Sunday, April 29, 2012

Los Angeles Twenty Years After the Rodney King Riots

The LA Times today has some fascinating stories and maps looking back at the events of 20 years ago and asking some big questions.  What are the lessons of the riots?  Has quality of life for African-Americans in Los Angeles improved since then?  Have race relations improved?  Who was to blame for the riots?  Did government fail to step up at that point in time?

As an eternal optimist, permit me to state some facts.  Crime is down in center city Los Angeles.  More people are walking and using public transit.  The City is investing in public transit and this will stimulate "new urbanism" along these transit corridors.  While Wendal Cox and and Joel Kotkin may not use these commute modes, there will be other people who will benefit from them.  It is  no accident that USC is flourishing right now.  I bet that home prices are much higher in real terms in Center City LA than they were 20 years ago.  This is the market test of progress.  Demand to live there is rising.   There is plenty of downtown LA that still needs rehabbing.  Downtown Los Angeles does still have a rundown look in many parts as you get close to City Hall.  Manhattan does not have such sections.  In Manhattan such property would be purchased, torn down and renovated but in Los Angeles these decaying buildings persist.  Why?  

The ongoing challenges?  Future employment growth?  It will likely be in the service sector.  Manufacturing jobs will not make a come back in LA.   The Los Angeles public schools aren't good.  Perhaps in the name of preserving public sector jobs, few tough decisions have been made to introduce more competition and to challenge the  teacher's unions to be willing to implement more innovative ways of improving K-12 education.  When we know "that we don't know" how to educate young people, we must experiment and scale up those ideas that appear to work.  Schools need more flexibility over hiring and firing and promotion of teachers and union rules inhibit such flexibility.  The same issues arise at LADWP and its provision of water and power for the metropolitan area.  This era of capitalism requires flexibility to adapt and public employers face work rules that inhibit such flexibility.    There are also tough issues of public sector pensions.  When the City of Los Angeles negotiates with public sector unions over compensation,  nobody at the table has a strong incentive to take into account that more generous retirement pension and health benefits will be paid by future generations.  These future generations are not currently voters and the current voters have little incentive to sit down and become outraged at the generous defined benefit plans that only become more generous as life expectancy increases and future health bills increase. Public sector union negotiators know this and this gives them a bargaining advantage.  In this age of big deficits, everyone seems to have forgotten that budgets must eventually balance.  Neither the Chinese nor future economic growth will bail us out.  At some point, somebody's taxes will rise to pay back the large state and national IOUs.

One tax that needs to be revised is California's Proposition 13.  Given the value of California real estate, it is imperative to tax it uniformly regardless of when a person purchased it.   A fair approach would be to have all property owners pay an annual payment of 1.5% of the current assessed value of a property.  This would generate a lot of revenue but this should be tied to public sector reform.  If old people can't afford this flow payment then they can sell a percentage of their home to a buyer who would finance this flow payment and the buyer would have a claim on future price appreciation. That's how asset markets work!

Saturday, April 28, 2012

Political Conservatives and Schools of Public Health

The LA Times has published a long obituary for my UCLA colleague Professor Rick Brown from the School of Public Health.  He was a national leader in creating new data sets such as the California Health Interview Survey.    For a taste of what types of questions were asked to individual respondents click here.   These data were useful for describing trends --- for example you could use them to estimate; "what share of 43 year old Hispanics in California have Type II diabetes?"   To see how he used these data in his own peer reviewed research, click here.  He was a very important scholar.  Data creation and sharing such data with the broader research community is a crucial public good.  I would guess that there are hundreds of peer reviewed published studies based on the data he created.

At the end of the obituary, the LA Times lists the set of politicians who Dr. Brown advised over the years.  They are all Democrats.   This lopsided distribution got me thinking.   Given that Schools of Public Health mainly focus on social justice, do any political conservatives choose to be students in such programs or to teach in such programs?  If such ideological sorting does take place (that liberals are vastly over-represented in both studying and teaching at Schools of Public Health), does this matter?  Does this lack of balance affect fund raising?  Does it lead to an over-reliance on the state and national government for funding?    When we think about a university's professional schools, does it matter if the Business School has a relatively large share of conservatives while the law school and School of Public Health have the opposite?   Is ideological balance important?  What is lost when an organization is "lopsided"?  I realize that these are touchy questions but as an intellectual, I have many questions.

As some of my readers know, I have published several papers recently on liberal/environmental ideology and its role in consumer choice.  The sexy stuff is my work that investigates the choice to drive a Prius or install solar panels but there is less sexy stuff such as day to day electricity consumption and modes of travel to work (i.e public transit).  A consistent theme in my work is that liberal environmentalists "walk the walk".  They are more likely to engage in voluntary restraint than political conservatives.  

