My new book is currently ranked #13 on Amazon's best sellers in the "exclusive" Environmental Economics Category.  One book that ranks ahead of mine is Nina Munk's  The Idealist: Jeffrey Sachs and the Quest to End Poverty.   While I will not be buying this book, I am intrigued and hoping that some journalist out there will consider following me around for six years to learn about "my journey".  Here is a direct quote  from Ms. Bush from the book's Amazon page from something called "booklist"; 

"Jeffrey Sachs is a rock-star economist and advisor to leaders with struggling economies from Bolivia to Poland to Russia. He switched from hard-edged economist to humanitarian when he undertook to end world poverty, writing The End of Poverty (2005) and launching the Millennium Villages Project in 2006. It was a daring five-year project, financed by George Soros and like-minded donors, seeking answers to end poverty that were sustainable and transferable. Munk spent six years traveling with Sachs between African villages and donors’ meetings, living among villagers and project managers to get a sense of the progress of Sachs’ grand experiment. She chronicles efforts to reduce malaria and develop sustainable farming projects as well as head-on clashes with development officials and worries about encouraging dependency even as the project pushed for more market-oriented programs. Her accounts of the experiences of programs in Somalia and Uganda highlight the ebb and flow of enthusiasm, disappointment, resentment, and frustration among camel herders, farmers, and villagers as they struggled to survive while theories on poverty relief confronted harsh realities."  --Vanessa Bush   

As I try to distribute my distinctive "free markets" environmental economics textbook, I'm now giving away the lecture notes and other class material.  All of this stuff is posted here.  The class videos are available here for free!

A horrible accident has taken place in Mumbai India as a building has collapsed and many people have died.  In the NY Times article I read about this tragedy, it stressed that the building was old (built before 1950), I would like to talk about the quality of capital in cities experiencing sharp economic growth and the economics of vintage effects.

Point #1:  Due to engineering progress and regulatory codes, new cohorts of durables ranging from cars, televisions, computers, homes, buildings are of higher quality than older cohorts.   Put simply, a 2013 Model Year vehicle is a better car than a 1978 Model year vehicle was back in the year 1978.  So note that I'm not talking about aging.  Aging and the wear and tear brought about by aging only exacerbates the fact that at any point in time, new buildings are of higher quality than older buildings.

Point #2:  Buildings can live on for more than 100 years.  Walk along Park Avenue in NYC between 65th and 90th street.  This is a very wealthy street, the 15 to 20 story buildings are already 80 years old and could live on for another 100 years if they are maintained and regulation limits replacing them with taller buildings.

As Mumbai, India grows richer, a large % of its building stock is the old cruddy stuff.  There is a mismatch between who the city is today and the structures that persist.  Whether those who live and work in the old buildings are aware of the risks they face remains an open question.  Dora Costa and I have documented that as nations grow richer their willingness to pay for safety increases sharply.    Our work suggests that Mumbai would benefit from knocking down many of these buildings and replacing them with better newer, taller buildings.  Of course there would be transition costs.


    

On Monday, October 7th 2013 I will give a lunch time talk at the UCLA IOE titled "Why Should Environmental Scientists Talk to Economists?"  I had originally planned to give a less sexy talk about buses.  Joint with Shan and Jerry, I will soon be presenting a new paper about buses at several U.S schools.   When I presented this paper at the NUS in Singapore, this paper was very well received.  But, some of my UCLA colleagues gently suggested to me that a discussion about buses would not pack the house.

While I'm still thinking about what I will say on 10/7, here is a sketch of my remarks.

Point #0:   Human behavior both impacts the environment and is impacted by the environment.  It is a rare piece of environmental science research that is completely detached from issues related to economic growth, public policy and population growth.  The moment you acknowledge this point then the economists have to be invited to the table.

Point #1:  Real interdisciplinary research that combines science and social science is hard to do but it offers a very high rate of return.  

Point #2:  While everyone on the faculty at UCLA in fields other than Economics thinks they know economics (and they think it is a trivial field), Ph.D. economists should be given the benefit of the doubt that we are the experts about this subject.   There appears to be an under-appreciation of how free markets allow the population to adapt and cope with changing circumstances.  Just because we have wasted water in the past, doesn't mean that we will continue to do so if we raise the price of water!

Point #3:   Unlike other social scientists, economists are able to foresee unintended consequences of government policy and to design credible empirical research designs for judging the size of these effects.

Point #4: Economists have the statistical skills for devising "natural experiments" for making the important jump from correlation to causation based on recent historical experiences.

Point #5:  Economists have more and more practice implementing field experiments that help to pilot new policy ideas to see how they actually perform in the real world.

