Friday, August 31, 2012

When Economists Lead

The NY Times celebrates the successful leadership provided by Richard Levin at Yale for almost 20 years.  From this one data point, can we jump to the conclusion that the world would function better if economists were in charge?  Harvard was well run when an obscure economist was recently its President.  What became of that modest man?  Brown University and Northwestern University are now running my field experiment but no branches of the University of California are willing to take my treatment (i.e naming an economist to lead).  Does that surprise you?

As long time readers of this blog know, I have written about what would happen if Paul Krugman and Robert Barro managed to be named co-Presidents of the United States.  Other economists found my piece to be funny but called me politically naive claiming that the Ph.D. economists when faced with political constraints would start acting like politicians!   My critics claimed that the incentivized economists (now serving as President) would do all the crazy stuff that economists critique real politicians for doing.

On some level that's a sad claim. If taken literally it means that our "leaders" know that they are doing silly stuff but that they have to take these misguided actions to keep political power.  My less cynical theory is that leaders often have good intentions but don't know the "production functions" of how inputs map into output and don't know the size of key behavioral elasticties such as the slopes of demand curves and supply curves.  Economists have a better understanding of how to design incentives and how to create mechanisms that encourage those with private information to reveal it.

Thursday, August 30, 2012

The Engine of Growth in Los Angeles?

Some people actually do work in Los Angeles.  Today, the NY Times writes about our major growing employment sector.   More people are getting jobs to drive tour buses that go around and look at celebrity homes and places where celebrities such as Brittney and Lindsey have gotten into trouble.

Here is what the bus looks like and in West LA, there are many of these.



If you hang out in Little Holmby Park, one of these will pass every 20 minutes as folks want to drive by the Playboy Mansion and Aaron Spelling's mansion on Mapelton Drive.

Because of my unfortunate resemblance to this Hollywood star, I get lots of these bus takers waving to me --- so I wave back!  







Wednesday, August 29, 2012

Social Capital's Role in Coping in Disaster Areas

Daniel Aldrich has published a politically correct and thought provoking piece in the NY Times about the beneficial role that social capital plays in helping affected individuals to cope with natural disasters.  As you know, Dora Costa and I have published in the AER on the benefits of friends in stressful situations (i.e surviving war time POW camps).  Aldrich indirectly cites another paper of mine with Dora on the fact that social capital is more likely to be produced in more homogeneous communities.

He over-reaches when he writes;  "As a political scientist (I taught at Tulane at the time), I decided to study how communities respond to natural disasters. I’ve concluded that the density and strength of social networks are the most important variables — not wealth, education or culture — in determining their resilience in the face of catastrophe."

The New York Times must like his rejection of "individualism" in coping with danger and embraces his vision of teamwork.  It "takes a village" is a notion that the NY Times continues to push hard at the national level as it continues to have tough things to say about Romney and Ryan.     

My work on the "Death Toll from Natural Disasters" convinces me that he is wrong about his strong statement above that social capital matters more than education and income.   After all, people have friends and social connections in the developing world but at a point in time poorer nations suffer much more death from natural disasters than rich nations and when poor nations grow richer they suffer less death from similar disasters. 

I do agree with Professor Aldrich that social capital acts as implicit insurance giving affected households a network they can turn to for emotional support and financial support.  Such a network may also have information on coping strategies.

During a crisis we need several "bullets in the gun" to achieve our goal of returning to normal.  Social capital is one coping strategy but at the end of the day, individuals and families will make their own choices, knowing their own goals and basing these decisions on their own resources.   Richer nations will have the tax base to enact ex-ante regulations and zoning controls to reduce ex-ante risk from disasters and will have better ex-post hospital care and food and clean water.  

It is politically incorrect to argue that "economic growth is good" but consider the alternatives.





Tuesday, August 28, 2012

Sean Lennon's NY Times OP-ED About The Environmental Costs of Fracking

Sean Lennon may not remember the one time we were 10 feet from each other.  I was a young Asst. Professor at Columbia and he was an undergraduate there sitting on the Low Library steps being cool.   I spotted him and gawked and then kept walking.  Today, we were reunited as I read his piece about rural environmentalism.  We have some things in common but surprisingly we disagree on some issues.

A quote:

"In the late ’70s, when Manhattanites like Andy Warhol and Bianca Jagger were turning Montauk and East Hampton into an epicurean Shangri-La for the Studio 54 crowd, my parents, John Lennon and Yoko Ono, were looking to become amateur dairy farmers. My first introduction to a cow was being taught how to milk it by hand. I’ll never forget the realization that fresh milk could be so much sweeter than what we bought in grocery stores. Although I was rarely able to persuade my schoolmates to leave Long Island for what seemed to them an unreasonably rural escapade, I was lucky enough to experience trout fishing instead of tennis lessons, swimming holes instead of swimming pools and campfires instead of cable television."

"Natural gas is clean, and cigarettes are healthy — talk about disinformation. To try to counteract this, my mother and I have started a group called Artists Against Fracking."

So, his piece really focuses on his opposition to fracking and the extraction of natural gas.  

One mildly interesting issue here is to quantify how large are the social costs of pursuing natural gas and how do these social costs vary across locations? Suppose that there is a natural gas deposit in a geographical area where few people live.  Does this low population density reduce the likelihood of toxics exposure?

To quote young Lennon:

"Don’t be fooled. Fracking for shale gas is in truth dirty energy. It inevitably leaks toxic chemicals into the air and water."

But, to an economist the question is; "how many people are exposed to this and how much are they willing to pay to not be exposed to this activity?"   The Coase theorem would say that the total negative externality from this resource extraction will be low in less populated areas where per-capita incomes are lower.  A GIS analysis could identify such areas.

If fracking creates jobs for low income individuals then such communities may be willing to pay to allow fracking to take place there.   