I would hope that there will be an emerging economics and sociology literature studying career choice and ideology.  The broad research question here is to make progress on the causes and consequences of political ideology.  In this polarized age, this would appear to be an important question.

Friday, April 27, 2012

Journey to the Center of Los Angeles

Today,  I participated in democracy and actually showed up for jury duty. I want to maintain the USA's "inclusive institutions".    That said, I must admit that I was a pinch nervous when the jury pool was told that 25 names would be named at random to serve on a 16 day trial.  Jurors are paid $15 per day. At that wage (not including transportation costs --- I don't drive),  I would still prefer to teach my UCLA class and get some research done. If the LA Courts paid $17 a day,  I would be just indifferent.

After we were discharged early, I chose to have an adventure.  I live 12 miles West of the city courthouse.  As a leading thinker (self proclaimed) about urban public transit, I thought that it was time for me to take my first ride on a Los Angeles subway.  I paid $1.5 for my ticket knowing that the subway would end 7 miles from my Westwood home.

Here is a picture taken at 1230pm Friday on the westbound subway line.

Do you see many humans waiting for the train with me?  Once I was dropped off at the Wilshire and Western stop in Koreatown. I started to walk west.  I saw many beautiful 5,000 square foot homes just north of Wilshire in Hancock Park.  I then passed a middle school with a distinctive sign.

Is this what Sunstein and Thaler meant as a "nudge"?   My son will soon be a teenager an I wonder whether this information provision would change his behavior.    Less guns, less crime?

So,  I've served my county and I promise I won't leave Westwood until I'm called for jury duty again.

Thursday, April 26, 2012

Birdseye Frozen Food as Another Example of Human Ingenuity Getting Us Ready for Climate Change

Janet Maslin's review of Mark Kurlansky's new book is worth reading.  I have read Kulansky's Salt and Cod. In his new book titled "Birdseye: The Adventures of a Curious Man’, he writes about one of the fathers of frozen food.  Mark and I were on a USC Book Festival panel together last year.

Here is a photo of me, Mark and a young fan of Mark's.  

and here is the C-SPAN video of our crazed USC event.  

How is Birdseye relevant for climate change adaptation?  Here is a quote from Janet M. 
"But it indeed coaxes readers to re-examine everyday miracles like frozen food, and to imagine where places with no indigenous produce would be without them. It emphasizes the many steps that went into developing such a simple-seeming process."

While I don't eat frozen food,  this storage technology (like dried fruit) offers us a technology for guaranteeing that we have some tasty things to eat even when weather shocks do take place.  If you don't have access to a freezer, you face more variability with respect to your daily consumption.  Climate change increases the volatility of shocks to climate and this makes agricultural output more volatile.  You can smooth your consumption by trading with someone who produces under different climate conditions (so if it is rainy somewhere in Europe but there is no rain in Phoenix then the Phoenix consumer can import from Europe) --- or the U.S farmer can grow some output when she is able to and then freeze it and eat it later.   Trade at a point in time or freezing and storage over time are two different strategies for coping with climate shocks.    Clarence Birdseye is a hero to me because his ingenuity helps us to adapt to climate change.

NYU's Economics Department Takes a Stand on Historic Preservation in Greenwich Village

This NY Times OP-ED reminds us that we can't forget about "time to build" when contemplating models of investment and long run economic growth.   Both NYU and Columbia are land locked.  Columbia has a plan to build in parts of the city (north of 130th street to the west) that used to be nasty.  In the Columbia case, few are concerned that "historic" areas will suffer because of its expansion.   NYU has a plan to knock down parts of Greenwich Village to vastly scale up its operations.  The opposition is howling and some of the opponents might surprise you.

You might have guessed that a neo-classical economics department would support a university's effort to grow and become even more elite.  After all, Paul Romer is now a NYU economist and he started the modern economic growth literature focused on the role of human capital externalities and increasing returns.  But, the NY Times article says that the NYU econ department has unanimously agreed to oppose this project.   What explains this? If the typical faculty member is age 50 and this project will take 20 years to complete then with any sort of discounting at all (especially if there are hyperbolic discounters on their faculty) then they will veto this shock to their short term and medium term quality of life.   Do the faculty who live in Silver Towers have the property rights to block this expansion? How will they be compensated for "progress"?   As the son of a well known NYU faculty member, this topic interests me.  As an urban economist who is interested in urban renewal and as a scholar who has been interested in NIMBYism in liberal areas, this is quite a case study.

UPDATE:  Here is a NY Times letter from NYU President John Sexton. He supports his plan!

