This PNAS piece presents evidence based on a 58,000 person sample that based on your trail of "Facebook Likes" that Big Data Nerds can quickly (and correctly) determine your sexual orientation, your race and your political orientation.   This suggests a certain "internal consistency" to the choices we make.  Dick Cheney apparently doesn't click on Prius Ads.    This evidence of "profiling" is good news for advertisers seeking to reach certain markets.   I have been working on this broad topic for a long time in my work on environmentalists being "consistent" in their voting in public markets and their "voting their pocket book" in private markets.   Is this PNAS project a foreshadowing of Big Brother?   This depends on how concerned we are about future scenarios where subgroups of the population are easily identified.  While we celebrate "targeted advertising", we are also scandalized by "targeted oppression".  So, do we want transaction costs of identifying subsets of individuals to be high or low?   When do you value your privacy versus when do you want to let it "all hang out"?

In this age of austerity,  ambitious universities are now confronted with some serious tradeoffs.   Even the very best universities are wrestling with these challenges.  For evidence, read this about Yale.   To an economist, the obvious solution here is more price discrimination.  This Yale article says that 43% of the undergraduates pay the "full price" of roughly $53,000 per year.  Why not charge them $106,000 per year and sketch out the demand curve for Yale?    The university has an undergraduate enrollment of roughly 5,000. If .43*5000 each pay $53,000 more than this equals $113 million more dollars in revenue per year for the University and the $40 million dollar deficit vanishes.    I realize that this is an extreme experiment but the readers of this blog know something about differentiated products and inelastic demand. In English, if you offer a high quality product you can get away with price gouging.  Why not gouge?   Is the 43rd percentile of Yale's student body "middle class"?  Can their parents afford $106,000 per year?  There are other schools to attend. You could come to UCLA and take my class.    Note that my pricing regime generates a serious revenue inflow that would allow for more generous financial aid for the 57%.    We all want a sweet deal and I want my hair back but that's not going happen.

The Deans of our Universities needs to start acting like Bill Gates (when he ran Microsoft) rather than acting like Bill Gates (now that he runs his non-profit foundation).

My Governor is getting ready to launch a high stakes field experiment.  While this could yield a QJE publication for him, it could seriously injure the quality of education at UCLA and UC Berkeley.   He is mandating that the University of California will receive more public cash but he is demanding a tuition freeze for several years and he wants a sharp slowdown in enrolling out of state students.  

During this time of stress for the 99%, it is certainly laudable to consider making California's elite public universities more affordable but does the strings he has attached pose a threat to maintaining long run excellence at UC's best campuses?

While economists always focus on tradeoffs, there is the implicit belief in Sacramento and in some of Dean's Suites that the University of California can remain excellent and cheap (relative to Ivy League tuition).  This "free lunch" notion is foreign to me.    President Obama's new health law is going to suck up a huge number of dollars for the UC's teaching hospitals.  I predict that these teaching hospitals will be running huge deficits soon.  How will the UC finance this?   I don't think there has been a serious analysis of what the UC's finances will look like once the health law is fully implemented.  As a great man once said to me;  "Hell University has two Medical Schools!".

Faculty salaries and benefits are the major expenditure item at the UC.  To reduce cost and increase "affordability" means hiring fewer faculty and fewer expensive faculty.  In the short run, this is "wise" in terms of containing costs but in the medium term --- this starts the death spiral. In an age of no mandatory retirement, the UC faculty will become even older.  I plan to retire at age 60 and I would like to see more UC faculty join me in this pledge.

UPDATE:  Take a look at these demographics data about the UC in 1990 vs. 2011.

In 1991, only 15% of the total faculty were over age 60. In 2011, this share has grown to 28%.   The share over age 65 has grown from 5% to 15% between 1991 and 2011.

I've joined the IZA as a Research Fellow in its new Environment and Employment program.   Over the years, I have written several papers examining how environmental regulation affects the location of industrial activity in the United States.  Here is my paper from 1997 and here is a paper (joint with Erin Mansur) that will soon be published in the Journal of Public Economics.

What are the "big questions" in this subfield?

1.  In the developing world, as environmental regulations are tightened in the wealthiest cities, does this accelerate the decentralization of industrial employment to 2nd and 3rd tier cities?

2.  In 2013, are dirty industries still capital intensive so that the factor endowment hypothesis can overwhelm the pollution haven effect so that richer capital intensive nations retain dirty industry?  (so retesting the Copeland and Taylor core hypothesis).

