Wednesday, November 30, 2011

Occupy Harvard Prepares for a Cold Winter

This Harvard Crimson article provides details about the plans that Occupy Harvard participants are taking to continue to camp out even as it gets cold outside.  This is another (and funny) example of expectations causing ex-ante adaptive efforts that help us to cope with changing climate conditions.  The Harvard "radicals" are good data points for the Climatopolis world view.  They will use market products (better insulated tents) to lower the probability that they suffer when it is very cold soon.

"The occupiers are currently considering a number of different methods to transform the frame into a shelter, including installing a plastic skin that would waterproof the dome and additional insulation to keep it warm, according to Bhalla.Another option includes turning the dome into a green house that would be heated by natural light. This approach would allow the walls of the dome to be transparent while maintaining warmth even in five-degree weather, said Timothy S. McGrath, a student in the Graduate School of Arts and Sciences."

For those who say we are myopic and don't adjust our expectations until it is too late, I say "Occupy Harvard".

Monday, November 28, 2011

An Update on My Dad's Publications

I agree with others that bloggers such as myself have nothing new to say.  So, rather than talking about Greece or Paul Krugman, I want to talk about my father's recent publications. Here are some titles of his work that you are unlikely to see in the QJE.

Influence of the hepatic eukaryotic initiation factor 2alpha(eIF2alpha) endoplasmic reticulum (ER) stress response pathway on insulin-mediated ER stress and hepatic and peripheral glucose metabolism

Is it open or is it closed? Thrombosis of a St. Jude's tricuspid valve prosthesis

Doppler echocardiography and computed tomography in diagnosis of left coronary arteriovenous fistula

If anybody knows what any of these words means, please get in touch with me.

Vain Economists

Economists like to compete and Google Scholar has given us a new way to compete with a ranking system that is merely one mouse click away.  Is this metric better than the REPEC metric?  We don't care.  We just want to compete.  We will soon see how many well cited economists register so that they can stand out in the pecking order.

Somebody should write a paper on this!  Such a researcher would face a riddle.  When I looked at the top 220 people (ranked by cites) who have already registered, only 12 are women.   Are women less vain or less cited?  You can use REPEC to answer the 2nd but how will you answer the 1st question?

Sunday, November 27, 2011

Embracing An Example from Ecological Economics

Neo-classical environmental economists have a strange relationship with our ecological economics brethren.   The ecological economists seem to believe that natural capital is the ultimate limit to sustainable growth while neo-classical economists posit that new ideas and innovation can continuously allow us to avoid "limits to growth".  We believe that through endogenous innovation that capitalism helps to accelerate the discovery of new ways to produce basic things we need such as food and energy services.  In a salute to Paul Romer and other growth thinkers, we believe that new ideas can and will arrive that will save the day so that we do not starve and do not suffer in a changing world.

Today's NY Times has an example of ecological economics that I understand.  The ecological economists are eager to turn waste (an output) into a productive input.  Such general equilibrium flows would lead to a more efficient capitalism.  As this article highlights,  computers are major producers of heat.  We all know that computers get hot and that big firms must run air conditioners to keep them cool. This NY Times article posits that a "win-win" would be to lock such computers in people's basements so that their furnace would no longer be needed. Instead, people would get their heat from the electric furnace (the computers).  This is a groovy idea but it raises a couple of issues.

1.  How would the home's electricity consumption be disaggregated into that which is consumed in the basement versus that which is consumed by the occupants of the home?

2. What do you do to minimize the probability that the basement floods?  How do you minimize the probability of vandalism by outsiders?

3. What happens to the family ping pong table?

4. How does the family who lives in the home guarantee that no teenagers will break in and play around with the computers?  How will two sided liability work?

5. Is there fire risk from all of these computers? How often would nerd technicians be entering the home to tinker around to make sure that the data centers are safe and clean?  

But, I do like that the nerds are thinking outside the box of how to turn waste into a productive input. If energy prices rise, this would be even more attractive for households who want some heat coming up from the floor boards.  Perhaps the ecological economists and the NBER economists can make the peace!