While the UCLA Institute of the Environment has many strengths,  we haven't yet found the right formula for pairing off economists with climate scientists or with environmental scientists.   Often grant proposals do not look like a real equal partnership but instead look like the economists have been added on at the end in order to help grants qualify for "special treatment".  I think we can do better and that's why I'm giving this awkward talk.

Point #6:  While the UCLA IOE has very strong economists, it is up to the environmental scientists who are experts about a specific setting and problem  to "make the first move" and approach the economists by clearly stating what role human behavior plays as a cause of the environmental challenge or how people and economic activity will be impacted as a consequence of a specific environmental trend.

Permit me to offer some examples of serious interdisciplinary environmental science papers where economists have played a key role.  These examples are not in order;

1. Chris Costello on global fisheries

2.  Marty Smith on seafood

3.  Alex Pfaff on deforestation

4.  Auffhammer and Vincent on agricultural yields

Have you ever wondered who chooses to become a university dean or to run for public office?  Once these folks are in office, how do we set up a set of rules to incentivize these guys to do their job rather than to pursue their own narrow goals?  Tim Besley's book Principled Agents? is a great place to start for thinking about the broad topic of selecting and motivating leaders.    I'm thinking about these issues because of my ongoing research interests in China's Mayor's environmental policy agenda but also because I read this article about the next mayor of NYC.    In the case of publicly traded corporations, the stock market provides a real time "report card" for how the CEO is doing.  Yes, there is a signal extraction problem of disentangling macro luck from performance but millions of traders are voting with their dollars.  In the case of non-traded assets such as Universities and cities, how do we know what the leaders are achieving?  What past experiences predict future success?  Below, I reproduce a photo of "Dr. De Blasio" from his NYU school days. I doubt he was  a Tom Sargent student.   Take a look at those eyes.  I think that Snoop Dogg would want to party with him.

The September 2013 issue of the Journal of Economic Literature has a great Glaeser book review of Moretti's New Economic Geography of Jobs and also features a China pollution paper by myself and Siqi Zheng but the best paper is written by Pindyck.  Wow!  For those who call themselves energy and environmental economists, I suggest that you carefully read it.

Note that on page 867, he begins to discuss climate change adaptation as he discusses the "Loss function" associated with changing world temperature.

For example, the Nordhaus (2008) DICE model uses the following inverse-quadratic loss function:
 L(T) = 1/[1 + π1*T + π2*T*T]

Weitzman (2009) suggested the exponential quadratic loss function:
 L(T) = exp[−β(T*T)]

Where T = average temperature.

You don't have to be Robert E. Lucas to know that the Lucas Critique applies here.  Why are the parameters time invariant structural parameters in these Loss functions?  You don't have to have read Climatopolis to anticipate that we will restructure our economy so that the marginal loss with respect to temperature decreases over time as we  urbanize, innovate and use scarce resources more efficiently.

In today's New York Times, Keith Bradsher makes some very reasonable points about China's bullet trains.  In March 2013, Siqi Zheng and I made exactly the same points in our published PNAS article.  Our work isn't mentioned.  In the Bradsher article, some guys at the World Bank are cited about their deep thoughts about the "market potential increases" brought about by the bullet train;

For example, Chinese workers are now more productive. A paper for the World Bank by three consultants this year found that Chinese cities connected to the high-speed rail network, as more than 100 are already, are likely to experience broad growth in worker productivity. The productivity gains occur when companies find themselves within a couple of hours’ train ride of tens of millions of potential customers, employees and rivals.

 This market potential point (and its implications for real estate prices in 2nd and 3rd tier cities close to the superstar cities of Beijing and Shanghai) is the whole point of our peer reviewed paper.

UPDATE:  My September 2013 piece on China's Urban Pollution Dynamics with Siqi Zheng has just been published by the Journal of Economic Literature.

Abstract:   Economic theory predicts that people should not vote because they are unlikely to be the pivotal voter and voting takes time and effort.   Using a unique individual level data set on AEA Member voting, this study examines how the propensity to vote in the Economics Society elections is associated with the Ph.D program a person attended and his/her primary field of study.   Environmental and urban economists who graduated in 1993 from the University of Chicago are the least likely to vote.

This paper does not exist.  The previous paragraph was a joke.  But, you should vote for Dora L. Costa for the AEA Executive Committee.    While I rarely vote, I did this time.

UCLA ranks 77th in the nation based on this criteria while UC Berkeley ranks #20 based on mid-career salary data posted here.  Our other rival USC is ranked #54 and Stanford is ranked #8.  Now, there are at least three explanations for these facts.  The first explanation would focus on self selection bias related to who actually fills out these self reported earnings forms.   There is no government agency (with the exception of the IRS) that collects these data and the IRS does not know what college each person goes to.  The second explanation would posit that UCLA attracts students who disproportionately work for the public sector as teachers and in other non-profit jobs.  Labor economists have long talked about compensating differentials so that some jobs feature low pay but high quality of life and public service may fall into this category.  The Chancellor of UCLA has been an active champion of public service.    A third explanation is that these other schools are doing a better job than we are in preparing students for the workplace.   Which theory is correct?   The answer is crucial for determining  how much responsibility should the UCLA faculty and administration bear for this "fact".

