I will become an urban planner while my father wants me to enroll at his medical school..  She wants me to be useful but my human capital is no longer putty as it has turned into clay.  While the public hopes that economists think deep thoughts about job creation and the merits of Keynesian policies, most economists are working on a wider range of issues.  The 2012 AEA Meeting Program in Chicago    is now posted.  You will learn much about academic economics in the year 2011 if you skim through the titles.

Here is an atypical session.

Jan 07, 2012 10:15 am, Hyatt Regency, Regency A
American Economic Association

Panel Discussion: Using Blogs to Teach Undergraduate Economics (A2)
Presiding: Gail Hoyt (University of Kentucky)

Economics for Teachers
Jennifer Imazeki (San Diego State University)

Grasping Reality with a Sharp Beak: The Semi-Daily Journal of Economist J. Bradford Delong
J. Bradford DeLong (University of California-Berkeley)

Steven Levitt (University of Chicago)

Marginal Revolution
Alex Tabarrok (George Mason University)

Economists Do It with Models
Jodi Beggs (Harvard University)

Sunday, August 28, 2011

Energy Consumption and Real Estate Prices

Do "green buildings" sell and rent for a price premium?    This LA Times article  discusses some recent research on this topic including my solar paper (joint with Costa, Dastrup and Graff-Zivin).  Using hedonic pricing techniques and data from Sacramento County and San Diego County in California, we find that solar panels increase a home's resale price by roughly 3.5%.   John Quigley and co-authors such as Nils Kok have written several papers  documenting that commercial real estate that is certified as "green" either by LEED or Energy Star sells and rents for a price premium.

The economics of this energy capitalization is pretty straightforward.  Some predictions;

1. If the price of electricity is higher in a local area, then the energy efficiency price premium will be larger.

2. If environmentalists live in such an area (i.e Berkeley), there will be more "green buildings" built.  Whether the price premium will be larger hinges on the shape of the supply curve. If there are many green architects working in liberal/green areas, then the higher demand in such areas may not translate into a price premium (hint: think of a flat supply curve).

3.  Many energy efficiency strategies are hard for a potential buyer to detect.  A potential buyer of a home is unlikely to ask the previous resident for his typical electricity bill. Even if such a nerd requests such a document, family j may learn little about what its energy bills will be from seeing family m living in the same house.   In the absence of "energy labels" for homes that certify its energy efficiency, residential energy efficiency is unlikely to be capitalized into resale values. Holland and Singapore have introduced such ratings systems and Nils Kok and John Quigley have evaluated these.

4. If the price of electricity is high, then new construction will be more energy efficient.  See Costa and Kahn 2011. 

Friday, August 26, 2011

Manhattan Gets Ready for Hurricane Irene

This has been a tough week for the Northeast; one quake and now some heavy rain.    I'm sitting in sunny, cool Berkeley reading posts such as this one and looking at flood maps such as the one below.

I would be shocked if this hurricane causes deaths in the Northeast.  The early warning system has alerted people to take this storm seriously and the wealth of the U.S allows us to afford a building stock that can take a punch.   Of course, there is a lot of property located on the Northeast coast and I'm sure that many of these homes and structures are made out of inferior materials.

If this storm does cause significant property damage, then the people of the East Coast will have to take a close look at why this took place.  What types of building materials couldn't take the punch?  Why did people use such materials?  Will they continue to use such materials to rebuild after they learn that tough storms can cause damage.  The silver lining of these shocks is that we learn about what are the weak spots in our defenses and this "wake up" call alerts people to how they must invest to play better defense against Mother Nature.  We choose how much damage natural disasters cause by where we choose to live and how we live.

Thursday, August 25, 2011

Urban Retail Cannibals

Think about a chain of retail stores such as a Starbucks or Safeway.   What is the optimal spatial distribution of these stores? If you place two Starbucks close to each other, do they end up cannibalizing each other's business so that total Starbucks' sales do not rise much but Starbucks pay the costs of running two stores and employing two sets of workers?  If the Starbucks CEO worried about this then he wouldn't operate two stores close to each other.

So, this was a long winded intro for this recent article about Safeway introducing a second supermarket in the general Rockridge area (about 1 mile from Berkeley).

Data can be useful.  The Safeway had data on who shops at each supermarket and from their customer "barcodes" (that offer savings if you sign up and give your zip code of residence) --- a good GIS researcher can map out where the customers live relative to where the store is and here is the punchline;

"Based on this information, Safeway concluded that the College Avenue store's customers live within an average of 2.7 miles from the supermarket. The distance between the two stores is exactly 1.2 miles. In other words, Safeway's own tracking data shows that it will be relying on many of the same customers to keep two massive supermarkets afloat."