Monday, August 27, 2012

Future Environmentalists? A "Hearts and Minds" Campaign at the Zoo

Behavioral economists are studying how framing issues and the setting where we are located affects our willingness to absorb information and how it affects our actions in markets (see Laibon's paper on cue-theory).   For those Cambridge Ph.D. students seeking a dissertation topic. I suggest that they go to the zoo.  This NY Times article  discusses that zoos are now educating attendees about climate change issues.  Why? Some of this may be the preferences of the zoomaster but perhaps they have read David Laibson's work and they are aware that the type of person who self selects to go to the zoo is open minded about learning about nature and may be in the mood to be "educated".   From my experience at the Bronx Zoo in the 1970s, I would guess that young people are a large share of the attendees.  Could attending the zoo and receiving the information "treatment" shift their preferences forever?  Do you believe that the young are malleable?

As I have said several times, we do not know the root sources of environmentalism.  Why doesn't Dick Cheney live in Berkeley?  Field experiments at the zoo might help.  I have friends in China who are trying to exploit the fact that Mao dictated that different books be used as class texts in different parts of the nation and that some of these books were more "pro-green" than others. That is a nice natural experiment on the long run determinants of environmentalism.   So, young Ph.D. candidates, get thee to a zoo!  (how is that for a Shakespeare paraphrase?)

Sunday, August 26, 2012

Intellectual Debate Between Consultants and Academic Economists

In today's Sacramento Bee, Andrew Chang has some tough things to say about California's AB32 and about Bo Cutter and myself.  He omits some details that are worth mentioning.   First, some background.  Last week, Bo Cutter and I published this OP-Ed in the Sac Bee.  Chang's response was published today.

Point #1:  We were not paid to write our OP-ED and we collect no payments at all from the Air Resources Board.  I do serve on its Research Screening Committee and I am paid $400 a year for the work (roughly 20 hours a year).

Point #2:  Dr. Chang does not reveal how much his firm was paid for their "study" but I guess his firm was paid around $100,000.  He has the right incentives to push his case that AB32 will end the world.

Point #3:  Dr. Chang refers to us by name but doesn't mention that we are academic economists.  The words "UCLA" and "Pomona College" do not appear in his piece.   Are all economists' opinions about economic issues weighted equally by the public?  Do we all have equal expertise about topics?  UPDATE: I now see that nobody at their firm has a Ph.D. and one of their associates graduated from Pomona!

Point #4  Here is  a direct quote:

"The California Air Resources Board acknowledges AB 32 will result in a net loss of up to $35 billion in gross state product, while researchers at Andrew Chang and Co. found that California will lose $153 billion, even under optimistic conditions."  

So, in a state with 40 million people, he is predicting that every man, woman and child will lose roughly $4,000 each from this regulation? I would like to hear a simple story for how this can happen?   The typical household spends roughly $1,600 a year on gasoline and $1,000 a year on electricity.    Under what scenarios, do these costs more than double under AB32?   I am an open minded scholar.  Can he tell a simple story about how this well meaning regulation translates into price gouging?

Here is another quote:

"Despite Cutter and Kahn's claims that AB 32 is all benefits, it is irrefutable that AB 32 will impose costs on California. As noted by our study, ARB's current AB 32 programs, including cap and trade, will cost the average California family $2,500 per year and destroy 260,000 jobs."

This quote is not correlated with what we actually said in our piece;


"The assumptions underlying the homemade (Chang) model used to generate the report commissioned by CMTA seem to us to be intentionally pessimistic about the market's ability to innovate. It's reminiscent of a recent report funded by the oil industry that similarly low-balled the benefits and hyped the costs of AB 32, based on the assumption that technological growth won't happen.
AB 32's opponents tend to ignore the well-established evidence that market incentives drive innovation and attract investment. Thanks to California entrepreneurs the state's economy – if it were a nation – ranks ninth in the world behind Italy and ahead of Russia, according to the Los Angeles County Economic Development Corp. AB 32's design will let California's most innovative, best-managed firms reap benefits from clean tech investment. Perhaps the dirty energy firms behind the CMTA study are simply afraid to compete?
We recognize that there are uncertainties, but the long-term financial benefits will most certainly exceed the short-run implementation costs. We are optimistic that California's households and firms will step up as the "rules of the game" change."
I agree with Mr. Chang that regulation is never a free lunch.  Where we disagree is about what is the engine of growth of the California economy and I am much more optimistic than he is about our state's ability to adapt to changing market and economic incentives.  He wants to protect the polluting firms and I want to nudge them to take a second look at their production and transport processes.  A gradual but credible introduction of cap and trade will achieve my goals.
What are his goals? He appears to want to keep his clients happy.  Who are my "clients"?  The children of California!




Read more here: http://www.sacbee.com/2012/08/16/4729970/clean-energy-law-drives-innovation.html#storylink=cpy


Read more here: http://www.sacbee.com/2012/08/26/4755388/ab-32-will-add-costs-hurt-california.html#storylink=cpy






Read more here: http://www.sacbee.com/2012/08/26/4755388/ab-32-will-add-costs-hurt-california.html#storylink=cpy




Read more here: http://www.sacbee.com/2012/08/26/4755388/ab-32-will-add-costs-hurt-california.html#storylink=cpy







Saturday, August 25, 2012

Bus Access and Local Quality of Life

My wife and I just walked from our house to Westwood Village for a Saturday lunch.   Here is a photo of what it looks like on a typical Los Angeles day in Westwood.



Doesn't it look nice!  It is 75 degrees and sunny and blue skies 310 days a year but there is one disamenity.  The numerous public buses stop every 100 yards in Westwood and idle for long periods of time creating noise, pollution and just feeling of a Greyhound bus station "blah".   Westwood has several dead spots where there are empty commercial real estate places and this "bus stopization" doesn't help.  

I fully support Westwood having public transit access but I would prefer that the buses stop at only one point on the outskirts of the Village perhaps on Le Conte Ave.   So, an interesting tradeoff arises.  As senior citizens grow older and grow in number, will they want buses to stop every 50 feet?  If "yes", this will exacerbate my concern.  I want "express buses" that make fewer stops and have dedicated bus lanes that quickly move across West LA neighborhoods but only make one stop within each neighborhood and then move another mile.    