I would also like to present a statement that NYU Professor Mitchell Moss made to the CITY PLANNING COMMISSION , CITY OF NEW YORK on APRIL 25, 2012

"Chairperson Burden, members of the Commission, I appreciate the opportunity to speak before you today. My name is Mitchell Moss; I live at 100 Bleecker Street in the Silver Towers complex. I have been a member of the faculty at New York University for 39 years, since September 1973. I have lived all but eight of my 63 ½ years either on or within 9 miles of the superblock site.

I would like to highlight four aspects of the proposed rezoning under consideration today. Let me first point out that the proposed rezoning will not destroy Greenwich Village or its historic pattern of land use, as many opponents have argued. In fact, just the opposite is true. Greenwich Village is not a homogeneous community; the area located between Broadway and Washington Square Park has been filled with manufacturing structures for more than 100 years. In fact the famous Triangle Shirtwaist Factory, the site of one of the city’s worst fires, occurred in a building that has since been converted to be a center for teaching and research.  This section of Greenwich Village differs considerably from the west Village, the pristine historic district west of Seventh Avenue, where Marc Jacobs has superceded Jane Jacobs as the area’s driving force.

What makes Greenwich Village such a compelling destination is the very mix of activities that occurs within its boundaries. Contrary to many local residents, NYU does not dominate Greenwich Village; in fact, the most rapidly growing sources of employment in the 10012 zip code are eating and drinking establishments and retail stores. I have prepared a chart showing that there are 327 food and drinking establishments in the 10012 zip code, the area between Broome and West 4th Streets, from 6th Avenue to Bowery.  This is one of the city’s largest concentrations of such dining and drinking establishments.

In addition, during the past two decades, the Houston Street corridor, from Broadway to 6th Avenue has witnessed a shift to retail, residential and restaurant activity, replacing auto repair shops, parking lots, and gas stations, a transformation that has occurred independently of NYU.

The obsolete, un-air conditioned Coles Gym, located at the corner of Mercer and Houston Streets, is in fact the shortest building at 23.5 feet on the entire street, and is certainly the ugliest, with an exterior of cinderblock and not one window or doorway facing a major thoroughfare. It is perhaps the most anti-urban building in the community, crying out to be replaced.

Across the nation, there is widespread agreement that environmentally sustainable planning should foster urban development in close proximity to mass transit facilities.  More than ten subway lines are within about a quarter mile of the superblocks under consideration. Furthermore, students, faculty and staff who live in New Jersey can easily reach NYU via the PATH system, which has a station located at 9th Street and Sixth Avenue, a few blocks from NYU’s Washington Square campus. 

Greenwich Village, especially the section from Broadway to Seventh Avenue, is one of New York City’s most transit-dense areas, as indicated on a map included in this testimony. If new high rise buildings cannot be built on the super blocks, which are accessible by the A, B, C, D, E, F, M, N, R, 1,and 6 trains, then where in the entire city of New York can we build anything.

There has also been much attention given to the noise generated by construction. Noise is a product of human activity and activity is the basis of urban life.  People make noise, when they talk, shout, play music, and public agencies are responsible for some of the loudest, most invasive noise when emergency vehicles blast their sirens at all hours of the day and night. The one source of noise that we do regulate well is construction noise as a result of the municipal 2007 noise code, the first systematic noise regulations adopted by the city government in thirty years. 

New York is a loud, active city that is constantly in motion; the Rudin Center for Transportation at NYU’s Wagner School has recently issued a report stating that there are 4 million people on the island of Manhattan during a typical weekday. Noise is a sign of vitality. We are not a city of the past like Williamsburg, Virginia which is filled with quiet horse-drawn carriages or Detroit, Michigan where there is no one is on the empty sidewalks or streets

In March 2012, there were more than 10,000 calls to “311” complaining about noise; in fact, noise was the second largest source of complaints, following complaints about heat.  If you want peace and tranquility, the municipal government offers Fort Tryon Park in Washington Heights and Pelham Bay Park in the Bronx.  Admittedly, New York City is not as quiet as Hanover, New Hampshire or Grinnell, Iowa, but those college towns do not have 8.4 million people.

Finally, the one group to be displaced by the proposed rezoning are the four-legged creatures who rely on the Mercer-Houston Dog Run. This community-operated dog run is open to all, but requires that all dogs be inoculated to prevent the spread of illness and must not engage in aggressive, hostile behavior. It is a remarkable organization that draws upon dog owners from all parts of the city and is totally run on a volunteer basis. I urge you to maintain this valuable component of the community with an equal or better dog run on the superblock site.

Thank you for your time and attention. I will, of course, be pleased to answer any questions you may have."