This smells like cannibalism to me.  I would be happier with Safeway's MBAs if somebody could make a map and show that there is a competitor supermarket close to where the new supermarket will be built. Is Safeway competing with itself here or does it have a plan to lure new business (from where?) or to lure it from another supermarket?  How will this phantom supermarket respond to the new competition? If they drop their prices then consumers win but the Safeway will end up with low profits and will regret having opened the new store.

We want more jobs in the U.S and this Safeway will employ new workers but the issue arises, how do managers make decisions concerning how they predict what will be profitable new entry decisions?  What does Safeway know (that makes them confident to make this multi-million dollar entry investment) that the author of this article doesn't know?

San Francisco Real Estate

Here  is a cross-post that I wrote for the UCLA Ziman Center's new real estate blog. If you skim through the blog entries, you will see a diverse set of faculty and students writing for this blog.  We are trying to highlight that UCLA is a hub of real estate research activity.  The faculty are spread out across the Business School, Law School, Urban Planning and the Economics Department and we don't have a Ph.D. course or sequence.  Despite this "sprawl", we are thinking hard about how to use the Ziman Center to co-ordinate real estate research across the campus and how to create something larger than "the sum of its parts".  

Tuesday, August 23, 2011

Pick Your Poison: More Debt or Inflation?

Here is a clash of two titans named Krugman and Rogoff.  Dr. Krugman says that it is cheap for the U.S to borrow right now and that there must be some NPV>0 projects that the federal government can invest in --- so we should increase our debt to stimulate the economy now.   Rogoff appears to want to reduce our debt overhang by igniting some moderate (6%?) inflation.  The Chinese will be grateful for that!

I disagree with these esteemed scholars.  I propose that the Obama Administration adopt four policies.  First, the minimum wage is abolished.  Second,  the earned income tax credit is expanded.  Third, we sell off 3 million passports to the top international bidders immediately.  Fourth, employers can fire workers without cause.      

The combination of these four policies will reduce unemployment, increase home prices, reduce foreclosures and reduce the federal government deficit.  I don't mean to be heartless with respect to policies #1 and #4. Instead, I'm trying to make employers more comfortable with taking risks of hiring workers during uncertain times. If you know you can fire bad workers, then you will be more comfortable ex-ante hiring workers whose productivity you are uncertain about.  The labor market is a "matching market" similar to the marriage market.  Firms must decide whether a worker is a good match for a particular occupation and firm. Firms won't experiment if they anticipate that they are stuck with any worker they actually hire.

Learning from Experience and Adapting

The Northeast has survived its 5.8 scale quake and will learn from the experience.  The first earthquake I experienced in Berkeley made me think that a subway train was about to arrive.  But, then I realized I wasn't in NYC and that it must have been a quake.  There are always silver linings of such shocks.   I hope my parents and brother enjoyed the excitement?

The population of the Northeast will take a fresh look at potential investments to lower the damage caused by future shocks. That's adaptation!    Richer people and richer cities and nations have more resources to adapt.  This is why the death toll from natural disasters is lower in richer nations.    To adapt to future shocks, we must keep getting richer.

Can Prius Drivers Be Homophobic?

The following quote was presented in today's San Francisco Chronicle.

Public Eavesdropping

"She can't be homophobic. She drives a Prius."   Resident of a senior housing community, overheard in Sonoma County by Trish Benedict

Read more:

The quote actually is related to my own research on environmental ideology (see this).    Open up a microeconomics book and you won't find the word "ideology" mentioned in the consumption chapter. Instead, you will see a long discussion of budget sets (what people can afford to buy) and you will see indifference curves (which represent a consumer's willingness to tradeoff one good for another).  The author will not tell you where the consumer's preferences come from.

In my "new vision" for micro theory, households differ with respect to their intrinsic ideology.   It remains an open question where this ideology comes from.   Consumers know their ideology and act upon it.  In the case of my work on "green products", those with a liberal ideology are more likely to engage in voluntary restraint and want to purchase the Prius, solar panels, carbon offsets and in general live a "small footprint" lifestyle even if there are not explicit Pigouvian taxes for polluting.

Now, how does this relate to Homophobia?   If you are willing to assume that liberals are less likely to be homophobic and if liberals tend to drive the Prius (which they do), then it follows by transitivity that Prius drivers should be pro-gay rights.

Note that driving a Prius doesn't "make you" pro-gay rights, instead a 3rd cause (liberal ideology) drives both behaviors.