Thursday, August 23, 2012

Water Prices and Drought

The New York Times' reporters  need to take a refresher course on supply and demand.   It publishes article after article about the drought taking place throughout the U.S but it manages to never discuss why we don't allow water prices to rise to reflect this scarcity?  How much would water prices rise by?  Would we stop flushing our toliets?  I don't think so.

Today, there are plenty of farmers growing water intensive crops and our suburbs are covered with green grass.  Rising water prices would nudge the farmers to substitute to less water intensive crops and some suburbanites would go the "Berkeley route" and pull out their grass. This would be incentive induced adaptation.  When you don't allow prices to reflect scarcity,  we misallocate scarce resources.  As climate change makes these resources more scarce, it is time to give free markets a chance!

Wednesday, August 22, 2012

Loyalty

In 2003, Dora Costa and I published a paper on desertion and loyalty during war time.   How does an organization reward loyalty? How does it punish disloyalty?   For a data point about how NYU rewards loyalty read this.   Today, I learned how Southwest Airlines rewards loyalty.  As a frequent flyer, I was sent four coupons for free beer on their flights. I must use them before August 2013.  This isn't a binding constraint.  I must have been profiled because this is exactly what I wanted!  Big Data is clearly paying off for this company.  I'm on my way to become Premier Gold flying on United but I don't see any offers of free beer listed here.

Who are the "Real" New Yorkers?

A NY Times OP-ED piece by Jermiah Moss bemoans the gentrification taking place along the Manhattan side of the Hudson River.   He is upset that this public investment has attracted people and private investment and has transformed a  decaying and outdated set of structures and turned it into "Disneyland".  

Tuesday, August 21, 2012

Do Helicopters Pose A Threat to Your City's Quality of Life?

Los Angeles is quite a town.   Assemblyman Bob Blumenfield Assemblymember, 40th District  just sent out the following news item.  


More than 300 people attend hearing on helicopter noise

At the request of Congressman Howard L. Berman, the Federal Aviation Administration held a recent hearing in Sherman Oaks at which Angelenos voiced their complaints on helicopter noise – a huge problem in the Valley and across all of Los Angeles that has gotten out of control. Whether it's the low-flying paparazzi, news choppers or other privately-owned helicopters, our community is besieged by this incessant noise 24 hours a day. It's time to say enough is enough.
I am the co-author of legislation, AJR 25, calling upon Congress to pass Congressman Berman's legislation, the Los Angeles Helicopter Noise Act, that would regulate these noise polluters. Residents from all over the Valley came out to the hearing to let the FAA know that these low-flying choppers are affecting the quality of life for all of us, and some limits must be placed on them.
The community outpouring at the FAA hearing was overwhelming. A big thank you to Congressman Berman, his staff, and the FAA for spearheading a solution to this important problem.

Switching Subjects:   Some people wonder how I am able to write a fair bit of stuff.  The answer is 1970s rock & roll.  Listen to this station and you will return to your roots.

Toliet Requirements Regulation: A Key Example of Red Tape?

Unemployment is too high.  We need job creation.  If you open a business in NYC, must you provide toliet access?  Given that toliet provision is costly, should we be enforcing such regulation now?   Two weeks ago, Mayor Bloomberg announced that smaller restaurants and coffee places with an occupancy of 30 people or less do not have to provide two toliets.   The NY Times discusses this issue today in this piece.

A quote:

"Under legislation that Mayor Michael R. Bloomberg signed on Aug. 8, small restaurants and coffee shops with an occupancy of 30 people or fewer are allowed to provide patrons with one bathroom rather than two, as previously required — one for each sex. The changes also brought the city’s plumbing code in line with a health department code that allowed places with fewer than 20 seats to not provide patrons with any bathroom.


"To determine the precise number of restrooms a restaurant or cafe must have. ...
The answer depends not only on how many seats it has, or people it can hold, but also on when the building was built, when the restaurant opened, what its certificate of occupancy says and whether it underwent renovations and, if so, how extensive.
A building is subject to the law it was built under, and if a restaurant moves into an old restaurant space and does not change its bathroom fixtures, the old requirements apply.
The city also does not have just one building code; there is a 1938 code, a 1968 code and a 2008 code, and all have different bathroom requirements. The 1968 code required one bathroom for each sex for up to 100 people. The 2008 code required one for each sex for up to 150, a Buildings Department spokeswoman said.
New laws are not retroactive — they apply only to new construction and if a site changes its use or occupancy load. Adding to the complexity, waivers have often been granted to smaller restaurants allowing them to have just one unisex bathroom when they otherwise might have needed two."

So, this is complicated regulation!  Why must there be any toliet regulation at all? In this age of twitter and Facebook, why can't restaurants choose whether they offer this amenity or not.  Why must it be bundled into the package?  Customers will have full information on whether they are visiting a store that has a toliet. If you can't predict when you need to use a toliet then you should go to a place that has one but why require this and limit the gains to trade?  


Sunday, August 19, 2012

The ADB Publishes its Key Indicators 2012 Theme Chapter on "Green Urbanization in Asia"

Over the last couple of months, I had the opportunity to work on an interesting ADB project related to the rise of "green cities" in Asia.  I encourage you to read this paper!    I'm hoping that there will be a growth in the number of Asian researchers interested in working at the intersection between environmental and urban economics.

Saturday, August 18, 2012

Migration and Climate Exposure from 1900 to 2010

It is Saturday night so it is time to calculate some weighted means.   The United States consists of roughly 3,000 counties.  For each of these counties, I have data on its average February temperature in the middle of the 20th century (so take the 1950 to 1980 annual average February temperature) and time average this. Let's call this "tmean2" and I have the average temperature for each county over the same years in August.  Call this "tmean8".