Are future expected earnings an important criteria for ranking universities?  I would say "yes".   When my son goes to University in 6 years,  I hope he will attend a school that builds his character, introduces him to interesting people, and helps build his human capital by making him a better problem solver and a more creative thinker.  Of course, many young people place great weight on the amenities of a school such as its climate, dorms, lifestyle, party reputation and sports teams' prowess but at the end of the day, Universities represent investment not consumption activity.  How do we know which universities offer a "high rate of return"?   For better or worse (especially benchmarked to peer institutions), salary information contains quite valuable information.    Joe Tracy and Joel Waldfogel explained all of this a long time ago when they ranked MBA programs in this NBER paper using wage growth for new MBAs.  

Here is their abstract:

"We present a new methodology for ranking business schools. Unlike previous rankings based on subjective survey responses (from CEOs, business school deans, recruiters, or graduates), our approach uses data derived from the labor market for new MBAs. We adjust programs' salaries for the quality of entering students in an attempt to distinguish value added from the quality of incoming students. We then rank programs according to value added. Our results are rather surprising. While four of our top five programs are also labelled as top programs in other rankings, ten of our top twenty are previously unranked. By emphasizing program value added, our procedure identifies several programs that have been overlooked by other rankings since they do not recruit the very top students. We explore the determinants of our value added and student quality measures and find that connections to the business community are positively related to value added, while academic research and high faculty salaries are more strongly associated with student quality. We also find that tuition is better explained by our measure of value added than raw salary, suggesting that programs charge according to value added."

I have broken my 3rd toe on my right foot and this is causing me pain and making it hard for me to walk. Despite this short term setback, I would like to talk about progress.  The NY Times' Eduardo Porter serves up some doom and gloom in a piece he posts today.  He makes the crowd pleasing point that median household income has been stagnant for 25 years.  To his credit, he does devote four paragraphs to acknowledging some significant  progress.

"To be sure, we have made progress over the last 25 years. The nation’s gross domestic product per person has increased 40 percent since 1988. We’ve gained four years’ worth of life expectancy at birth. The infant mortality rate has plummeted by 50 percent. More women and more men are entering and graduating from college.

We also have access to far more sophisticated consumer goods, from the iPhone to cars packed with digital devices. And the cost of many basic staples, notably food, has fallen significantly.

Carl Shapiro, an economist at the University of California, Berkeley and an expert on technology and innovation who stepped down from President Obama’s Council on Economic Advisors last year, calls the progress in information technology and biotechnology over the last 25 years “breathtaking.”

“Most Americans partake in the benefits offered by these new technologies, from smartphones to better dental care,” Professor Shapiro said. Still, he acknowledged, “somehow this impressive progress has not translated into greater economic security for the American middle class.”

Note that Mr. Porter does not mention the improvements in air and water quality that the nation's urbanites have enjoyed nor the reduction in the nation's urban murder rate nor the reduction in traffic and airplane fatalities.  Instead, these paragraphs are meant to "balance" his piece to show that he is not simply calling for a war on the rich.

The thought experiment that is missing in his piece relates to the "time machine". At UCLA, I give a 15 minute lecture on progress and I ask my students to ponder;  "how much would you be willing to pay in $ to live your entire life in the past?"   If students announce a positive willingness to pay, then our society is not making progress because they would prefer to live back then rather than now. If students announce a negative willingness to pay (i.e $-50,000) then our society is making progress.  So, Mr. Porter --- would you prefer to live now or be your same age 25 years ago?

In economics in the first year graduate class, we define the expenditure function as the minimum amount of income you would need to achieve a given level of well being facing today's prices for market goods. I conjecture that over time that this minimum income is decreasing as real price fall.  The fundamental issue here is a mis-measurement of the consumer price index.  When product quality and variety are taken into account, the CPI is negative.   Think about what Amazon and Walmart have done for the purchasing power of middle class people.  

 Now, Mr. Porter will counter that he wants lifetime jobs to return as the age of "Mad Men" and General Motors hiring your dad for 35 years makes a comeback.  He wants workers to have guaranteed employer provided health insurance.   Perhaps he wants a guaranteed job at the NY Times?  Was 1957 really such a better year than 2013 for the U.S?   We seem to have very mixed feelings about competition. We want competition for products we seek to buy (so we face low prices) but we don't want competition for products we sell!