This correlation between ideology and Prius ownership would weaken during a time of high gas prices or a time when gas prices are expected to rise.  In this case, we would see more people (regardless of ideology) buying fuel efficient vehicles.   For the subset of people with extremely long commutes, they will also buy the high MPG vehicle regardless of their politics.

Sunday, August 21, 2011

Amenities Bundled into New Residential Housing in Manhattan

Milstein Properties is rolling out new housing in Southern Manhattan's Battery Park City.  This real estate isn't cheap.  As this article explains, it will cost $1,300 a square foot while its local competition costs a mere $1,000 per square foot.  What amenities does the new property offer to justify a 30% markup?

To quote the article;

"Stylewise, the exteriors of Liberty Green and Liberty Luxe blend with their neighbors in Battery Park’s northern, newer section, with traditional facades and sliding windows, similar to those at Tribeca Green, a Related Companies rental across the street.

Like Tribeca Green, the two buildings have environmentally friendly features. Since 2000, the Battery Park City Authority has mandated that new buildings in the neighborhood be energy-efficient. Cabinets and floors are made of bamboo, which can be harvested sustainably; apartments have master cut-off switches so all lights can be turned off at once; and rainwater is collected and reused.

What may differentiate Liberty Green and Luxe from their predecessors is a 52,000-square-foot community center under the base of both buildings, connected by a plaza.

Created by Asphalt Green, the not-for-profit organization known for its Upper East Side sports complex, the center will have a basketball court, a 5,000-square-foot fitness center and an auditorium, all of which can be accessed from newly refurbished baseball fields on the complex’s eastern side."  There will also be a swimming pool.

Somehow, I'm not convinced that these amenities are worth a 30% increase but they only need to find 1300 households who disagree with me.  Such residential areas are self selected communities. If they are viewed as elite, hip places then they will succeed as such like minded people will seek to live there.  They don't want guys like me to live there. I would ruin the buzz.

Saturday, August 20, 2011

Can a Former UCLA Dean Write a Great Book on Leadership?

I lead by counter-example.  My students and my son observe what I do and then do the opposite.  This strategy works but it isn't for everybody.  Are you the "Ike" of your organization?  Do you have tips to offer future aspiring Macbeths?    As a leader, do you want to be feared or loved or neither?

UCLA's own Dr. Gerald S. Levey has written a new book on leadership titled "Never Be Afraid to Do the Right Thing". I'm guessing that he isn't a doctor of economics.   Here is what my friends at the UCLA media office wrote about his new book;

"The book is titled after Levey’s favorite business admonishment: He frequently advised members of his leadership team that more important than whether a decision turned out to be correct was whether it was "the moral, ethical and honest thing to do."
In the book, Levey argues that one of the most important traits of a strong leader is the ability to adapt to circumstances. "No one knows what the healthcare system will look like 10, 20, or 30 years from now," he says. "But the leaders of that system are going to have to know how to adapt. If, for example, Medicare or Medicaid were drastically changed, they would have to figure out how to function at a high level in such a system." "

So, as the world changes -- we need to be nimble and be good problem solvers to work on the new problems we will face under different environmental conditions?  Sounds a little like my Climatopolis and I like that!  

Some Links for Today

1. I have written papers on household carbon footprints in both the United States and in China so I continue to be interested in other scholars' carbon footprint calculations.  This study examines the carbon footprint of indoor Cannabis production. Now, that's Freakonomics!  Note that the author is sad that other people find his study amusing.  That makes me sad.

2.  In Berkeley, are street musicians who volunteer to play for free "exploited" during the annual Solano Stroll?   For a debate on this deep issue click here.  I also recommend the letter about the nasty environmental impacts of burning incense.   Permit me to quote Bev Jo from Oakland;

"It's about time more people knew about the dangers of incense, which many of us have known for decades. Scented candles also are toxic, as well as smelling horrible. It's ironic that some "health food stores" are extremely toxic and bad-smelling because of the amount of incense, candles, and other scented products they sell. There is almost no escaping this crap. It is not spiritual to damage other people's health."

I hope she works at the UC President's Office because she is smart.  President Yudoff watch out!

Friday, August 19, 2011

Government to the Rescue?

I gave a lecture on climate change adaptation today to a group of 40 Ph.D. econ students from all of the UC campuses.  As you know, I place individuals and individual firms as our first line of defense in protecting us from the challenge of climate change.   In contrast, several students in the room were insistent that government will play the central in protecting future generations from climate change.  I respect their idealism but this merits a little bit of analysis.