Wednesday, April 25, 2012

Jury Duty

I have been on jury duty all week.  This has caused me some anxiety because I am teaching this quarter and I have many responsibilities related to research, advising and teaching.  Peter Gordon told me that information technology (IT) has greatly reduced the inefficiency caused by our democracy.  In the "bad old days", those on jury duty had to go to City Hall (10 miles away and plenty of traffic congestion to get downtown) and sit and wait to be called.  In this new IT age, each potential juror is given a PIN # and calls in the day before to see if we must report the next day.  Think of how much time this saves.  Suppose there are two million adults in Los Angeles county who are at risk of being called for jury duty.  You are expected to serve one week a year; so 2 million divided by 50 is 40000.  Suppose that 400 jurors are needed each day so that with replacement; each weekly juror has a 400/40000 probability of being selected= 1 in 100 chance.   So, the 99% of the population was commuting in and back for no reason.  IT has eliminated this wasteful commuting.

For each day this week I haven't been called in to perform my civic duty.  Somebody must have told the LA Court about what type of person I am.

What have I done with my windfall of extra time? I have held extra office hours, and I have spoken to colleagues.  I had my first "In and Out" burger today as an old friend who is an economist at a big hedge fund was in town for the Milken Conference.   He wanted to eat there so I paid for our $11 power lunch.

My co-author Siqi Zheng sent me two revised chapters of our book manuscript and I will sit down and edit that.  I submitted a paper to a journal and I finished editing a new paper with Nils Kok and John Quigley that I will blog about in the near future.   I even had a couple of new ideas that I typed into my rolling file of random thoughts.  So, the point of this boring post is simple;  there is a cost of jury duty.  Is there a social benefit?  The LA Court tries to convince you of the importance of participating in our democracy.  I'm not allowed to link the orientation video that I watched but this video will give you a taste.  I bet that most economists would embrace comparative advantage and would say that we should be able to contract with somebody else to take our place.

Sunday, April 22, 2012

A Question for Acemoglu and Robinson

As a fan and reader of "Why Nations Fail", I have a question for Daron and Jim.   I know that "inclusive institutions" are good.   Given this point, where do the authors stand on California's direct democracy and its initiative process?   Do the Cambridge guys believe in "people power"?

Here is the current California voting slate of initiatives for 2012.   If "we" (the voters of California) have the chance to vote to kill off High Speed Rail and to kill off the University of California,  does such participatory democracy foster my favorite state's long run growth?  My old friend John Matsusaka is a fan of such initiatives as he has argued that they act as a check on growth of the public sector (see his QJE paper).    and his JPE paper.

Was Manufacturing Good for U.S Big Cities?

Gary Becker has posted a blog entry on U.S manufacturing trends.  Harvard's William Julius Wilson has long argued that manufacturing offered "good jobs" for low skill workers.  Labor economists such as Derek Neal have quantified the losses to workers who transition from the manufacturing industry to the service sector.

To quote Becker; "Still, if past trends continue, the share of American jobs in manufacturing will probably be lower in the future than it was even as late as 2007.  New and exciting technologies, like 3D printing, may bring back some manufacturing output to the United States since labor costs will be a lower fraction of the total cost of manufactured products based on these new technologies. However, these technologies are unlikely to offer many jobs since they are generally labor-saving, not labor-using, but the jobs will require skilled and better paid workers."

He points to China's rise as an exporting economy to explain our accelerated deindustrialization over the last 20 years.

Given my interest in "green cities" and the intersection between environmental and urban issues. I have consistently argued in this 1997 paper and this 1999 paper and this 2003 Communism paper that  deindustrialization offers significant environmental benefits.  This trend played out in Eastern Europe with the  death of communist energy subsidies and now is playing out in China's superstar cities.   In each case, local environmental quality improves sharply when old high production factories close.

The old factories that have closed due to international competition were located in densely populated areas (i.e Pittsburgh and the Rust Belt) and used older technologies that were grandfathered under the Clean Air Act and these industries (such as steel) and others significantly contributed to local air and water pollution.  As the U.S has grown richer, our individual willingness to pay to avoid such pollution increases and hence the social cost of that industrial activity was rising.

Do new manufacturing plants have a much smaller Pigouvian impact?  I hope so.  Urban economists such as Ed Glaeser have argued that the future of cities is as places for the "consumer city" to flourish. Manufacturing activity does not contribute to the "consumer city".  When I was a student at UC,  Chicago was making a transition to being a "green city" but local historians continued to speak about Gary, Indiana's steel plants and center city slaughterhouses.  Pretty gross!

Saturday, April 21, 2012

The WSJ Kicks California

Allsyia Finley provides Joel Kotkin plenty of space to give California greens a beat down.   The WSJ also offers a sequel as Arthur Laffer breaks out his napkin to provide another round of "Laffer Curve" advice for California with its proposed 13.3% state tax rate.   It is sunny, blue skies and 72 degrees today and I'm going to the beach.  I hope to see Kotkin and Laffer there.  

