Tuesday, December 31, 2013

The NY Times Grudgingly Honors Mayor Michael Bloomberg

The letters published in the NY Times are often more interesting than the Opinion Pieces (Gail Collins?) and the unsigned staff editorials.  The Staff Editorials reveal amazing self confidence in stating claims without evidence or nuance on issues that frontier academics don't know the answers.   Today,  a set of reasonable people listed below offer their thanks to Mayor Mike Bloomberg.  Mr. Taustine's letter below is the exception.  The relevant economics here is the role that urban leaders play in causing improvements in local quality of life and local productivity.  This will become a major research topic in political economy and urban economics.  You can read my China Mayors paper here.   A second issue relates to economic incidence. If a city becomes nicer, who benefits?  The land owners or all of its current residents?

To the Editor:
Re “12 Years of Mayor Bloomberg” (editorial, Dec. 29):
You cite about 20 major triumphs by Mayor Michael R. Bloomberg, not the least of them turning a $3 billion to $5 billion deficit into a $2.4 billion surplus during a relentless recession. This is against a handful of failures, some of them debatable. Yet you conclude with a tepid tribute: “Over all, however, New York is in better shape than when he became mayor.”
In fact, New York is in spectacularly better shape than when he took over. I never felt more confident in my 48 years here that things would be handled right. The streets feel safe, the subways are immeasurably better, to name two things that touch us all, every day.
He is surely one of the two or three greatest mayors this city has ever had.
New York, Dec. 29, 2013
To the Editor:
You emphasize that “only 1.5 percent of frisks found weapons.” Yes, but of 2.2 million frisks, that’s “only” 33,000 weapons that were found, the vast majority presumably illegal. Quite an achievement, I would say.
Richmond, Calif., Dec. 30, 2013

To the Editor:
Mayor Michael R. Bloomberg is getting a lot of praise (especially from Mr. Bloomberg himself) for attracting business after 9/11, stemming crime, improving people’s health and reducing traffic fatalities.
But for every large corporation he wooed with tax breaks, there are countless residents and small businesses that were priced out of the city.
For every crime prevented, thousands of minorities were unconstitutionally accosted and humiliated in the street.
For the few who may have quit smoking or changed their diets as a result of the mayor’s compulsory health initiatives, many more are now homeless and malnourished thanks to his disregard for the underprivileged.
And while the mayor’s traffic-calming measures may have helped automobiles move at safer speeds, the introduction of Citi-Bikes and the ill-fitting bike lanes and ridiculous mid-street parking needed to accommodate them have created mass confusion.
Under Mr. Bloomberg, those who want for nothing got everything, and those in need of everything got nothing.
New York, Dec. 29, 2013
To the Editor:
Re “Cost of Being Mayor? $650 Million, if He’s Rich” (front page, Dec. 30):
Your article suggests that because of his wealth, Michael R. Bloomberg “was largely liberated from the demands of campaign donors, interest groups or political parties.” Considering the ignominy these groups have in the estimation of many Americans, the beneficial aspects of having at least some independently wealthy politicians should be examined.
Mayor Bloomberg is a perfect example of a politician who lives for politics, rather than off it. Wealthy politicians who live for politics may not be any more or less moral than others — think of Robert Moses — but they can push through their agendas without fear of losing their jobs, and hence their source of livelihood.
Mayor Bloomberg may have seemed arrogant to many New Yorkers, but he got things done in the public’s interest, not his own. How many politicians who become rich by living off politics while catering to special interests can we say that about?
Easton, Pa., Dec. 30, 2013
The writer is a professor of sociology at Lafayette College.
To the Editor:
Mayor Michael R. Bloomberg has delivered an extraordinary return on investment for New York City taxpayers. The city has benefited from a long list of significant accomplishments, and, as just reported, more than $650 million in personal largess, all for a total of $12 in salary (at $1 a year).
This clearly has been the best bargain in New York since the Dutch purchased Manhattan for $24.
New York, Dec. 30, 2013

Uber Educates People About Time of Day Pricing

All economists agree that more flexible dynamic pricing for electricity, water and road access would make society better off.   Up to this point, the median voter and the median consumer have not embraced dynamic pricing.   Voters tend to oppose road pricing (as even Mike Bloomberg learned in rich, sophisticated NYC) and consumers choose not to opt into time of day electricity pricing.  One explanation for these facts is that we face a cost of action and prefer not to be continuously optimizing facing changing relative prices (for some evidence see Frank Wolak's paper).    Another explanation is that income inequality means that we have a fairly large share of poor households who prefer to pay with their time rather than facing spiked high prices (see Jan Brueckner's paper).  A third explanation is that we are creatures who need experience with something new before we appreciate its benefits.