I then conduct the following thought experiment.  Given the spatial distribution of the population across counties in the year 1900, what was the average temperature exposure for the U.S population?  So, I'm weighting the county average February and August Temperature by the year 1900 distribution of people across U.S counties. Intuitively, more people lived in Detroit in those days and fewer lived in Los Angeles. As you can see below, the average American lived in a place that was 34.1 degrees F. in winter and 73.8 in Summer and 22.8% of people lived in a coastal county.



summ tmean2 tmean8 coast [w=pop1900]


    Variable |     Obs      Weight        Mean   Std. Dev.       Min        Max
-------------+-----------------------------------------------------------------
      tmean2 |    2818    75438942     34.1235   9.595696   9.107881   69.19515
      tmean8 |    2818    75438942    73.81865   4.546925   60.25134   91.89582
       coast |    2818    75438942    .2284033   .4198783          0          1

Now, I repeat this exact same exercise using the same climate data but now I use the 2010 calendar year population distribution. We know the population has moved from the Rust Belt to the Sun Belt.


. summ tmean2 tmean8 coast [w=census2010pop]


    Variable |     Obs      Weight        Mean   Std. Dev.       Min        Max
-------------+-----------------------------------------------------------------
      tmean2 |    3110   304169234    40.06854   12.17356   9.107881   69.19515
      tmean8 |    3110   304169234     75.0742   5.515168   60.25134   91.89582
       coast |    3111   306665669    .3432595   .4748736          0          1

Note that the exposure to warmer winters has increased by 6 degrees! Exposure to warmer summers has gone up 1.2 degrees and coastal living has increased by over 10 percentage points.  These composition shifts hint at what migration could do to "average climate exposure" if places such as Las Vegas and Phoenix are "too hot".   But, note the great demand to be in warmer winter places!  Perhaps in the future more households will telecommute and live Northern cities in summer and Southern Cities in winter.   How is that for an adaptation strategy?

It looking at these calculations, it is important to note that there is no "climate change" here. I never shift the spatial distribution of climate conditions. Taking the climate distribution as fixed, I reweight these data using variation in how many people live in each of these counties.  A more sophisticated exercise would also allow for the shifting climate distribution.

A long time ago, Mike Cragg and I talked about these issues in this 1999 RSUE paper.  



What Do Pessimists Have to Say About Climate Change Adaptation?

Here is a blog piece that is worth reading by by Frank Lowenstein and Evan Girvetz of the Nature Conservancy.

Here are some juicy quotes;

"And this summer the impacts of our mounting climate debt became clear. July was the hottest month ever in U.S. history (3.3°F above the 20th century average). Drought has reduced water levels in soils and rivers across much of the country, and spectacular and unprecedented heat has evaporated what little water is available, baking our soils and forests. With the natural resilience of our forests and watersheds reduced, climate bankruptcy hits home, yielding charred homes from fires in Colorado; suffering in stifling, power-less homes across the East; and reduced yields in the parched breadbasket of the Midwest.


And extreme temperatures are occurring faster than scientists anticipated. Extremely hot summers — warmer than virtually ever occurred during a base period of 1951-1980 — have occurred across more than 10% of the world’s lands during the past several years. Extremely hot temperatures are more than 10 times more likely to occur now than 50 years ago.
You have likely felt the heat this year — which has broken tens of thousands of heat records across the U.S. But do you also recall the heat wave in Texas and Oklahoma just last year that killed 100,000 cattle and 500 million trees? The Russian heat wave two years ago that killed 56,000 people? The European heat wave in 2003 that killed [at least 35,000] people?  The new research shows that this is not just year-to-year variation in weather, but almost certainly due to global climate change causing warmer temperatures.
These heat waves have major impacts for people. Hot temperatures were a cause of the terrible wildfires that ravaged Colorado and New Mexico this year and destroyed hundreds of homes. Hot temperatures exacerbate drought conditions and are contributing to the crop failures we see across the Midwest, with rising prices in the grocery store certain to follow.
And hot temperatures have direct health impacts for people — more than 60 people died in the US earlier this year from the heat. A new article in the Stanford Social Innovation Review notes that the 2006 heat wave in California killed 138 people, more than died in the Loma Prieta and Northridge earthquakes combined."
When I was a young man, I liked the Heavy Metal song; "We're Not Going to Take It".  
The authors of this piece have a pessimistic view of society that we have no ability or will to adapt and cope with these new threats.  While Congress is gridlocked  and India's and China's GHG emissions are booming, adaptation offers a real strategy for mitigating the concerns that they list above.  Nowhere in their piece do they bother to discuss adaptation.  Do they really believe that we are all victims with no control over our lives?  Such fatalism is "refreshing" but very odd and self-serving.   Of course, the poor have the least ability to adapt.  These authors could make a decent point arguing that social justice concerns hamper solely focusing on adaptation as our "best coping strategy".   But, as we have seen with all capitalist products -- the quality adjusted price falls sharply over time.  Today, many poor people have better consumer durables than the last Russian Czar had in his palace.   As prices fall for new coping products, everyone can benefit.  
I understand that the authors want carbon mitigation and as usual are trying to create an "urgency of now"  but these folks should visit China and see the ongoing spike in GHG emissions.  It is time for reasonable people to start to think harder about creating incentives and "rules of the game" that allow our economy and government policy to pursue climate change adaptation.  

Some Thoughts About Raustiala and Sprigman's "The Knockoff Economy"

At UC Berkeley's Economics Department, I found a stack of free books on a chair. I grabbed a copy of my UCLA colleague Kal Raustiala's new book The Knockoff Economy.  I want to offer some praise for the book and a few sharp questions.

First, let me praise Raustiala and Sprigman for being excellent writers and story tellers.  The book is enjoyable to read.  These guys are hip and versatile as they take us on a tour of fashion, comedians, cooking and football offensive sets.  In each of these settings, capitalism offers us better products because of imitation and some degree of "intellectual theft".  Now let's be careful here, no professor wants to celebrate plagiarism. Instead, in each of these settings a newcomer has taken an old idea and twisted it a little bit to create something new.  An example being selling Korean Tacos from food trucks in Los Angeles.   All professors know that they stand on the shoulders of giants so why shouldn't businesses?    