In Climatopolis,  I argue that in an open system of cities in which people can migrate across cities at relatively low cost (and 3% of people in the U.S move across states every year), those cities that fail to adapt to climate change will suffer a brain drain as the skilled who seek safe, high quality of life cities will leave.  This threat of "exit" by the footloose skilled provides strong incentives for self interested mayors who want their tax base to remain to be pro-active in protecting their city.   I certainly agree that government can use its unique powers of taxation, public goods provision and zoning to "climate proof" a city but it will be much more likely to take these steps if the population sends credible signals of punishing those mayors who are no pro-active.

UPDATE:  Migration in response to climate change isn't just a human activity.  Have you read this about the mobile critters?

In contrast, the students appears to embrace a "benevolent planner" model of government as it steps up to protect us from our misfortune.  I wish we lived in such a world but I have seen our politicians in action.

I do believe that politicians react to competitive forces and if the median voter wants adaptation investment then Mayors will think through actions that can help to protect the urban population. Again, the key idea here is the threat of competition and no mayor thinking that he/she has a monopoly on the skilled.  The threat of exit by the golden goose (the skilled) yields better governance.

I would also stress that the domain of what Mayors, Senators and even the President controls is small relative to the freedom and opportunities that the free market can create.  The President and Congress can enact activist policies such as paying for new highways or new health insurance but they cannot mandate technological advance. Neither Facebook nor Google was not created by government.   As I argue in my book, government has often created bad incentives for encouraging innovation that will help us to adapt to climate change. We need to face the scarcity signals for electricity and water. In many cases, regulation sets ceilings on how high prices for such resources can rise. If we allowed free markets to signal their scarcity (then as climate change makes them more scarce), innovation would take place that economizes on those resources.

I also worry about a certain lulling effect. If the UC students truly believe that government will rescue them, then this diminishes their willingness to be pro-active to protect themselves. In English, if you believe your neighborhood street is safe and low crime because of police patrols, you may not lock your doors.  The perception that you have a guardian angel can displace private self protection and I view this as a mistake.  There are certainly cases where private investment in self protection and public investment are complements (i.e like peanut butter and jelly) but this needs to be thought through on a case by case basis because I think they are substitutes in many cases.  Consider New Orleans. If government invests in nice strong Sea Walls (and taxes North Dakota to pay for them), more people will live there. This is a simple example of government investment in protection displacing private investment in self protection.  This is the substitutes case.

I am not a member of the Tea Party and I recognize that the government has provide some high quality public goods such as national defense and the welfare safety net.  That said,  climate change does raise a fundamental issue of which strategies we use to cope with a new challenge.

I think what the students didn't explicitly say today is that they are worried that the poor do not have enough $ to protect themselves and so they really seek "big government" because this tax and spend regime will give the poor more resources to cope with climate change.  This conflates two different ideas; redistributing cash to the poor and optimal strategies for protecting ourselves from an emerging threat.  Economists often forget that many people care more about equity than the economy's efficiency and it was interesting today to meet young economists who also feel this way.   But, the U.S deficit problems would vanish if the economy were growing faster and a more efficient economic system does grow faster!

A free market economist would say if the poor need more resources in order to successfully adapt to climate change then we need to figure out how to reduce poverty in the United States.  The solution can be found here.

Thursday, August 18, 2011

Intellectual Property and the Internet

To my deep surprise, I have found a website (that I didn't create) that has posted all of the references that I listed at the end of my 2006 Brookings Press Book; Green Cities: Urban Growth and the Environment.  The website does not name me as "the source" for this reference list.  It appears that academics are working for free for aggregator sites as we provide content that we generously don't ask to be listed as the source for and then our work is bundled with some ads to produce a new webpage.  That's value added!

Tuesday, August 16, 2011

New UCLA Survey Research on Worrying About the Future

The lead investigator of this new survey sold me my current house.  How does he propose that we finance the expenditures that he is asking "us" to incur?

Aug. 16, 2011

Poll finds two-thirds of California voters unprepared for costs of growing older

Gwen Driscoll,
California's weak economy has voters cutting back on current expenses and largely unable to meet essential future ones, such as the cost of long-term care, according to a new poll from The SCAN Foundation and the UCLA Center for Health Policy Research

The poll, in its second year, sought to better understand health and long-term care issues facing middle-aged voters, given the state's current economic crisis and the rising number of Californians older than 60, a figure that is projected to nearly double to 12 million people in the next 25 years.  

The poll found that Californians, regardless of political party or income level, were worried about the costs of growing older. Two-thirds (66 percent) of respondents said that they are apprehensive about being able to afford long-term care. Sixty-three percent worry as much about paying for long-term care as they do about paying for their future health care. 

Voters' ability to save for long-term care expenses is hampered by California's weak economy. Nearly half (48 percent) of voters 40 and older said their household income has declined in the past 12 months, and 50 percent said they had to take money out of savings to meet their expenses. Four in ten (41 percent) have had to cut down on the amount they spend on food in the past year. 