Saturday, November 26, 2011

Is Social Science Becoming Too Sexy?

This is a scary piece from the Chronicle of Higher Education.  Academics want fame and we know what makes the headlines.  Demand creates supply. In the case of baldness cures, that's good but in the case of funky social science research --- is it still good?

Energy Consumption in the Suburbs

A NY Times opinion piece today argues that suburban buildings are major electricity consumers and that this is bad.  The piece presents no facts about what a Microsoft Campus' per-worker energy consumption is and what it would have been had the campus been assembled in downtown Seattle.  In this blog post, I'd like to talk through the issues.

I have some street credibility on this topic.  As you know, I have written about suburb/center city differentials in energy consumption herehere and here.  In new joint work with Nils Kok and John Quigley, we are studying commercial building electricity consumption using building level data from a large California utility.

The Professor who wrote the Times piece didn't answer the basic question;  "Why are offices locating in the suburbs?"   An easy answer is that land is cheaper there and when there are large residential suburban communities then this will attract offices for accountants, lawyers and other services that the residential community will demand easy access to.

A harder question is why so many major modern companies such as Microsoft, Google, Facebook want to have large suburban campuses.  Why don't they locate downtown?   The tradeoffs are pretty clear.  In center cities, there is a land assembly problem. If Google wants to have low density buildings with green space, this will be hard to assemble in downtown San Francisco and very costly.  There will be existing buildings which may have historic preservation status.  In the suburbs, land is cheaper and converting farmland or suburbia into a corporate campus features many fewer headaches.   The author of the editorial could have done a better job discussing how bad center city public schools and center city politician induced "red tape" stifles the desire of employers to locate new entities downtown.  It appears that only Don Trump can make fast headway with downtown development.

Now, from an environmentalist perspective is suburban growth bad? As my past work has documented in terms of transportation she is right that people use the car in the suburbs and are much more likely to use public transit in the city.   Since land is cheaper in the suburbs, people and commercial interests purchase more of this land than they would have had they located in the city.  If air conditioning scales with unit size, then they will consume more energy than if they located downtown. More empirical work is needed to quantify these "counter-factuals".   But, we also know that suburban buildings are newer than center city buildings.  If new buildings are much more energy efficient than old buildings (even if they have been renovated) then she could be wrong.  This is one of the questions that Kok, Quigley and I are investigating.
She could be right but there is an empirical research agenda here that she is assuming rather than quantifying.

If you want more center city "infill" development, then you should push for lower crime in center cities and increased public school flexibility so that more families choose to remain downtown.  As center city quality of life improves, more employment will follow.

The rise of San Jose as a sprawled and productive center of "Silicon Valley" highlights that firms can be driving distance from each other and enjoy productivity spillovers.  Cars certainly cause serious environmental challenges. To address this, we need higher prices for gasoline as this would accelerate the adoption of the electric car.  Introducing a carbon tax would guarantee that the electric car's power source would be renewable power or natural gas. The end result would be greener cars and a suburban economy still offering the gains to trade but with a lower environmental impact.

Friday, November 25, 2011

Some Links for Today

As gas prices rise, will small cities suffer as airlines cancel small jet flights connecting them to big cities?

Will fear of future drought nudge you to buy plants that thrive in Afghanistan?

Does The Sex Pistols' Wall Art Merit Historical Preservation Status?

In a world where Elton John has been knighted, shouldn't Johnny Rotten's art work be preserved?  London's thought leaders are now wrestling with this issue.  To quote the Express Newspaper;

"The controversial band was based at an apartment in central London in the late 1970s, and drawings on a wall were found when the building was recently converted into offices.
The images, mostly by frontman Johnny Rotten, include a self-portrait of the singer sporting his trademark spiky hair, and a drawing of the band's manager Malcolm McLaren clutching a bundle of cash.
Now leading archaeologists are debating whether the graffiti should be preserved as a work of historical importance."