The authors celebrate open source and give a fun example of Microsoft's costly attempt back in 1995 to write a great encyclopedia but in a classic David vs. Goliath fight that the open source Wikipedia crushed them.  

Given that both of the authors are law professors, what are the implications for IP protection given the clear benefits of "easy access" to others' ideas?   Here the professors appear to embrace a Goldilocks view.  They respect the Boldrin and Levine arguments to abolish IP laws but they reject this view as "too radical".    They mention this in an endnote on page 231.   No reader of the book is likely to read that endnote.  This book would be stronger if they devoted an entire chapter to this point.  Given that the authors are lawyers, what are the best IP laws to have to stimulate innovation in the 21st century?  Should developing nations have "knockoff" access without guilt?  How do we design the "rules of the game" to encourage innovation?  Do we currently have the best possible system? If not, what is the political economy that blocks adopting the "best rules"?

Given the benefits of having easy access to others' ideas, why not go "all the way"?  If Boldrin and Levine are wrong, why are they wrong?  The book could explore more the dynamics of investment.  When a fashion designer invests in a new dress, how much time and resources does it take to design it?  What is the designer's expected rate of return on this investment?  If new drugs had no IP protection what would be the rate of innovation in this industry?

Implicit in arguing that "knockoffs" benefit society is an idea of strategic complementarities --- that knockoffs encourage creating new permutations and seeing if they are popular with the public. I agree with this vision but I wonder if there are cases when it does not hold.   I think of Weird Al and his parodies of celebrity videos such as "Eat It".  Did Michael Jackson have the IP in this case or would denying Weird Al the ability to do his thing make society worse off?

I do recommend this book. It highlights how lawyers and economists can talk to each other about the important question of free market progress and the economics of the production of new goods.

Friday, August 17, 2012

Contrasting Berkeley and Westwood

I am in Berkeley today and will return to Westwood soon.  It's about 70 degrees here and at night when the temperature hovers around 50 degrees some homes actually are running wood furnaces to generate some heat or at least to pollute the air.   Given how hot this summer has been elsewhere, that's a strange contrast.

While Westwood and Berkeley both feature great weather that bundles sunshine, no humidity and no real heat, there are many differences between the towns.  West LA is a hedonist's paradise.  Everyone has invested to look good, to have nice cars, a nice lawn and a nice house.  Everything looks quite perfect in the greater West LA area.  Perhaps the only exception is some of the commercial strips.  Since LA is a cars town, these commercial areas are never walkable and cute.  Instead, they feature easy car access and parking to run in and do your chores and shopping and then drive away.

Berkeley has a different vibe.  If the Kardashian sisters made an appearance in Berkeley they would probably argue that 90% of the folks here (including myself) need a makeover.   They would be surprised by the absence of grass in the front yards of anyone's home.  They would be surprised that people can happily live in a two bedroom, one bathroom home 1300 square foot home.   Such homes are ubiquitous around Berkeley and Albany.   The green lifestyle embraced here is low maintenance and not resource intensive.

Downtown Berkeley is not nice.  It offers an ongoing field experiment to see how well intended local government policy affects the vibrancy of a downtown .5 miles away from a leading research university (UC Berkeley).  While downtown Westwood has problems, there is no comparison with the challenges that downtown Berkeley faces.  The family in PBS' Downton Abbey should visit Downtown Berkeley. That would be a good plot!  It would interest me to learn more about how the Berkeley Mayor's office works with the leadership and faculty of UC Berkeley to build a higher quality of life, safer community.

Westwood has no equivalent of Berkeley's People's Park. In an age of private property, Berkeley is running an experiment about how to be tolerant and how to share public property with people of all types.  For better or worse, such tolerance attracts some unusual folks.

A benefit of Berkeley's diversity is that it has better food than Westwood.  Perhaps because everyone seeks to be thin in LA, nobody wants to think about good food?

So which town has the better quality of life?



Thursday, August 16, 2012

Naming "Green" Architects in LA

I like to see examples of successful UCLA graduates who are embracing "sustainability issues" in their professional work.  I was just sent the following email about Beth Holden (a UCLA grad).


Hi there,

We'd love to introduce you to New Theme Inc., an architecture, design and and build firm headed by Beth Holden and partner Wolfgang Melian. Holden launched construction under New Theme in 2004 and has been hard at work developing and building some of the most interesting and eco-friendly residences, commercial building and retail spaces in Los Angeles. Her latest completed works are the Green Greenberg Green House in the Hollywood Hills ( slated to receive LEED Certification); the "Hayvenhurst Folie," which features a solar-powered eco "learning lab" structure on the property that generates enough electricity to light the structure and power a laptop and stereo for music; and Bow & Truss, a restaurant in North Hollywood has just opened in a repurposed auto repair shop in North Hollywood, CA.


Please visit New Theme's new website: www.newtheme.net.  

I clicked on the website and I liked what I saw.  UCLA has a few buildings that could benefit from hiring her firm!  The buildings and a number of the faculty need a make over.  

How Will Central California Adapt to Climate Change?

Will Merced grow into the next Los Angeles?  This article in the Merced Sun-Star sketches some challenges that this nascent city will face due to climate change.

"The study looked at a number of social-risk factors specifically related to the impacts of climate change, including air conditioner ownership, childhood obesity, percentage of tree cover, income levels and numbers of workers in outdoor occupations.
From Merced to Fresno, an abundance of outdoor workers consistently topped the factors in climate change vulnerability.
"Agricultural workers are at high risk of heat- related illness because they often work long hours in the sun and, in some cases, may not have access to adequate health care," Cooley said."