UPDATE:  A basic idea from economics is that when "supply is inelastic" that you can tax this input without it moving to another sector.  In English, if quality of life in California is unique, then wacky state policy will lead to less exodus than what would happen if Michigan pursued similar policies.   California's unique asset is its quality of life and given that celebrities gravitate here (because of the quality of life), there is a synergistic effect. Over the last week, I have spotted Michael Jackson's daughter Paris shopping at the same supermarket as me and last night I ate dinner 8 feet away from Denzel Washington.  He didn't recognize me so symmetry doesn't always hold in the model. He was wearing a UCLA sweatsuit --- so I appreciated his loyalty for my current team.   So, my point is that Kotkin and Laffer are correct about their debate points but wrong about their big points.  They need to read up on differentiated products and cases when locations are substitutes but not close substitutes.  Market power matters and Sacramento knows this.


Thursday, April 19, 2012

Some Intellectual Excitement at UCLA

Tomorrow will be an exciting day at UCLA Econ.  Leah Boustan and Dora Costa have organized an impressive economic history conference  that will bring Ed Glaeser, Dave Donaldson, and Jean-Laurent Rosenthal to campus.  UCLA's own Chris Dipple will also present.   Now that I have retired from active research, I can sit and listen and think about what these scholars are up to.  I plant to light a pipe and put on my Sherlock Holmes hat and sit there and think about what is being said.   On Saturday, I will go to USC to participate in an urban economics conference.   At USC, I will bring my pipe and my Sherlock Holmes hat and I will sit and listen and think.  A new stage of my career has started and I will try to be the "wise man" and say less and simply look wise.

Wednesday, April 18, 2012

Google's Recent Stock Split and the Modigliani-Miller Theorem

Modern economics has a few repeated themes;  "no free lunch", "Coase Theorem", "Time Consistency", "Ricardian Equivalence", "Rotten Kid Theorem", and the Modigliani-Miller Theorem.  This last theorem posits that how you cut up a pie into pieces doesn't affect the size of a pie. A pizza cut into 4 slices and the same pizza cut into 8 slices are the same pizza.   A recent NY Times piece by Andrew Ross Sorkin argues that Google doesn't believe this.  In recent years the price of a Google share has grown very high and Larry Page has pushed through a 2 to 1 stock split.

Sorkin makes a really nice Mancur Olson point when he posits that Google is pursuing this stock split to diffuse the ownership of the firm.  If the stock is more "affordable" then more little guys like me will buy it and institutional investors will own a smaller %. If Larry Page and his team own 40% of the Google stock and the remaining 60% is broadly owned then he can pursue the initiatives he wants without any fear of a shareholder rebellion or significant oversight.  Recall that Olson stressed that in pressure group competition that the small number of tightly organized interests will win the fight against a large number of smaller opponents who face high transaction costs from working with each other.

Have corporate finance researchers studied this topic?  Do stock splits give more power to the elites who run the firms?  When is this bad?  When is the important role of institutional investors in monitoring the CEO have their % of stock watered down do they invest less effort in monitoring the firm?

Monday, April 16, 2012

Los Angeles Quality of Life

Ask a random person from NYC what they think of when you say; "Los Angeles" and they are likely to mention Kobe, traffic, Hollywood and the Playboy Mansion.  Below, I provide you with an alternative narrative.


This picture was taken 8 miles West of UCLA.  Do you see any highways from this photo taken in Pacific Palisades?  I see the blue Pacific Ocean, greenery and blue skies.  If I might paraphrase "The Who",   on Sunday, I could see for miles and miles. I could see for miles and miles.  

Columbia Economists Who Seek to Lead the World Bank

I taught at Columbia University from 1993 to 2000 and I have several friends at the World Bank, so I'm always interested in news articles about Columbia University economists who seek to lead the World Bank!  This article delivers.  My esteemed ex-colleague Professor Jagdish Bhagwati has a great quote at the end of the article.   Here it is.

"Bhagwati said that Ocampo’s decision to withdraw his candidacy is symptomatic of a larger problem among Columbia faculty members, citing Earth Institute Director’s Jeffrey Sachs’ brief foray into the race for World Bank president.
“The belated withdrawal of Mr. Ocampo from the race, coming on the heels of the withdrawal of Professor Jeffrey Sachs from his self-generated candidacy which glossed over his policy failures such as shock therapy, unfortunately raises serious questions about Columbia faculty’s probity in matters of global governance and globalization,” Bhagwati said in an email."
Tomorrow at UCLA, there will be a leading Columbia Economist speaking at our applied econ seminar. I do not believe that Professor Chiappori  has sought to lead the World Bank.  But, I could be wrong!