Ed Glaeser has argued that historic preservation has gone too far in limiting "progress" and such artificial barriers to urban housing supply are a major cause of high real estate prices in such "progressive" areas.  Knowing how much Dr. Glaeser enjoys the sound of Johnny Rotten's band, I bet that Ed will reconsider his past work in light of the new news.

Wednesday, November 23, 2011

Triggered Budget Cuts Offer Another Test of the Efficient Markets Hypothesis

Suppose that a military contractor's earns its revenue from selling hardware to the military.  Suppose that this contractor makes a marginal piece of equipment such as those over-priced Osprey helicopters.  If the market believes that the Super-Committee in Congress will fail to come to an agreement and this triggers military cuts, then does this company's stock price decline as the "new news" that the Committee has failed becomes public knowledge?  This article says yes.  What would be an empirical test that indicates that the stock price has "over-responded" to the new news?  Perhaps these helicopters can be sold to China and the firm's stock price could rise?  We want more free international trade, don't we?

Sunday, November 20, 2011

Anticipating The Costs of Drought Induced by Climate Change

I missed this piece by Joe Romm about future Dust Bowls caused by climate change.  Here is a dramatic quote from this subtle thinker;

"Most pressingly, what will happen to global food security if dust-bowl conditions become the norm for both food-importing and food- exporting countries? Extreme, widespread droughts will be happening at the same time as sea level rise and salt-water intrusion threaten some of the richest agricultural deltas in the world, such as those of the Nile and the Ganges. Meanwhile, ocean acidification, warming and overfishing may severely deplete the food available from the sea….
Human adaptation to prolonged, extreme drought is difficult or impossible. Historically, the primary adaptation to dust-bowlification has been abandonment; the very word ‘desert’ comes from the Latin desertum for ‘an abandoned place’. During the relatively short-lived US Dust-Bowl era, hundreds of thousands of families fled the region. We need to plan how the world will deal with drought-spurred migrations (see page 447) and steadily growing areas of non- arable land in the heart of densely populated countries and global bread-baskets. Feeding some 9 billion people by mid-century in the face of a rapidly worsening climate may well be the greatest challenge the human race has ever faced."

Joe has provided us with the "early warning" of the challenge we will face.  We should thank him for this.  Note that he is quite pessimistic about induced technological progress.  What do capitalist firms do all day long?  A lazy view is that they play the cliche "bad guy" role that OWS focuses on as the "Fat Cats" sit around and count their $.  A more nuanced view is that there are millions of entrepreneurs thinking about what will be the next "big thing".  If food production will be the next big thing, then $  from venture capitalists will flow in.  Will we continue to grow food the way we have in the past in the same locations that we have used? Perhaps not.
International trade in agriculture offers a diversified portfolio of exporters.   Inventories offers another strategy for protecting us from shocks.  In Climatopolis, I used the example of dried fruit as a simple example of this point.   Much of the pessimism about human adaptation to climate change comes from not appreciating the path of endogenous innovation.  Smart people are aware that the future will not be like the past and that climate change poses real risks.  Such anticipation is the first step to helping us to adapt.
For 30 years, economists have written about investment being a function of future expectations.  In the case of climate change economics, rational expectations lives on.  If Dr. Romm is right, he should be investing his family's money in promising companies whose efforts can feed the world in the future.  Under his scenarios, the price of food will start to rise and this will trigger demand and supply responses.  The "doom and gloom" that he predicts will unfold is much less likely in a world featuring capitalist free markets and globalized trade and international migration.   Of course, we should reduce our GHG emissions now but given that this is not happening it it time to embrace adaptation strategies and capitalist growth is our best adaptation strategy.

Of Birds and Men

This piece published in the Sacramento Bee is not about pepper spray use at UC Davis.  Instead, it focuses on how California's birds are and will adapt to climate change.   There are several interesting patterns as some birds are becoming bigger while others are becoming smaller.  A small bird needs less food to survive. If food supply is becoming more volatile then this is a wise evolutionary strategy.  Recall that in my 2007 paper on surviving POW camps that shorter people were more likely to survive in the U.S Civil War.  Same  idea!