This looks like a data point for Climatopolis!  Economic development in this region leading to rising income and a sectoral shift towards urbanization and away from agriculture will reduce exposure and increase private adaptation strategies for households.  It is revealing that most discussions of adaptation challenges focus on the poor.  So, how do we help the poor?  We increase investment in basic education and encourage economic growth.  This is the long term adaptation strategy.  

Read more here: http://www.mercedsunstar.com/2012/08/14/2477667/climate-change-poses-risks-to.html?storylink=addthis#.UCz3szcp0E4.facebook#storylink=cpy

 

My OP-ED Piece about California's Anti-Carbon Legislation

The Sacramento Bee has published an opinion piece that I wrote with Bo Cutter.   We argue that California's AB32 (the legislation intended to sharply reduce the state's greenhouse gas emissions) is off to a good start.  While AB32 embodies many different rules and regulations, I view it as essentially creating a new set of "rules of the game".   Households and firms are continually making investment decisions.  Rational investors should anticipate that this regulation will tighten energy efficiency standards, fuel efficiency standards, and it will induce changes in land use patterns, changes in the pricing of electricity and changes in requirements for renewable power to be a larger share of the electricity mix.     Some households and firms will easily and happily adapt to these new rules while there are other households and firms who will face greater compliance challenges.    I am well aware that no regulation is ever a "free lunch".

I am a big believer in "induced innovation". This AB32 regulation will induce innovation that will "bend the curve".   I am highly optimistic that the combination of California smart engineers, entrepreneurs, venture capitalists and committed environmentalists  will co-ordinate through free markets to figure out next generation technologies for buildings, cars, power generation that uncouple economic growth form carbon dioxide production.  In the absence of AB32, there would not have been the "nudge" for the venture capitalists and the engineers to direct their scarce time and talents towards this sector.   In the absence of Federal legislation, we as a society need someone to be the "green guinea pig". As I have said many times,  the rest of the nation should thank California and send us a check for providing public goods (i.e new ideas) for the rest of the nation and world.

Since ideas are public goods, for those green ideas that are proven to be cost effective by California's field experiment, they can then diffuse widely and those ideas tried out under AB32 that fail can be scrapped and not repeated elsewhere.   Don't take my word for this,  here are some quotes from Paul Romer.

"But ideas can. Human beings, Romer says, possess a nearly infinite capacity to reconfigure physical objects by creating new recipes for their use. By coming up with new ideas on how to increase, say, the power of a microprocessor, humans can boost productivity, spawn new opportunities for profit, and ultimately drive economic growth.

And the great thing about ideas, says Romer, is that they are nearly limitless. "On the ideas side you have combinatorial explosion," he says. "There's essentially no scarcity to deal with." Take, for instance, all the possible bitstreams you can turn into a CD-ROM. The number, he notes, comes to something in the range of 10 to the power of 1 billion, virtually ensuring that we'll never run out of software to discover. "There isn't enough mass in the universe to make that number of CDs," he says. Romer argues that because the number of ways to rearrange an object and to create something of greater value is so vast, the prospects for economic growth are far greater than economists would normally have us believe."

As a society, we need more experimentation.  We need more modesty from our political leaders. They must admit that they "know that they do not know" what policies work and don't work.  Those who are too confident that they know "the true model" will never run an experiment because there is nothing to learn.
AB32 represents a type of field experiment.  The rest of the nation is the control group.  Under AB32, the Air Resources Board (ARB) is changing the "rules of the game" and we will see how California households and firms respond. The leaders of the ARB are well aware of California's unemployment rate.  They have the right political incentives to take steps to minimize any nasty employment consequences of tight environmental regulation.  The applied economists continue to debate the size of these effects.
Here are three relevant papers;




Wednesday, August 15, 2012

New UCLA Research Says that "Real Men" Eat Walnuts

UCLA School of Nursing study shows walnuts improve sperm quality

 
Laura Perry   (She wrote the following blurb)
           
Eating about two handfuls of walnuts a day may provide men the added boost they need to improve their fertility, according to a breakthrough study by researchers at the UCLA School of Nursing.  
 
Findings from the study, "Walnuts Improve Semen Quality in Men Consuming a Western-Style Diet: Randomized Control Dietary Intervention Trial," are published Aug. 15 in the "papers in press" section of the peer-reviewed journal Biology of Reproduction. 
 
This is the first study to look at the effects of a plant source of omega-3 on sperm, the researchers say. Statistics from the American Society for Reproductive Medicine show that one in six couples is infertile, with about 40 percent of these cases due to a male factor.  
 
The 12-week study involved 117 men between the ages of 21 and 35, who were divided into two groups. One group added 75 grams of whole-shelled walnuts to their diet daily. The other group continued their usual diet but avoided eating tree nuts. Both groups ate a typical Western-style diet. 
 
"We found a significant improvement in sperm parameters in the group that consumed the walnuts," said Wendie Robbins, a professor at the UCLA School of Nursing and UCLA's Fielding School of Public Health and lead author of the study. "The men who ate no tree nuts saw no change. 
 
"Women are not the only ones who should be paying attention to what they eat when they are trying to get pregnant," she added. "This study shows that what men eat is important too."
 
Food has been linked to human reproductive success throughout history. And while dietary habits and essential nutrients that promote successful reproductive outcomes for women have been identified, the habits and nutrients that can improve men's reproductive fitness are less clear, the researchers say. In particular, evidence is limited for men who routinely consume Western-style diets that may lack optimal nutrients needed for health, sperm and fertility. 
 
"Walnuts provide a particularly rich source of a-linolenic acid, a natural plant source of omega-3, which we suspect may have been responsible for the improvements we observed," said study co-author Catherine Carpenter of the UCLA Center for Human Nutrition and UCLA schools of nursing and medicine. 
 
The next step, according to the researchers, is to work with couples who are attending infertility clinics to determine if placing men on a walnut diet results in better success conceiving. 
 
The study was funded through a grant from the California Walnut Commission and the UCLA Fielding School of Public Health's Center for Occupational and Environmental Health. 
 