3.  Building on Josh Zivin's recent work, how does external environmental conditions affect worker productivity?  Does urbanization mitigate this effect since people are working inside?

4.  As states such as California enact carbon mitigation legislation (AB32), how many jobs does this create (i.e green jobs) and how jobs does this legislation repel?  How can such counter-factuals be credibly constructed?

5.  Who bears the incidence of environmental regulation?  Which industries raise consumer prices versus firing workers when regulation increases?

The one thing I'm puzzled about here is methodology. In this age of the "field experiment", how can this methodology be used to study the relationship between "environment and employment".  One possibility is randomized audits of firms as a pollution deterrence strategy but I'm having trouble thinking of other examples.

Ph.D. economists could distinguish themselves from other bloggers if we could concisely explain (using plain language) how academic economists test hard "real world" relevant policy questions.  Paul Krugman achieves this ideal today in his column focused on his belief that there is a causal relationship between being unemployed now and the probability that you are unemployed later.  He is agnostic about whether this effect is due to the perception among firms seeking workers that the unemployed suffer from skill atrophy or whether an unemployed person's skills actually do decline when they have nothing to do.  His evidence for his claim is based on the following field experiment; (here is quote)

"But as William Dickens and Rand Ghayad of Northeastern University recently showed, the relationship has broken down for the long-term unemployed: a rising number of job openings doesn’t seem to do much to reduce their numbers. It’s as if employers don’t even bother looking at anyone who has been out of work for a long time.

To test this hypothesis, Mr. Ghayad then did an experiment, sending out résumés describing the qualifications and employment history of 4,800 fictitious workers. Who got called back? The answer was that workers who reported having been unemployed for six months or more got very few callbacks, even when all their other qualifications were better than those of workers who did attract employer interest.

So we are indeed creating a permanent class of jobless Americans."

Permit me to crack a half joke.  I would say that the rise of field experiments as a research methodology is another reason that there is high unemployment in the U.S!   In the past, labor and environmental economists argued that high union wages and environmental regulations caused firms to move abroad to cheaper pollution havens. In this age of field experiments, another reason for firms to move abroad is to avoid applied researchers!   It would interest me if the IRB at Universities consider the value of a firm's lost time dealing with deception when it approves a study such as this one.  

I used to live in Belmont, MA.  Belmont is adjacent to Watertown.  Watertown now has some new notoriety for being "ground zero" in the recent manhunt.   This NY Times article has the details and offers this quote;

"On Saturday morning, Sunny McDonough, 34, a hairstylist and accountant who lives in Watertown, brought her 3-year-old daughter to Dunkin’ Donuts for a treat after having been cooped up for so long.

Ms. McDonough said she expected the ordeal to bring more people to Watertown. “Now we’re on the map,” she said. “And I think our property values are going to go up by 10 percent. Everyone knows where we are now, and they might be more inclined to visit and go to the diner and the stores. We’re really a safe, suburban community,” she said — and then caught herself and smiled. “Except for the terrorist hiding in the boat.”"

Ms. McDonough knows some urban economics.  Hedonic researchers continue to estimate "new news" real estate regressions.  Whether the new news is the discovery of a Superfund Site, or SARS in Hong Kong, or a sex predator living in your neighborhood or now this, real estate economists measure how house prices change as the information is revealed.  She posits that in this case the effect is a gain!  

My son convinced me that I have forgotten the quadratic formula.  I guess such knowledge isn't needed to be a Professor?   For parents who are facing tough questions from their kids, here is a Stata program for approximating the solution to any non-linear function.  Below,  I also provide a prime number solver.


/* Non-Linear Equation Solver that approximates the solution to
 X^4  +  3*X^3 - 2*X^2  =   543007 by searching in increments of .001  */

input z
1
end
expand = 1000000
* the program searches for the answer in increments of .001
gen x=_n/1000
gen alex = x^4 + 3*x^3 -2*x^2 - 543007
gen m=_n
sort m
* note that that for small x values that alex < 0, we search for that value of x such that alex was < 0 but then alex > 0
keep if alex[_n-1]<0 alex="" amp="" n="">0
list x alex


Here is a program for figuring out whether any positive integer is prime or not;

input z
1
end
expand = 4935679
gen x=_n
gen prime= 4935679/x
gen m=int(prime)
keep if prime-m==0
count
list
* If more than 2 rows appear then the number (in this case 4935679)  isn't prime