At the end of the Sac Bee article, there are some charming commentators whose views are welcome but highlight the ideological divide.  Environmentalists need to think harder about why this divide has taken place.  Why did climate change mitigation become an ideological issue versus when could it have been an "insurance  issue"?  I can imagine an alternative galaxy where a people agreed that climate change could be quite risky  and thus chose to adopt the prudent strategy of buying some insurance by reduce GHG emissions.  Environmentalists deserve a lot of "credit" (I'm being sarcastic) for turning off the other 50% by pointing fingers and "tsk-tsking" about the Hummer, suburban, BBQ life-style.  Yes, the net result of these choices is more GHG emissions but only Santa Claus knows who is truly "naughty" and "nice".  Smart greens should have anticipated that the typical Republican would have a price incentive (i.e his expected high carbon tax bill) to oppose such "green" incentives and thus to design policies to attract such an individual to support this regime shift.  One way to have done this would have been to tie revenue collected from carbon taxes to reductions in capital gains taxes.

Saturday, November 19, 2011

The Future of the Sierra Club

The environmental movement is diverse and diffused.   It faces transaction costs to working together to lobby for green causes. You don't have to be Mancur Olson to anticipate that it will face "David vs. Goliath" issues as it battles Big Oil, Big Coal, and Big Others in its attempts to green the economy.  Now that it will be searching for a new leader, what direction should it take?

In my opinion, the League of Conservation Voters has the right model.  They create new information and distribute it to the public.  Their Scorecards represent real data that nerds can study.   The non-profit advocacy organizations need to hold politicians accountable through issuing "Report Cards" based on objective data.

I believe that the Sierra Club and other well meaning organizations have made a mistake by not engaging with academics more.  Such organizations would gain credibility and would learn how to make their claims more palatable to political moderates if they took a more nuanced look at issues.  Not every piece of regulation offers a "win-win" of environmental protection and "green jobs".  Many regulations are costly.  If the environmental movement were more honest about the tradeoffs and known unknowns then it would have more success in its lobbying for new policies and regulations.

The Sierra Club should also continue to foster education for people who seek to visit nature and to meet other people interested in nature.   Keeping the base engaged and growing the base makes perfect sense.

The Sierra Club should embrace running field experiments. I will provide one example.  Imagine if it could talk ten electric utilities into sending out the same letter to each of their customers.

"Dear Customer,

If you sign up for green energy, you will help the nation achieve its energy independent goals (as we produce more electricity using domestic sources) and you will help to reduce greenhouse gas emissions from electricity production.  In a partnership with the Sierra Club,  we are offering you a one time deal. If you sign up for Green Energy, this will cost you $X per month and the Sierra Club will donate $Y each month (as a subsidy)."

The research team could randomize X , to see whether the public signs up for green energy programs when they receive a subsidy from the Sierra club.  By randomizing X, the economics nerds could estimate a demand curve for green power.  The Sierra Club could then approach its base to collect funds to finance this program and act as a Green Middleman Bank and then could claim that it played a key role in reducing GHG emissions from the residential sector.

This would be progress!  

Where Can NBA Players Play This Year?

If you are a skilled worker and you are displaced from your current job, empirical research on local labor markets say that you should migrate to another market where you can work.  NBA players have read this research and are seeking out migration opportunities.  This article  highlights the challenges they will face.  Apparently there are not many jobs out there waiting for them.

So, what should the players do?  They might be wise to go back to college.  I asked my students the other day why the players don't reconstitute their existing teams with new names?  So the Boston Celtics would transform into the Boston Cucumbers (and would feature Garnett, Pierce, Ronjo et. al).  The Los Angeles Lakers would turn into the Los Angeles Lasers.  Where would they play?   They could rent an arena and post good videos to Youtube.   They would have to figure out how to share gate revenue and Internet Advertising revenue.  Would it be "authentic" real basketball?  That would be up to the players.  Do they need the owners and the official NBA stamp?  What is the product?