Information and Natural Disaster Adaptation

100 tornadoes in 24 hours?  The NY Times reports that Oklahoma was repeatedly shocked over the weekend.  To quote the article; " Days ahead of the deadly winds there was an unusual warning that alerted residents across at least five states to the threat of “extremely dangerous” and “catastrophic” weather.

The predictions held, it seems. But the people listened.  “I really think people took the warnings and they took them very seriously,” Gov. Sam Brownback of Kansas said Sunday. “We had more notice on this system than you normally do. You normally are looking at a couple of hours’ notice. Well, this one had almost two days’ notice.”"
Forecasting and statistical models that yield accurate forecasts would appear to be  a growth industry.  If people are self interested and if they trust the high frequency event forecasters (will there be a nasty tornado tomorrow?) then they have strong incentives to respond to the information.  Every American should buy a copy of Stata 11.2!
The article goes on to say that the public is helping to play the role of "natural disaster monitors" and information technology is being used to tract natural disasters.  Another quote; " What seems to be happening, Mr. Bunting said, is that the public has become more aware of smaller storms that once might have gone unrecorded. “We have more people chasing and more storm spotters,” he said, adding, “I suspect that they were always occurring, but there are more people chasing them now and documenting them with cameras.”" 

Saturday, April 14, 2012

Some Local Real Estate Dynamics After the Great Recession

The NY Times is embracing a spatial tale of "Two Americas".  Here is an article about the rising NYC real estate market.  You don't need to be an expert on causality to wonder whether there is a link to the rising Dow Jones Industrial Index.   In California, here is an article highlighting that the coastal areas are in much better shape than the inland areas.  

Thursday, April 12, 2012

The Economics of Pizza

Tonight, my son and I will go out to the hottest new restaurant in Westwood Village.  TV crews have been showing up at 800 Degrees to show the mob scene waiting for their pizza.  We will arrive at 5pm to beat the rush.   As I think about the economics of pizza demand, it crossed my mind to search Google Scholar  and REPEC  for interesting papers related to "pizza".  I could only find one title;

The water needed for Italians to eat pasta and pizza

M.M. Aldaya and A.Y. Hoekstra
Agricultural Systems, 2010, vol. 103, issue 6, pages 351-360

Now, I can only say that this article doesn't resonate with me.  What are the serious research questions about pizza?  Here, I will offer you three for free.

1.   Can a structural model of pizza demand be estimated in which a researcher takes a stand on the physical attributes of a pizza? (similar to BLP).   So, obvious dimensions are size and type of meat but where does the quality premium come from?  Thin crust?  What makes  a pizza "great"?  Can a researcher quantify these dimensions?  To see the challenge here read Nevo's classifications of cereal types (i.e mushy).  

If we could estimate this model, we could estimate the cross-elasticity of demand for pizza relative to other fast foods?

2.  Returning to Cutler, Glaeser and Shapiro's work on fat Americans, how much has the cheap pizza contributed to obesity?   Which price per calorie fallen faster over time;  The french fry  or the pizza?  Why?

3.   While the Economist magazine talks about the Big Mac Index across nations for calculating purchasing power, if you calculated a pizza index would it yield different findings? Is the ratio of the price of a Big Mac to the price of a pizza constant across nations?  If not, why not? and what would this mean in terms of measuring PPP?

Wednesday, April 11, 2012

Optimistic Adaptation

How do you reduce the cost of cholera?  Be pro-active.

Do Renewable Portfolio Standards Raise Electricity Prices?

An interesting debate is playing out.  The Center for American Progress (CAP) has put out a policy brief that argues that green energy purchase mandates do not raise local electricity prices.  The Renewable Portfolio Standard (RPS) requires that a state's utilities purchase a given percentage of their power from low carbon sources such as wind, solar and hydro.  In California, the RPS is set to rise to 33% by the year 2020.  As of 2009, 12% of California's power comes from renewables. Is the CAP correct that further ramping up of the RPS will offer environmental benefits without imposing costs on electricity consumers?

For the CAP to be correct, it must be the case that the cost of generating renewable power is falling sharply over time.  There is also the issue of "insurance".  Given the variability of wind and sunshine, power producers must have alternative backup generators ready to produce.  Given that good batteries for storing excess power do not exist, there has to be some slack in capacity to be prepared for contingencies such as when its a cloudy day or a day when the wind isn't blowing.  These "backup plans" have costs to maintain them.

It is also the case that renewable power takes a fair bit of land.  Is the opportunity cost of the land that renewables are being located on being incorporated into the cost of providing renewable power?

What the CAP article does not discuss is the incidence of the RPS standards.  Are the public utility commissions by shielding consumers from price hikes simply lowering the profits of the electric utilities?  One way to study this would be to conduct an event study and see if publicly traded electric utilities experience a drop in their stock price when new news about a more aggressive RPS is revealed.  Such a finding would indicate that the stock market believes that their profits will fall because their cost of acquiring electricity has gone up.