"Californians need affordable options to age with dignity and independence so that they can live how they want in the place they call home," said Dr. Bruce Chernof, president and CEO of The SCAN Foundation. "With so many Californians struggling financially today, it is hard for them to think about the future, yet planning for future needs is an essential component of growing older and necessary for one's personal health, as well as the state's fiscal health, especially given the high cost of long-term care."

Conducted by Lake Research Partners and American Viewpoint, the poll surveyed 1,490 registered California voters age 40 and older in English and Spanish. Findings show that regardless of their political party affiliation or income level, voters have continuing aging-related concerns over the loss of independence (73 percent), losing memory or other mental abilities (70 percent), and worsening health (70 percent).  

The costs associated with living with these potentially debilitating health conditions are high, yet Californians underestimate their potential need for support and services. Sixty-three percent predicted they would need help, but according to the U.S. Department of Health and Human Services, 70 percent of Americans over the age of 65 will need long-term care services at some point in their lives, and more than 40 percent will receive care in a nursing home for even a short period of time.  

Among other findings, California voters age 40 and older: 

Cannot afford services
A majority (66 percent) of respondents could not afford more than three months of nursing home care at an average cost of $6,000 per month in California. About four in ten (42 percent) could not afford a single month of care. Among Latino voters, 88 percent could not afford more than three months of nursing home care.  

Do not have long-term care protection
Most respondents (85 percent) said they do not have long-term care insurance or are not sure whether they are covered for supportive services like in-home care. 

Are facing stretched budgets
Six in ten (60 percent) said they are worried that their total family income will not be enough to meet their family's living expenses. 

Have concerns that cross party lines, income levels
Seventy-one percent of Democrats, 64 percent of independents and 62 percent of Republicans — and 61 percent of voters with household incomes over $75,000 — are worried about paying for long-term care. 

Feel stressed from their current caregiving responsibilities
Sixty-three percent of respondents caring for an aging loved one said it is emotionally stressful, and nearly half said they are not regularly getting the social and emotional support they need. 

In order to get help from the state for long-term care costs, individuals in California must qualify for Medi-Cal by spending down their assets to $2,000 and have a near-poverty income after paying for medical expenses.

According to survey respondents, affordability and accessible information should be high priorities for elected officials in California. Priorities include making long-term care insurance more affordable (64 percent), having affordable options to avoid nursing homes (63 percent) and having enough information about how to get help for people who cannot take care of themselves (59 percent).

"People can cut back on movie tickets and trips to the mall," said Steven P. Wallace, associate director of the UCLA Center for Health Policy Research. "But long-term care is an essential expense. Most Californians will need it during their life, yet unfortunately, most Californians are not planning for it and the government is cutting back on affordable options that could help." 

Wallace noted that cuts to California's budget have placed the network of home- and community-based services that enable elderly or disabled Californians to live on their own in their homes in jeopardy.  

"The policy question moving forward has to be how to reorganize and sustain critical in-home programs that provide vital services and save the state from the far more expensive option of nursing homes," Wallace said.  

The California 2012–13 state budget cut several key services that help those with long-term care needs remain in the community. Core state funding for Adult Day Health Care centers was eliminated, and cuts were made to In-Home Supportive Services, which provides assistance to low-income adults and children who are blind or disabled. 

"Programs are being cut to provide short-term savings, and the reality is that many of these people will end up in emergency rooms, the least person-centered and most costly form of care," Chernof said. "We should instead be restructuring programs to meet the emerging need of a more sustainable network of home- and community-based care." 

SPOTLIGHT: Latino Voter Perspectives on Long-Term Care  
In this poll, Latino voters expressed particular concern about access and affordability of long-term care services. Findings show:  

·         88 percent of Latinos could not afford more than three months of nursing home care, and 78 percent could not afford more than three months of part-time in-home care.
·         84 percent are much more likely than others to have said they worry about making ends meet.
·         Latinos were more likely than whites, Asians and African Americans to say that they have cut back on saving for retirement (52 percent).

The SCAN Foundation is dedicated to creating a society in which seniors receive medical treatment and human services that are integrated in the setting most appropriate to their needs. For more information, please visit

The UCLA Center for Health Policy Research is one of the nation's leading health policy research centers and the premier source of health-related information on Californians.  

For more news, visit UCLA Newsroom and UCLA News|Week and follow us on Twitter.

What Should Firms Maximize?

How does the NY Times choose who should write its OP-ED pieces?  Paul Krugman was a wise choice but does Joe Nocera merit such a monopoly?  I know that he has a business news niche as he dishes dirt on what deals are going down but his knowledge of economics is shaky at best.  In this piece , he says some very strange stuff.