Thursday, November 17, 2011

Arbitrage in Housing Markets

This New York Times article is worth reading.  You will learn about a fascinating arbitrage opportunity.  Rather than buying an existing house, people such as Julie and Randy Olson in Brook Park, MN are purchasing land in one location and then buying a home in another location that is slated for demolition and then dragging the purchased home to place it on their purchased land.  There is an arbitrage opportunity if:

Price of land + price of home that will be dragged + transportation costs


Price of purchasing a similar home in the location where you want to live.

The article goes into great detail about what types of homes can be dragged and how improvements in technology makes this now more feasible than in the past.

This has important implications for urban economics. In 2005, Glaeser and Gyourko published an important paper in the JPE on Durable Housing and Urban Decline.  Part of their paper focused on cities such as Detroit where there are large numbers of homes that are durable but there are few current people who want to live there.   When Detroit made cars, there were lots of jobs and developers built homes but now the jobs are gone but the durable homes live on.  Given this imbalance between supply and current demand, home prices there will be quite low and this will attract poor people.  Detroit's mayor recognizes this and whole neighborhoods are being demolished.   Now let's return to the Olsons.  If arbitragers such as them purchase these cheap physical Detroit structures and drag them out of Detroit, then Detroit's home prices will begin to stabilize.  The supply of homes there will shrink (there is little new home construction in Detroit).

Wednesday, November 16, 2011

Bad Apples

Today, I was serving up one of my classic environmental economics lectures.  I have posted all of my course materials here.   I was presenting a sketch of Gary Becker's work on the "quantity versus quality" of children and the implications that the economics of demography has for environmental problems.

When I looked at the class, I saw that a student in the front row was texting on his smart phone.  I asked him what he was doing and this guy told me that he was checking out today's stock market returns.  I asked him to leave the class but he wouldn't budge.  If I leave UCLA, I will point to this event as one of the triggers.  Professors need to reclaim the classroom and teach students who want to learn!

For those who bother to check out my course webpage, keep in mind that this is 10 week class. In such a short quarter class, you are forced to really focus on core issues and strip away many of the details.  I teach in an interdisciplinary program and many of my students haven't even had intro econ.

Does Harvard Cause Income Inequality?

Staring in the 1980s, labor economists wrote thousands of empirical papers documenting the rising return to skill. If schools such as Harvard supply such skill, then "Higher Education" is a cause of income inequality as it leads to a separation of top workers from the rest.

But, this Crimson article makes a new point.

To quote the author;  "Harvard’s true culpability lies in its complicity in the “brain drain” into finance and consulting, fields that produce very little and in fact leech off of other industries. These jobs are prestigious and lucrative, which explains why they are especially tempting for Ivy League types.
Here is one way that Harvard can solve both problems: abolish tuition as we know it in favor of a garnishment of future wages. This would instantly wipe away Harvard’s (already mistaken) reputation as a prohibitively expensive school available only to a wealthy elite as well as its habit of sending its brightest graduates into professions that revere avarice."
Now, I know that we need new jobs in the United States but who will be the Dean of Avarice who monitors each graduates' earnings and then demands 5% of this amount?  Will graduates be on the Honor System to self report their earnings?
To be serious for a moment,  I have wondered whether Economics Ph.D. programs are attracting the same talent that they attracted 30 years ago, or 20 years ago before the rise of  Superstar pay on Wall Street.   Given that Ph.D. programs have become much more International, you would expect that the quality of students should be rising because there is more competition.  For evidence, don't forget this funky JPE paper on track and field records and globalization.   
Has "too much" talent gone to Wall Street?  If we believe the human capital externality models of Lucas, and Romer and the empirical work conducted by Glaeser and Moretti and others then there could be significant social costs from individually rational occupational choice decisions.   I haven't seen an academic paper on the "Cost of Wall Street" that its rise could simultaneously increase income inequality and lead to a misallocation of human capital (i.e too many Ivy Leaguers betting on asset price dynamics).
Harvard's culture may also accelerate this occupational choice.  If the "Social Network" at Harvard stresses the importance and  "coolness" of high early pay and the possible quick sugar pot, then there may be young people there who choose to go to Wall Street rather than becoming a nerd Professor.  Now, I am a full supporter of allowing the price system to send signals of what is scarce but there is an interesting question of how the "best and brightest" choose where to start their career and the role that Superstar Pay plays in directing talent.