If introducing the RPS neither raises consumer prices nor lowers the utility's profits, then such an RPS is a free lunch!  That would puzzle the typical economist!

The relevant energy policy counter-factual here is;   what would the price of electricity and the profits of electric utilities have been under a less aggressive RPS?  As the RPS tightens, who bears the incidence of this regulation?  The CAP has argued that it is not the consumers and they may be right but if utilities earn lower profits will there be unintended consequences such as reduced investment in maintaining the capital stock and can this have long run consequences for safety?

UPDATE:  One energy expert was kind enough to offer a quick answer to this blog post's core question. He argued that renewable power is so far such a small share of a state's total power that its costs are not yet seen.  In addition, he pointed out that the low recent natural gas prices have shielded consumers from price hikes.  

Tuesday, April 10, 2012

Some Gasoline Consumption Algebra

Your tax dollars paid for the 2009 NHTS micro data.  Let's take a look at it and see what we learn about gasoline consumption in the U.S.  I took the micro data and used the household identification number and calculated total miles driven by each household in the data set.   I don't bother to weight the data and here is the empirical distribution.  50% of U.S households who own at least one car drive more than 12,000 miles each year and 10% of U.S households who own at least one car drive more than 34,000.  Don't ask me why 10% of the sample report "0" miles.  

 summ Miles, det

      Percentiles      Smallest
 1%            0              0
 5%            0              0
10%            0              0       Obs              143084
25%         3020              0       Sum of Wgt.      143084

50%        12000                      Mean           15136.67
                        Largest       Std. Dev.      16153.54
75%        22000         312000
90%        34000         321000       Variance       2.61e+08
95%        44000         540000       Skewness       3.121046
99%        70100         562000       Kurtosis       36.58416

So, let's focus on households at the 75th percentile who drive 22,000 miles a year. Let's assume that their average vehicle has a MPG of 25.   This household consumes 880 gallons of gas a year.  If the price of gasoline doubles from $2.5 to $5. then this household must pay an annual increase of $2200 to fund this driving.   If this household earns $70,000 a year and clears $40,000 after taxes then this $2,200 increase is the equivalent of a 5.5% cut in disposable income or a drop by $6.16 in disposable income (so that's one turkey sandwich a day).   I have trouble believing that this is a national crisis but President Obama is having to answer for this.  

Economists would also ask why is this household driving 22,000 miles a year?  Work trips represent less than 1/2 of all driving.  Why does the household own a car that only achieves 25 MPG?   Suppose this same household could reduce its annual driving to 20,000 miles per year and bought a vehicle that achieves 35 MPG.  Its new gasoline consumption would be 20000/35 = 571 and at $5 a gallon its total annual expenditure on gasoline would be $2857  which is not much bigger than the original 880*2.5=$2200  for the old driving amount priced at the original price of gas.  

Are Americans really so "inelastic" in responding to price changes?  What happened to behavioral change in the face of incentives? Or do we believe that we can "jawbone" prices back to where we like them?   Capitalism will work better if we take prices as given and make our best choices facing the new realities rather than rejecting higher prices and demanding political interventions to shield us.

Sunday, April 08, 2012

The Standard of Living Debates: Evidence from the Titanic vs. Today's Ocean Liners

Tanya Mohn contrasts the quality of the cross-ocean Titanic ride versus taking a modern ocean liner.  One fun fact. The first class bedroom on the Titanic was 120 square feet while today's ocean liner is 282 square feet and offers 24 hour room service.  I also wonder about the Internet WIFI quality aboard the Titanic!  The NY Times author doesn't bother to mention the price of a ticket on the respective ships.  She should have reported that price divided by a middle class worker's average pay at that time. I have a feeling that the price has fallen.  "If my friends could see me now".  I mention this case not to be a Dr. Pangloss but instead to show the challenge of measuring the quality of capitalist products over time and to document that price per unit of quality has fallen sharply over the last 100 years.

Also in this Week's Sunday Review in the NY Times,  Tom Friedman has written a heavy piece about the Arab Spring and his belief that climate change caused it and that climate change will cause future political instability in the Middle East as water scarcity will lead to terrorism and more violence.  Here is a quote from the article;

"From 2006-11, they note, up to 60 percent of Syria’s land experienced one of the worst droughts and most severe set of crop failures in its history. “According to a special case study from last year’s Global Assessment Report on Disaster Risk Reduction, of the most vulnerable Syrians dependent on agriculture, particularly in the northeast governorate of Hassakeh (but also in the south), ‘nearly 75 percent ... suffered total crop failure.’ Herders in the northeast lost around 85 percent of their livestock, affecting 1.3 million people.” The United Nations reported that more than 800,000 Syrians had their livelihoods wiped out by these droughts, and many were forced to move to the cities to find work — adding to the burdens of already incompetent government."