In addition to Robbins and Carpenter, study co-authors included Lin Xun, Leah FitzGerald and Samantha Esguerra of the UCLA School of Nursing and Susanne Henning of the David Geffen School of Medicine at UCLA and the UCLA Center for Human Nutrition.  
 
The UCLA School of Nursing is redefining nursing through the pursuit of uncompromised excellence in research, education, practice, policy and patient advocacy. For more information, please visit www.nursing.ucla.edu

Tuesday, August 14, 2012

Learning from Prediction Markets

Do you know that you don't know what will happen in the future?  If you have such self awareness, then the intrade prediction site might be some help as its market prices provide some evidence on what market participants think is the probability of future events.  For example, intrade says that President Obama has a 57% chance of being re-elected and that the probability of the Congress enacting carbon cap and trade regulation by the end of 2013 is 10% (but this asset features little trading volume and thus may not be that informative).

If you look around their website, you will see some climate futures markets.  I foresee this market posting more climate change events in the future such as; "the probability the temperature will exceed 110 degrees in Phoenix on more than 30 days during the next summer".    People who are considering moving to Phoenix or already live in Phoenix and are thinking about investing in coping strategies would benefit from this information.  Entrepreneurs will also benefit from this information.

If people have accurate forecasts of future event probabilities, does this raise your confidence that they will make "good" decisions that further their own self interests?   To quote the President, "yes we can".

For those of you with an interest in the economics of prediction markets, I'd suggest reading this paper and this paper.  

An Asset Pricing Puzzle About Facebook and Funny Spam Email

Asset pricing economists tend to be quite smart and quite well paid.  Permit me to pose a puzzle for them.  Facebook's "lockup" period ends this Thursday.   Does Modern Asset Pricing predict that this anticipated news is not "new news" and thus the event will have no effect on Facebook's stock value?  When I was younger, we were taught that only unanticipated events (i.e "new news") moves asset prices.  

But, consider the following.  The incumbent owners of Facebook shares are insiders who presumably have better information about the company's true health.  If these owners start to sell a large number of shares on Thursday could this lead to stampede due to herding effects as the "outsiders" (guys like me) infer bad expectations if the incumbents seek to dump shares?  So, would an empirical prediction be that after "lockups" end if the first day after the stock price falls that this predicts more short run declines?   If traders know this correlation, then does the stock fall even more sharply on the initial bad momentum on the day the lockup ends?

How does herding caused by an event (i.e the end of the Facebook lockup)  interact in a model of asset pricing?

Switching to Spam ---  here is an email I just received. I hope it helps you.

Success Is Attainable When You Believe Life Is Filled With Solutions, Not Problems

Houston, TX, August 14, 2012 – Do you ever feel like everyone around you is succeeding, leaving you behind feeling unhappy and unsatisfied with your life? Don’t be that person who dreams of success but never quite gets there. As a successful chartered accountant and owner of his own accounting company, Patrick Daniel understands that real victory in the ‘business of life’ comes from achieving success both professionally and personally. His inspiring book, Finding Your Road to Success - How to get there without getting lost (PDCA Publishing), shares a step-by-step approach to building roadmaps that lead straight to the top!

Patrick Daniel became independently wealthy by the young age of 30 – a fact that validates his credentials for writing a self-help motivational and inspirational book that is filled with great lessons, personal experiences, and strategically-placed quotes, from both unknown and famous individuals, that support tips to encourage readers to achieve goals beyond their wildest dreams. 

While many of us work hard to reach success, we often get lost along the way for a variety of reasons. Finding Your Road to Success is interactive in the sense that it gets you thinking about your life. As you read, you find yourself analyzing exactly where you are in your life versus where you want to be; the more pages you read the more you discover who you are and what true success really means to you - and you get the tools to steer you in the right direction.

The author demonstrates how it’s possible for anyone to achieve success and he willingly shares the secrets to happiness, wealth and ultimate success in his book. Written in simple terms that make for easy reading, he uses entertaining stories from his own life experiences as lessons in this well-written, basic guide for anyone wanting to begin their journey on the path to a successful life.

Patrick’s mantra, ‘life is filled with solutions, not problems,’ is at the core of his ‘glass half-full’ attitude that makes Finding Your Road to Success a must-read for anyone needing a shot of optimism. A rarity of sorts, the author realized at a very young age that true success is achieving goals that go way beyond monetary and his book shatters all notions that success is a myth!

Patrick Daniel is a successful chartered accountant and owner of his own accounting company, author, featured radio guest, life coach, sought-after speaker, and an avid volunteer for numerous organizations and charities that benefit children and poor families.

For more information, please visit: www.FindingYourRoadToSuccess.com.

Available at all major online outlets and author’s website.
Finding Your Road to Success - How to get there without getting lost 

By Patrick Daniel

PDCA Publishing

ISBN # 9780986706004 Paper format

ISBN # 9780986706011 E-book format

Monday, August 13, 2012

Listen to a Podcast of the Nevada NPR Radio Show on Climate Change Adaptation for Southwest Cities

I learned a lot from this 45 minute NPR segment.  The host kept asking me "adaptation architecture" questions.  For example, one woman wanted to know if I supported more people living underground where it is nice and cool even during summer time.  While I don't want to live underground, I said that this is a great example of the "guinea pig" effect.  To adapt to climate change, we need to run many field experiments to see what works and what fails. For those pioneers who choose to live below ground, we can make a youtube video and post it to show other people what it would be like to mimic the "green guinea pigs".  This is decentralized adaptation at work.

The other two participants in the discussion emphasized that car based cities such as Phoenix and Las Vegas can learn from earlier societies and poorer cities about how to cope.  They argued that if these car cities ripped out their concrete and shrunk their roads that the urban heat island effect would be attenuated and they want more shading using trees and tall buildings.  These are reasonable ideas. Just because Phoenix and Las Vegas have built plenty of low density, car heavy suburban housing in the past doesn't mean that such cities must continue to do so in the future.   There is a question of what focal points in these metro areas could be places where people want to live at higher density?