Tuesday, November 15, 2011

Revolt at the University of California?

This article surprised me.  According to the LA Times, the UC Regents are not meeting this week because of fear of violence as OWS has created a license for some folks to roar.

The facts are simple.  The State of California has sharply reduced its funding of the University of California.  The UC is ambitious and wants to remain excellent so it must collect $ from somewhere.  One source is China and one source is grants.  The Federal Grant overhead will decline sharply as the NSF and NIH and NIA are cutback in the new round of federal budget deficit negotiations.

So, student fees are a logical place to look for more $.  Is UCLA expensive?  Not relative to the Ivy League.  Many of our UCLA students are transfers who have spent 2 years at a community college so they have effectively reduced their price of college by 30%.   The President of the UC needs to allow each campus to set its own tuition.  In this case, there would be expensive campuses such as UCLA and Berkeley and much cheaper campuses.  Students on a tight budget would have a menu to choose from to tradeoff price and quality.  You could spend 2 years at a community college and 2 years at UC Riverside.   I believe that the total tuition for this 4 year education would be relatively low.

There needs to be a more honest discussion of differences in quality across the UC campuses.  In capitalism, price and quality tend to be positively correlated but this is not the case at the current University of California.

The faculty at UCLA want to see a credible commitment to excellence.  We want to see clear signals that the University will remain great.  Concern that it won't could trigger the equivalent of a bank run as talent walks away to other schools.  The students should be careful for what they wish for because both quality and tuition would decline.  You get what you pay for.

Sunday, November 13, 2011

What If Economists Ran Nations?

Italy is about to run an interesting experiment as its new leader is an economist.  I have argued before that relative to lawyers that economists are vastly under-represented in the U.S Congress.  I have claimed that this discrimination against economists has efficiency and equity consequences.   If Larry Summers was elected our President in 2012, would the U.S be in better shape in the short run and long run?  After reading most of Run Suskind's "Confidence Men", I know that he would say "yes" and I agree.

Now, I realize that most economists are not electable.  Ben Stein is the most charismatic among us.  But, suppose we managed to achieve power through some trick such as when Kevin Kline seized power in that epic "Dave".   What would we do if Paul Krugman and Robert Barro jointly served as "co-presidents"?

Here are my guesses;

1.   pursue international free trade in goods and labor (i.e immigration restrictions would ease sharply).

2.  credible short term and medium term budget targets would be announced and rules would be introduced to meet these targets.

3.  early life investments in children would be increased.

4.  A series of field experiments would launched to create an "evidence based" government who only intervenes in the free market after a serious cost/benefit analysis has been conducted.

5.  The government would commit that no government funds would be used in "picking winners" or "subsidizing industries" unless large positive externality effects are demonstrated to exist by a group of blue ribbon economists.

6.  Health care would be reformed to offer all Americans a basic package of services and citizens will be allowed to augment that care through private competitive markets.  A group of health economists would agree to what services and procedures would be bundled into the "basic package".  For example, nose jobs would unlikely be part of this list.

7.   Retirement benefits will be adjusted to reflect life expectancy tables based on your birth year, age and sex. If you are part of a demographic group with a shorter life expectancy (i.e African Americans), then you can receive benefits earlier.  To give people time to plan for this transition, anyone who is over the age of 52 would not be affected by these new rules.

8.  The U.S Military would be given a fixed budget that is tied to the growth of the U.S economy.   The Military can save any budget allocation that it does not spend in any fiscal year.

9.  The U.S would enter an exchange program with China so that its leaders can travel in the U.S and vice-versa.  Such an international exchange program would facilitate trust and mutual understanding.