Now, urbanization is a leading cause of raising people's per-capita income.  As China and India have shown, urbanization is a correlate of economic growth and development.  This isn't an iron law but in cities one learns and one can trade with more people.  Friedman is implying (without reporting evidence) that this urbanization is a bad thing.   Herders appear to be quite susceptible to shocks to climate. Cities are more resilient (this was a theme of my Climatopolis).  If Middle Eastern nations have low tariffs on importing food from other nations then their urbanites can specialize in manufacturing production and use the $ to import food.  Is it rational and efficient to have  a large % of the workforce herding creatures under very tough climate conditions?  Adaptation requires moving resources (including human migration) to the sector of the economy that offers the highest rate of return.

Friedman's article doesn't address some basics.  In Syria's Northeast Hassakeh region, is there any irrigation?  Who has property rights to the water?  Why is there a fundamental Tragedy of the Commons?  How is water priced?  Are there any water markets to allow those with a high demand for water to use markets to obtain it?  Does anyone have an incentive to conserve water so that they can sell it to someone else or be charged a lower price for total water use?   Without even introduce water desalinization, there are several basic ideas from micro economics that can be used to defuse the situation.  Friedman implies that the climate challenge of drought is immutable.   A micro economist would say that this crisis can be diffused using urbanization, and the creation of basic water markets.   For some solid details read this.

Saturday, April 07, 2012

Manila and the Rise of China's Micro Blogs

I'm back at UCLA after spending several days in Manila.  During my time there, I learned that I like their food.  After a while, I wasn't bugged that their policemen use machine guns to patrol close to my favorite Starbucks.

At the airport, I experienced chaos as our gate didn't list the time or destination for the airplane that was leaving and I received multiple pat downs as I tried to get on the plane.   In the waiting area, there was a big color TV and I joined many other people watching the Lakers defeat the New Jersey Nets.  My Business Class seat on Philippines Airlines had an ashtray.  This suggested to me that the plane was roughly my age.

When I was in Manila,  I had several interesting talks with some new friends of mine who work for the Chinese government.  They were telling me about how useful the rise of the Micro Blogs in China is for monitoring whether industrial pollution problems have taken place.   Just as the U.S has always had "whistle blowers" and we create incentives to reward these guys for providing credible tips about malfeasance, the spatial patterns of micro blog entries provide clues about the damage caused by industrial accidents.  Today, the Wall Street Journal had a short piece  about China's micro blogs.

I have been told that the micro blog entries that focus on the environment do not face risk of censorship because the central government is eager for there to be accountability for industrial pollution.  No more Blinkie the 3 eyed fish from the Simpsons?  I hope this is true but only time will tell.

Friday, April 06, 2012

What Do We Want to Know About Celebrities?

As a fan of the White Stripes, I was happy to see that the NY Times will publish a long piece about Jack White this Sunday.  But,  I must admit that I didn't find this piece that interesting.   It turns out that you can separate the artist's day to day life from his production of art.  You can read and learn from one of my papers without knowing what I eat for lunch.   Given that the NY Times devoted so much space to this article, the editors must believe that the inside knowledge about Mr. White's home's interior design will allow his fans some insights about how he made his art.   I don't see it.   I must admit that I learned more about the making of Tony Soprano from watching this video of James Gandolfini  as he offers a brief autobiography and explains how he sees Fat Tony.    These two cases still have me puzzling about the separation between the production of excellence versus the minutia of day to day life.  Yes, Einstein brushed his teeth (or maybe not).

Switching subjects, yes I spent 7 days in Manila.   While I don't recommend the Manila airport to anyone, I did enjoy my time in that country.  I must admit that I have trouble with exchange rates.  When I checked out of my hotel, I received a bill for 45,000 pesos for a second I read that as $45,000 and thought that I had a problem.

Tuesday, April 03, 2012

You don't read that many articles about the vehicle stock in Yangon Myanmar but this article is worth reading.  The article points out that this city has extremely old vehicles on its roads and that barriers to importing foreign new vehicles is a major reason for this fact.  Lucas Davis and I examine some of the pollution implications of international trade in used vehicles in this 2010 study.

Monday, April 02, 2012

Read UC Berkeley's New Energy Economics Blog

As a fan of competition, I must acknowledge that there is a serious new energy economics blog run by my friends at UC Berkeley. The researchers are doing a great job blending readable posts about their recent research and touching on topical energy policy issues.  Their blog highlights the network effect of bringing together several excellent scholars to blog at the same site.  As a solo blogger, I know that I have chosen the wrong scale of operation.