Joe N embraces the view that firms are earning monopoly profits and have an ethical and patriotic obligation to sacrifice some of these profits to keep unproductive workers on payroll.  Rather than burying bottles filled with dollars (a la Keynes 1936), Nocera (2011) wants firms to lose $ in order to keep unemployment low.    

On some level, this is an interesting industrial organization model as he must dismiss the model of perfect competition.   Here is a quote from this innovative thinker;

"I am coming more and more to think that with the government essentially paralyzed for the foreseeable future, the only way we’re going to get jobs is by turning to actual job creators: business itself. With all their cash, companies shouldn’t be waiting for Congress to give them tax incentives to hire people. They should be trying to jump-start the economy — and fend off another recession — by making investments, and hiring workers, that will lead to renewed prosperity.

The only way that’s going to happen, however, is if our society implicitly makes the kind of compact that German society makes explicitly: We have to be willing to allow companies to sacrifice short-term profits for the long-term good of the country. As the leadership expert Michael Useem wrote recently on The Washington Post’s Web site, business needs to make “people a priority, not just earnings.”

What makes that hard for executives is that they’ve spent the last 30 years having it beaten into them that the only thing that matters is delivering “shareholder value.” "

Firms hire workers when the P*MP_labor > wage  , where P = market price of the goods the firm sells and MP_labor is the extra output the last worker hired produces and wage is the full wage that the worker will be hired. In English, firms hire when the marginal benefits exceed the marginal costs.

This author wants firms to internalize a "patriotic externality" that when a worker is paid that she is less likely to default on her mortgage and buys other consumer goods that stimulates the economy.

If firms stop following the signals of the invisible hand, will our economy be in "better shape"?
Joe N would be wise to watch this Milton Friedman video.

Sunday, August 14, 2011

Using Field Experiments To Diagnose the Causes of Our Economic Malaise

Have you noticed that economists do not agree about what are the causes and cures for our current malaise?   Right now we seek to reduce the budget deficit and to reduce unemployment.   If more people worked and paid taxes, then unemployment insurance claims would be lower and the IRS would collect more tax revenue, so it appears that job growth would address both of these issues.  

Firms hire workers when the marginal value product is greater than the wage they must pay.  During this time of macroeconomic uncertainty and uncertainty among academic economists concerning what is the disease and what is the correct medicine to order, I suggest that it is time to experiment and follow the advice of Banerjee and Duflo.

To quote these authors;  "Perhaps even more importantly, they are often in a position to midwife the process of policy discovery, based on the interplay of theory and experimental research. It is this process of “creative experimentation”, where policymakers and researchers work together to think out of the box and learn from
successes and failures, that is the most valuable contribution of the recent surge in experimental work in economics."

So, permit me to propose some randomized experiments;

Experiment #1;   Take the counties in the United States where unemployment is over 11% right now and randomly assign them to treatment and control.  In the treatment counties, allow any employer in these counties to be exempt from minimum wage laws and from unionization rules for 24 months.   In this experiment, the job creation in these counties will be compared to the control counties in a simple "before/after" comparison.  In the control counties, make no changes to existing labor regulations.

Experiment #2;   For the same subset of high unemployment counties, randomly assign counties to "health insurance" categories.  For firms that locate in counties assigned to the "treatment group", these firms will have to pay for no health care insurance for workers they hire. Instead, the government will provide health care offering Medicare coverage for the hired workers.

These experiments will help to settle the issue of whether labor market compensation is reducing job creation. If firms in the treated counties under experiment #1 and #2 continue to refuse to hire workers, then this is strong evidence that U.S workers lack the skills to be competitive in this global economy and we face a long run problem.

The Obituary for a Leading Statistician Who Gave Us the Kaplan-Meier Hazard Model

When applied researchers fire up their Stata 12.0 version, we should keep in mind that all of the "ado" files embody past major contributions to statistics and econometrics.  Paul Meier's 1958 JASA paper has generated 35,000 cites. That's not bad!

The NY Times obituary has a dramatic caption in the print edition to Dr. Meier's photo. It reads; "Paul Meier's work is credited with saving millions of lives."   He nudged statisticians to embrace randomization.  Randomization plays a central role in distinguishing correlation from causation because it can remove concerns that the treatment in question is correlated with omitted third factors.  But, Jim Heckman has some subtle things to say about this topic.

If the value of a statistical life is $6 million and if Dr. Meier saved 2 million lives (don't ask me how his excellent statistics work translated ), then he created $12 trillion dollars of value for the world.   That's impressive.