Enter Uber.  Uber just emailed me that on New Years that its loyal customers will face dynamic pricing.  Here is the graph I was sent.


While Ubers riders are not a random sample of adults, this experience with dynamic pricing serves society as we become more accustomed to a "violation of the law of 1 price".

Monday, December 30, 2013

How Does Nature Adapt to Climate Change?

Ecological researchers who use remote sensing techniques get to have a lot of fun.  They make maps documenting spatial and temporal patterns of where creatures and plants are migrating to and they describe the patterns they see.  These papers get published in big journals and grant money flows.    The NY Times has a fun piece today on this subject.   The point that Justin Gillis makes is that in the past there were cold winters that acted to kill off creatures and plants so that they didn't migrate north.  With warmer winters, these creatures and plants are on the move and are invading the turf of other creatures.  The fight is on for scarce land!   An economist might ask a few questions;

1.  How do we know what is the "right" mix of creatures and plants?   I would guess they would say that that we need a stable equilibrium so that no creature goes extinct and we preserve bio-diversity.   In an economic capitalist system, such an equilibrium would be brought about by markets and market prices so that net demand for resources equals zero at market clearing prices.  Given that most creatures and plants do not participate in markets, how will climate change affect the spatial distribution of creatures and plants?  Are such changes a bad thing?   If there were property rights to land, then Mangroves would purchase this land from the current owners. Instead, in the case of Mother Nature --- there is an "invasion army" as the big bad Mangroves do not get killed off by cold weather and instead march north.   If Mangroves win a competition under the new climate conditions, is this "good" or "bad"? If we don't know the answer to this, how could this question be answered? If ecologists can't answer the question of what is the right mix of biodiversity for a specific geographic area or for a state, a nation or for the globe, why is that the case?   Are ecologists ambitious enough to seek to write out a social welfare function?    Martin Weitzman explored this in this famous paper.  

2. Note that unlike urbanites, these plants and creatures live their lives outdoors.  There has not been enough thought given to how buildings and other capital investments shield us from climate conditions and climate risks.  Yes, our food is grown outdoors but it could be grown indoors.  Also, in a world with international trade there are many places where it could be grown.  Diversification is a word that climate change scientists will learn soon enough.

Yes, just like people, nature will migrate in response to new climate conditions. Given scarce land, there will be a competition for which people and creatures value the scarce input the most.  Unlike other creatures, we can build vertical structures called buildings to stack ourselves in lower risk places.  These creatures are less able to substitute capital for land and this gives us urbanites a huge advantage in adapting.  Read Climatopolis and start to think about these issues.  Gillis wants to extrapolate to men from the mangroves but he needs to think through his urban economics first.


Thursday, December 26, 2013

The Academic Economist's Ego: Evidence from Google Scholar Registration by Gender

Go to Google Scholar and search under economics starting from the most cited economist (Karl Marx) and descend down the food chain.   The point of this blog post is that I saw a lot of dudes.  I had to go 310 deep into the pool to reach the 10th woman.  To be this 10th woman in this list, you have to be a woman, have a very good citation trail and you have to register on Google.  Many women are well cited but why do so few women take the relatively low cost step of signing up for Google Scholar?     Is your explanation that dudes likes sports and Google citation counting is another baseball statistic?    If academic economists (regardless of gender) are equally likely to sign up for Google Scholar, then I would guess that women should be 15% of the top cited academics.  This 3% share looks way too small.   As Apple has shown, marketing is a big part of success in the modern economy.  Why don't many academic women "lean in" on Google Scholar?

Urban Civic Engagement and the 1%

Enrico Moretti highlights the beneficial role that the newly rich play in enhancing civic institutions in the cities where they live.   Johns Hopkins University must be grateful to Michael Bloomberg.   Which institutions would suffer if we adopt the 70% marginal income tax rate?   Would the opera decline in quality?  Would museums no longer have new exhibits?     Or would donations to these institutions soar as the tax accountants think of clever deductions?  

How would public universities such as UCLA fare in a new world with a more equal distribution of income and much higher marginal tax rates?  Would the new middle class favor investing in research universities using its state tax dollars?  Would the NSF and NIH still have impressive research budgets?  Would private small donations rise enough to offset the reduction in large donations from the very rich?   Would the middle class stomach higher tuition charges for their kids without the financial aid subsidies that are financed from the endowments built from past gifts from the very rich?  I don't know the answers to these questions but I sense that during these angry days that the benefits of the 1% have been ignored.    