For example, in Beijing --- in preparation for the 2008 Olympics the government built the Olympic Park and private sector developers subsequently built more housing towers nearby and more private restaurants opened up nearby.  This complementarity between public and private investment suggests a channel for other cities to become more dense. This is now happening in Los Angeles' downtown as crime falls there.

Bill Keller of the NY Times Crosses the Line

I've read the NY Times each day since I was 15.   I've read the NY Post each day since I was 18!    An Opinion Piece in the NY Times today by Bill Keller really grosses me out.  In this piece,  this journalist assumes that he knows more economics than leading Ph.D. economists and flat out insinuates that one of the world's leading public finance economists is a political shill.   These are dangerous days.  I wish we lived in a world where people trust experts whether the experts are climate scientists, economists, doctors or military leaders.   Once trust is gone --- how do we build it back and what happens to collective decision making when we ditch delegation to experts?

First some preliminaries.    Here is a photo of Keller.   He has good hair and looks serious but does that make him serious?   He thinks so.  As a subscriber to the NY Times, I'm amazed at the certainty shown by their editorial columnists.  Gail Collins, Dr. Krugman and Mr. Keller show amazing self confidence in their certainty that what they say to be true is true.  I have many more doubts about this life and what is the "true data generating process".  I wish I could sleep as well at night as this crew.




Here is the smug quote that angers me.

"THE TRICKLE-DOWN ECONOMIST R. Glenn Hubbard, who has been a top Romney adviser since the 2008 campaign, is a reputable economist, dean of Columbia Business School. He is not one of those abolish-the-Fed, tax-cuts-pay-for-themselves charlatans who seem to have captured the minds of so many Republicans. But he has increasingly traded in his economic science for partisan politics. As chairman of George W. Bush’s Council of Economic Advisers, Hubbard rationalized huge tax cuts (the promised bonanza of jobs failed to materialize) and deregulation (widely blamed for contributing to the housing and banking mess). Now he lends an expert gloss to the claim that Romney’s sketchy economic plan will create 12 million jobs — a claim I doubt would pass muster in a first-year Econ class at Columbia. "

Now,  I taught the first-year Econ Class at Columbia from 1993 to 1996 and from 1998 to 2000.  I know exactly what was taught in those classes.  When I taught Principles we focused on microeconomics and spent almost no time on Macro. I told my students that Y = C+I+G and that we don't know why the Great Depression took place and that we must continue to think why the U.S economy has grown by roughly 3% per year per-capita.

The CEA's current Chair is Alan Krueger.  He is a great economist.    I bet that if he and Glen Hubbard had lunch together they would both agree that the U.S needs job growth.  The question then becomes; "what set of incentives and government policies will achieve this goal?"

The Romney team seeks to have the private sector be the engine of growth.  Could the private sector create 12 million jobs?  Each journey begins with a first step. When would a profit maximizing firm hire an additional worker?  From "first-year Econ", we know that the firm will hire a worker when the marginal revenue (after taxes) that the worker generates exceeds the wage the worker must be paid (the wage is the marginal cost of hiring the worker).

The Obama team would have some combination of government and the private sector be the engine of growth to create the 12 million jobs.

As a microeconomist, I would love to see a discussion of what must be the behavioral responses of firms to government incentives so that the macro jobs goal would be achieved.  What do we know about how economic conditions and expectations of future policy shifts affect job creation now?  If we acknowledge that our knowledge base is weak, how do we proceed?

I agree with Keller on one point.   Given the current state of academic economic knowledge, how confident can an economist, even a great economist, be about an out of sample prediction of how our economy will respond to a change in tax incentives that we have never launched before?  Talk about uncertainty!  In the language of economics, one must conduct a massive policy counter-factual to generate the 12 million number. I don't know how to evaluate its validity in a general equilibrium model of the entire economy nested in a world economy.

It is possible that Keller's cynicism is warranted but this is an empirical question.  Does Keller burst into surgery rooms and tell the surgeon how to do his job or pass his opinion on how the surgery is going?  As a Ph.D. economist I'm sad that our great field is held in such "high esteem" by the esteemed NY Times.

The active academic economics research community should think about what we can do to raise our reputation with "the common man".  Did we originally over-promise that we had figured out policies so that there would never be another deep recession again?  At the end of the day,  the Romney plan's predictions must be based on micro-econometric elasticities. It is up to the leading labor and public finance economists to avoid political wrestling and to take a look at that most convincing studies in the literature to determine whether the behavioral responses that the Romney team claims will be unleashed by their tax cuts could come to pass and are likely to be realized.





 



Sunday, August 12, 2012

Nevada NPR Wants to Talk About Climatopolis

When Opportunity knocks, you have to open the door!  I am looking forward to being on Nevada NPR radio tomorrow morning to talk about climate change adaptation.   Unfortunately,  we are not being proactive and reducing our GHG emissions.  While this doesn't surprise any economist, I have been surprised by the refusal of many smart economists to broach the topic of climate change adaptation. I wrote Climatopolis because it was obvious to me (back in 2009) that adaptation would become the central piece of the puzzle.   The New York Times and other "informed sources" are now running more and more pieces about adaptation but they keep making government rather than individuals and profit maximizing firms the star of the show.   I view this emphasis on "collective adaptation" as misplaced and in many cases counter-productive.   Were Facebook and Google built by government?   Similar innovation will now take place in helping us to cope with the "new normal".

I'm not saying that government has no role in helping us to adapt but economists need to start to work on the "moral hazard" effects of local government intervention (i.e sea walls attract more "victims" to move to a flood plain) and to think about the economic incidence effects of such government investment (i.e do land owners nearby new sea walls enjoy a sharp increase in land values?).

The broad topic of "free market climate adaptation" will become a central issue over the next 30 years and I hope that the academic nerds who read this blog start to work and think about this topic!