10.  The U.S government would take a close look at the unintended consequences of many of its policies. If these consequences are large and bad, then this would be used as a reason to end such programs.  For example, as Casey Mulligan has argued --- many of the Obama Administration's well meaning policies regarding student loans and housing loans discourage work.

Here  is some survey evidence that backs up some of my claims.

11.  A vast majority of economists would support serious fossil fuel taxes and using this revenue to lower labor and capital taxes.

My "big" point is that in a world where deficits are high and economic growth is low, it is time to take a close look at the incentives embedded in our current rules.

I say; "give the economists a chance!".  During this time of economic crisis, I predict that more democracies will hand the economists the ball.  While there is a lot we don't know about macroeconomics, the case for the power of microeconomics to explain and predict human behavior is pretty strong.

Saturday, November 12, 2011

Too Much Time on Your Hands?

Do you remember that Styxs song?  Well, for those of you with too much spare time and are interested in California Green Issues and enjoy watching KABC with David Ono, then you can watch this and this and see if I make any witty remarks.

Friday, November 11, 2011

Judging the Health of the California Economy

If you enjoy seeing California suffer then you should study the data charts available here.  We appear to be collecting less tax revenue and are making greater local assistance transfers.  An alternative source of information on the state of the economy is available here.  This is Ed Leamer's pulse index.  The recent news for the Pacific states looks a bit better.

This budget information matters for UCLA because we continue to take $ from the State.  I am on record stating that this is a mistake. We need to go "cold turkey" and not accept another dime from the state.  To quote Mel Gibson, "Freedom".   If UCLA chooses my path, we will continue to educate hundreds of thousands of Californians and the quality of education will improve.  Yes, the price will go up but nothing worth buying is cheap (except for blog posts!).    UCLA has been too kind to incumbent residents of California.  There are millions of other possible students who currently don't live in California.  If they are admitted and attend UCLA, they may choose to remain in California.  Such in-migration will increase the human capital base of California and this will encourage economic growth.

Thursday, November 10, 2011

Occupy Harvard: Round Two

The Harvard Crimson Reports:  “If Harvard is going to be a place that produces people with power, then Harvard must be an institution where the public good is more important than private profit,” McCarthy said. Earlier, he told a crowd that “Harvard has economists that teach us that profits are more important than people.”

I have no idea what this 2nd quote means but permit me to offer a few thoughts.  Every econ 101 textbook has a graph depicting the efficiency vs. equity tradeoff.   A more equal society (in terms of resource allocation not personal freedom) will be a less productive society as there will weak incentives to exert effort (i.e if you face a 90% marginal tax rate).

If the "Occupy X" crowd want to change the world, then I suggest that they embrace a two issue plank.  They can join Simon Johnson and figure out how to diffuse "The Power" but they should also simultaneously read and think about James Heckman's policy push for early life interventions in investing in young children.

What does Harvard (and other leading universities) owe the nation?  Such institutions create new knowledge and educate the next leaders of the nation.  But, do these institutions also encourage "greedy" values and insular social networking such that this group only interacts with others like them?   Could such institutions ever inculcate "betterr" values?   How would this happen?  A personal field trip to live and work in a poor area or poor nation?  You are free to join the Peace Core.

Urban Noise Pollution and the Flight Path of Supersonic Jets

At around 11am yesterday, a military jet flew at low altitude and real fast over the heart of Los Angeles.  You could hear a loud and scary boom as it flew.   There are 8 million people in Los Angeles and to keep this example simple, let's assume that each of us suffered $1 of pain from the surprise and noise.  The Pentagon just caused $8 million dollars in damage. Could this have been avoided?   Why was the plane flying so low?  Why did the plane choose this route? If it had gone 70 miles north, there wouldn't have been anyone there.  If the plane moves at 1000 MPH, then this extra 200 or so miles to loop around LA would added 12 minutes to its flight plan.

Tuesday, November 08, 2011

Climatopolis: One Last Time

My friends at PERC  were kind enough to give me the opportunity to write about the role that free markets will play in helping us to adapt to climate change.  My new essay is published here.