Saturday, August 13, 2011

Can Human Ingenuity Substitute for Natural Capital?

New UCLA research on water supply suggests that the answer is "yes".  So, here is the "dance step".  Climate scientists alert us to the natural capital challenges posed by climate change.  With this "heads up", our engineers get to work both out of concern for the future of humanity and due to the possibly of getting rich.  Some of these ideas will succeed while others will fail.  The induced innovation will create new approaches that help to mitigate resource scarcity challenges.  How unrealistic is this optimistic tale?  The anticipation of future scarcity triggers investments today so that we don't suffer the extreme outcomes that well meaning climate hawks fear we will face.

Friday, August 12, 2011

A New 10 Minute Climatopolis Interview

While at PERC in Bozeman Montana,  I was interviewed about free markets and climate change adaptation.   Here is the video.

A Reading List for the Economics of Climate Change Adaptation

There appears to be growing consensus that climate change adaptation is an important topic to study. Since economists have opinions (and expertise) about everything, I have created a short reading list  to encourage more young people to enter this lively field. If I have omitted your favorite study, please send me an email and I will update the file.

I was nudged to provide this public good because I will be lecturing next Friday at UC Berkeley on the economics of climate change adaptation.   There are over 40 graduate students who are enrolled at one of the UC branches who will be attending these lectures.  I am quite happy to hear that there is such interest in environmental and energy economics. I know that 4 of the students are from UCLA.  I had hoped that UCLA would have greater representation but I have learned that I'm not an influential man.

Tuesday, August 09, 2011

Information and Adaptation to Disasters

This article  tells a depressing tale.  After the nuclear power plant disaster in Japan in Spring 2011, people who lived close to the plant sought to migrate to a safer location.  "Given no guidance from Tokyo, town officials led the residents north, believing that winter winds would be blowing south and carrying away any radioactive emissions."  But, the Central Government knew

To quote the article;

"The winds, in fact, had been blowing directly toward Tsushima — and town officials would learn two months later that a government computer system designed to predict the spread of radioactive releases had been showing just that.

But the forecasts were left unpublicized by bureaucrats in Tokyo, operating in a culture that sought to avoid responsibility and, above all, criticism. Japan’s political leaders at first did not know about the system and later played down the data, apparently fearful of having to significantly enlarge the evacuation zone — and acknowledge the accident’s severity."

This ugly case study highlights a key part of my logic in Climatopolis.  Adaptation takes place along several dimensions.  First, where you live and how you live once you choose a location.   But, second, as new news arrives -- you will be better able to adapt to shocks if you have access to high frequency information (will tomorrow be a heat wave?).  Government should play the role of trusted information provider if it is up to the job.  In the case of U.S Smog Alerts, the answer appears to be yes.  But, NY Times article highlights how governments can sometimes have incentives to hide information from their own people and this precludes the possibility that self interested individuals can protect themselves. In this ugly case, the government's failure to supply  information increased the radiation exposure as well meaning individuals migrated closer to "ground zero".

How can competition mitigate this problem? If politicians anticipate that they will be held accountable for such Watergate like cover ups, then they will have stronger ex-ante incentives to tell their people what they know.

Monday, August 08, 2011

The Consequences of a Declining Stock Market for Academic Economists' Standard of Living

Has the recent decline in the stock market been on your mind?  We own a few shares of this and that and I'm feeling a pinch poorer but I'm thinking about my University and your university's medium term hiring plans.  Senior economists have gained from the "free agency" flush times of the 2000s.  Schools such as Washington University helped everyone through their altruistic pursuit of talent.   But, I now sense that the market for senior economists has dried up a pinch and that makes me sad.   If the Deans feel poor, do they scrap all senior searches and merely authorize junior searches?

If I am right, and I could be wrong, then some senior faculty will respond by working harder and raising their publication flow to signal that they are "Cambridge worthy".   Such a substitution away from leisure would be predicted from the stock market's income effect.   Alternatively, people may now pursue more consulting opportunities.  But, consulting gigs could dry up because of a double dip recession. Consumption will decline as the stock market declines. Investment will decline because of uncertainty concerning future Keynesian policies and their tax consequences.

In this case, what will will tenured faculty do all day long? Some will return to their ambitions of being chess champions while others will blog.  Some may hold more office hours.  Some will attend University committee meetings. As  you can see, it will be a radical regime shift.

Thursday, August 04, 2011

"Police Incidents" in Bozeman, Montana

Bozeman is a charming city with roughly 40,000 people. It is a "green", low crime city.   Here are some facts about recent "incidents" from the Bozeman police reports.  This town has a safer feel to it than my LA.