This NY Times piece provides insights and a photo of Larry Katz with his dog at NBER.  The piece builds on a long running agenda at the NY Times to highlight that consumers often make "mistakes".  The NY Times loves behavioral economics (perhaps because it creates a large opening for benevolent paternalists) and this article has that flavor.  Here is the story in a nutshell;

1.  Parents love their 18 year old child.
2.  Child has fallen in love with a city/university based on little information --- perhaps a tour of the school, perhaps a YouTube video , perhaps friends are already there.
3. Child does not know what she wants to do with her life
4. Child does not know the causal effect of attending school listed in #2 on achieving her ambiguous life goals (see #3 above).
5.  Child has choice between UCLA (very very good "cheap" public university) and Ivy League School (higher price and higher prestige).
6.  Middle class parent bankrupts himself paying for Cornell over UCLA and later regrets the choice.

Does capitalism work in a one shot game?  Kids only go to college once.  

The 6 items I list above bundle several structural issues in modern economics.

1. altruism within the family and the benevolent parent transferring human capital rather than a bequest at his death to the child.
2.  Choice under uncertainty where the uncertainty is over the kid's preferences and the quality of the match between the kid and the school
3.  Uncertainty over occupation choice and over the future of the macroeconomy (will Wall Street continue to boom).
4.   Labor economics is all about estimating causal effects of specific treatments.  Will attending Harvard raise your probability of getting a job at Facebook by 9 percentage points?
5.  How do we compare apples (UCLA) and oranges (Cornell)?  What are the finite set of attributes used to describe each?
6.  Financing investments is a major topic in modern economics whether it is financing human capital or a house or a new road. Which investments pass a "cost-benefit" test? and how do we measure such investments under uncertainty and when the consumption factor (my kid is an "ivy leaguer") is part of the dividend flow.

This article really highlights the importance of the structural econometrics research agenda.  I haven't even mentioned the supply side. Why is the supply of slots at excellent universities so vertical?  Why can't new excellent universities be created by the large number of billionaires in the world?  Is the supply of professors who can teach and do research really so limited? What is the scarce resource that reduces entry such that the Ivy League keep their monopoly?

Who says that the "natural experiments" era is over?  For those looking to research another topic besides for the correlation between debt ratios and growth, I would like to suggest that you consider working on the consequences of UCLA's new smoking ban.    While the penalties for violating this new rule are not listed, let's suppose there is compliance.   Could the following happen?

1.  Will anger and fights on campus rise as the smokers go cold turkey?  (free nicotine patches will be distributed for 2 weeks).

2.   Will the smokers actually reduce their total daily consumption of nicotine?

3.  Will the smokers gain weight?  Six months from now will they be healthier than they are now?

4.  If certain nations have higher smoking rates than the U.S, will their students choose to attend another pro-smoking school?  

5.  For those smokers who wanted to quit, will this new law solve a peer pressure co-ordination problem that our smoking students wanted to quit smoking but only if all all of their campus friends also quit.  They feared being labeled "losers" if they unilaterally quit while their friends continued to smoke?

In this age of benevolent paternalism, the faculty hope that our Leaders introduce more policies to improve our quality of life.   There could be a single choice of entree each day at the Faculty Center that offers the highest nutritional value and minimal ecological damage.   The Leaders could also choose what clothes faculty and students wear?

I do support this smoking ban but precedent is always dangerous.

As I walk around UCLA's campus on another sunny blue sky 75 degree day, I spot my colleagues from a variety of subfields and I ask myself; "Is that guy still working? What has he done recently?"   For the University of Chicago's Robert Fogel, I already know the answer.  This 86 year old Nobel Laureate just published a new book about Simon Kuznets and    I have already read my free copy.   Professor Fogel and his co-authors (including his wife Enid Fogel) meld a biographical tribute to Kuznets with a focus on why his research agenda was so important and simultaneously provide an intellectual history of early economics at the NBER during the early and mid 20th century.

While I can't claim to be a big fan of national income accounting, I know why this is an important exercise.  From reading the book, I can see that Kuznets' commitment to original data collection and careful empiricism set a high mark for his student Robert Fogel.  Bob Fogel has served as my wife's mentor for the last 25 years  and I have had the good fortune to get to know him and learn from him.   I can only hope that when I turn 86 in the year 2052 that I will be 1/2 as productive as Bob is right now.