The Choice of Undergraduate Major

Why do so many young people major in Economics rather than "STEM"?  Is it because our bloggers are so much wittier than their bloggers?   Today in the letters section of the NY Times, we learn the answer  .  Permit me to quote Columbia's wise Prof. Firestein.

To the Editor:
Why do science majors change their mind? They wise up.
Your article makes it sound as if American science students are stupid or lazy, unlike their workaholic Chinese and Indian counterparts. This is glib and insulting.
It is in their second year that students typically join laboratories and see firsthand that their dreams of a scientific career include low-paying and highly competitive professorial jobs, that getting grants for scientific research is increasingly difficult and unpredictable, that they are facing many years of postgraduate work at ridiculously low salaries and that they would have a hard time supporting a family.
Compare this future with that of the economics major (lots of math) who goes to business school and can look forward to million-dollar yearly bonuses.
American students change their majors because they recognize that this country has stopped providing a reasonable future for scientists, with slashed budgets for the National Science Foundation, National Aeronautics and Space Administration and National Institutes of Health.
For Chinese and Indian students, science remains a way out of poverty. For American students, it’s becoming the path into it.
New York, Nov. 6, 2011
The writer is chairman of the department of biological sciences at Columbia University.

Now, I can assure you that not every econ major will earn a million dollar bonus!  There appears to be  missing information here.  Prof. Firestein implicitly is assuming that every science major seeks an academic appointment.  Where are the for profit companies that would seek to hire these students?  While there is a free rider problem, they have an incentive to alert students to the types of industry careers they could have.

I agree with Prof. Firestein that an increase in the NSF and NIH budgets would lead more young people to become scientists.   Some responsibility here must lie on the faculty.   Science often appears to be a bunch of definitions and identities.  Have the scientists figured out how to bring their subject to life?  Do they compete to keep majors enrolled?  Universities do not shrink science disciplines that have few students.  If Departments lost faculty slots when they don't have students, then guys like Prof. F. would do a better job in the classroom.

Sunday, November 06, 2011

Debt vs. Equity

I realize that Grease is the Word but why must Germany lend more money to Greece?   If Greek public sector workers want to continue to live the good life (and retire at 50), why doesn't the nation sell some of its valuable assets to Germany?  My parents just had a wonderful trip to Greece.  Here are just a couple of examples of the unique cultural tourist destinations that Greece has to offer.  Following basic environmental economics, a simple travel cost methodology could be used to price these assets and Germany and Greece could agree to a trade. Germany would supply cash and Greece would hand over these treasures.  Think of the efficiency gains! German precision would make the tourist lines shorter.

These unique geographical assets would act as a bond. Germany would know that Greece would not be happy to cede these assets and will seek to buy them back in the future.  There will be no risk of future default if valuable equity is handed over.  Debt vs. equity;  folks --- this is a classic question in finance.  Why isn't the EU talking about this?

Now, what am I doing? I'm flying back to LA to manage the debt crisis from there. I will be at UCLA and will be happy to answer your questions.

Friday, November 04, 2011

Road Trip

I am on a bumpy Amtrak Train moving at 40 MPH from Boston to NYC.  Is this high speed rail?   If I make it before sunset, you can meet me at the Oxford University Press Office.   Yesterday, I spent a great day at MIT. For some details about what David Albouy, Nate Baum-Snow and I were saying about low carbon cities click here.  When the video is posted, you should watch it because it will be funny!  Tonight, I see my brother, parents, niece and sister in-law and this weekend I will see my old friends.  A Road Trip has its merits!  Last night, I had dinner at Legal Seafood and this morning I had breakfast at the Charles Hotel with my old friend Mike Cragg.  The Northeast has charm!

Tuesday, November 01, 2011

Serenity on the Plains of Kansas

Neither Ed Glaeser nor Paris Hilton will be moving there, but this WSJ article sketches a high social capital, engaged lifestyle that you could enjoy if you move to Rural Kansas.   I couldn't tell where the closest Starbucks is (The Denver airport is a 3 hour drive so that bounds the walking time at roughly 60 hours).