Read through this list. I didn't make this stuff up and it is pretty funny.

  • Eight people were warned for having open containers of alcohol between 1:24 a.m. and 2:10 a.m. on or near Main Street.
  • Four people were either warned or cited for urinating in public between 1:12 a.m. and 2 a.m.
  • A man was seen trying to get hit by traffic at 2 a.m. on 19th Avenue. He was gone before officers arrived.
  • A person was cited for being an intoxicated pedestrian and underage drinking after being found passed out on Seventh Avenue.
  • After seeing "different, strange looking pots" in a neighbor's car and yard, a woman called police to notify them that she suspected her neighbors were growing marijuana.
  • A caller notified police that there were peacocks in the area of College Street.
  • A 37-year-old man was cited for stealing an employee's bike from the Kmart parking lot.
  • Sometime during the night someone drove "all over" a lawn on Sweetgrass Avenue.
  • Eight men and a donkey were camped out in the Walmart parking lot and bothering customers. They were told to leave the property.
  • Several men were warned for throwing rocks at ducks at the East Gallatin Recreation Area.
  • Two men were warned for mooning employees of Michael's Arts and Crafts around closing time. 

Wednesday, August 03, 2011

The Economics of Military Budget Cuts

Many young economics students have taken a quick nap as their professor mumbled about the production possibilities frontier.  While my colleagues would talk about "guns versus butter", I was cool and would talk about the "guns versus roses" tradeoff (get it?).   Now the NY Times tells us  that the tradeoffs are real and that our national security is under threat.    Here is a quote from the article.

"In a letter to Defense Department personnel posted Wednesday morning on the Pentagon’s Web site, Mr. Panetta warned that if a Congressional panel could not reach agreement on cuts to the nation’s deficit, “it could trigger a round of dangerous across-the-board defense cuts that would do real damage to our security, our troops and their families, and our ability to protect the nation.”

Is this true?

The citizen inside me is worried.  The economist in me wonders whether the military has solved a cost minimization problem subject to quality constraints.  I don't believe that the military has had sufficient incentives to solve this problem and in this age of budget cuts this is a serious problem!

Permit me to provide some details.

1. What share of military employees and military subcontractors are members of unions?   Has anyone conducted an audit concerning whether workers are being efficiently employed across different tasks within the military?  Could innovations in information technology replace some workers?  Does the military have any incentives to search for such cost savings?  Or because the Federal Government has been a generous "sugar daddy", there has been no incentive to encourage efficiency and substitute capital for labor in "back office" stateside operations?

More generally, I would ask the Department of Defense to review its manpower policies.  For the "modern military", how many soldiers does it need?  How many stateside employees does it need? Why can't it "outsource" most of this activity to the private sector?  If issues of national security arise, I understand why that must be done "in house" but I doubt that is the case for issues of hospital care, xeroxing and many other typical market transactions.

2.  How does the military choose what pieces of "hardware" are needed?  Can it explain to the American people how our safety against potential enemies is enhanced from purchasing each new helicopter, aircraft carrier?

3. Once the Pentagon has prioritized a specific piece of military equipment, can it do a better job getting military hardware producers to compete to lower the resulting price per unit quality? Permit me to make a suggestion. We should allow Chinese firms to bid on these contracts!  The price per unit quality would fall.

While my jokes here are not funny, my point is a serious one.  How do we know that we are getting our tax dollars worth from the Military?  What incentives do they have? What accountability do the face to provide low cost, high quality service?  Unlike other sectors, they face no competition. We can't hire the Libyan army and fire them.  That causes some bad incentives.

This case study highlights that a silver lining of scarcity is to encourage a new look at encouraging efficiency.  Is Leon P. up to the job?

4.  How we choose which foreign nations to send our top notch military into.


My mother sent me this email as a comment on this post;

Dear Matt;
One problem you don't address in your blog today about const efficient military contracting is - if each large weapon producer bids for a project with the right to hire its own subcontractors - and each alternative weapon produced by different companies is different, doesn't this mean in effedct there is no open bidding on subcontractors; the chosen contractor has sole control over subcontractors and parts costs, to preserve the secrecy of the design so your whole assumption of competative bidding doesn't fly?

So, how do I reply to my mommy?  She points out an interesting example of the role that specificity plays in creating monopoly power.  To lower the cost of producing military hardware, we need the "bomb makers" to avoid using custom parts.  As she points out, there will not be competitive bidding for the inputs to produce a fancy bomb if there is only one company that specializes in making each part of the product. So, this raises the issue of supply chains and double marginalization.  If the military is serious about lowering its costs, it will need to think trading off how "fancy" it wants its weapons to be versus the average cost of producing them.