Sunday, December 22, 2013

Free Books on Christmas!

Most kids and adults want a new environmental economics book for Christmas. This is why Amazon will give away for free ($0) my new book Fundamentals of Environmental Economics: Solving Urban Pollution Problems.    This deal is only for December 25th and 26th 2013.

Given the comments I received from my UCLA students this fall, I have rewritten the entire book and it is starting to look quite strong.  For those of you who have wondered about "Chicago Price Theory" and its applications to environmental and urban issues, this book offers an introduction.  In my humble opinion, it simultaneously introduces the material and shows the reader what are many of the open research questions in the field. It also teaches the reader what applied micro economists do all day long and the challenge of integrating statistical analysis with incentive theory.

The San Francisco Chronicle is More Interesting than the New York Times

My proof proceeds in two step.  Step #1: is this profile of Paul Oyer.  Until now, Paul was known for his work on the scarring effect of recessions on long run career prospects for investment bankers and for academic economists.  He has also made a number of other contributions in labor and personnel economics.   His new work on Internet dating will interest many.   Step #2: involves the debate about the future of San Francisco and whether the Techie influx has a positive effect on San Fran's quality of life.  I support the techies in this fight.

Friday, December 20, 2013

The Future of Chicago

On October 25th 2013, I gave this talk about the "Future of Chicago" at the University of Chicago's Booth School for their annual real estate alumni meeting.  150 Chicago MBA alumni heard this talk and you can watch the video.  In my biased opinion, it was smart and funny.   I was born in Chicago, went to school there, and met my wife there so I certainly know a thing or two about the place.   The Future of the University of Chicago is also of great interest to me but nobody has asked me to speak about that!    

Here is a photo I took of the Chicago River near the Chicago Booth Downtown Campus.


Here is a photo of a photo of Kevin M. Murphy

Thursday, December 19, 2013

Ingenuity and Adapting to Wacky Weather

I am with Julian Simon with regard to how our ingenuity will allow us to stay one step ahead of Mother Nature and "limits to growth".  Read this article  about "smart snowplows".  Why isn't this simple case a vision for how our future will play out in the face of climate change?  If we know "that we don't know" what climate change has in store for us, why aren't we preparing?  If you embrace behavioral economics and say that; "we are a bunch of Homer Simpsons" well then there is a fortune to made for the few entrepreneurs who are able to imagine the future (the small set of "rational expectations" individuals) who design solutions for our future headaches.

News from San Francisco

The San Francisco Chronicle has a chess puzzle that I'm able to solve.  This is why I buy the Chronicle when I live in Berkeley.  Today's edition also has several relevant urban pieces.

1.  The Cost of Municipal Services in San Fran ---  The "rules of the game" are changing so that municipal unions can no longer threaten to strike in order to get a better deal.

2.  The Culture Clash  --- between young, rich techies and "old school" San Francisco residents --- Exhibit #1  and Exhibit #2.

Either today or tomorrow, I will travel to San Fran to conduct a field experiment to test whether Chinese restaurants raise their prices when I walk in the door.

Wednesday, December 18, 2013

A Revised "Fundamentals of Environmental Economics"

I have taken the many comments I received from my students on my environmental economics textbook and have done a complete re-write of the book.  You can now buy the revised book on Amazon Kindle for $6.   I know of no other undergraduate microeconomics text that discusses;  how to run a field experiment to measure the demand for seeing a hippo (named Harry) at the zoo, a regression discontinuity design for testing for whether California's regulation is why its energy consumption is lower than in other states, the root sources of environmentalism, why some companies choose to "go green", discrete choice models of where households and firms choose to locate, the implications of population heterogeneity on household self selection into neighborhoods and the implications of such sorting for estimating how the population's health is affected by air pollution (think of Superman versus the Average Joe).   I know of no book that discusses the political economy of whether government enforces regulation and the incentives of urban mayors to pursue the "green agenda".  I know of no book that carefully discusses information regulation and the intended and unintended consequences of government regulation and how to use basic supply and demand analysis to predict the general equilibrium effects of such policies.   This is not your typical textbook.   As the examples above show, I try to integrate into a consistent narrative both jokes, micro theory and "Big Data" freakonomics focused on environmental economics.    Articles from the New York Times are integrated into the text to give it a "real world" relevant feel.    Unlike other texts, the book has a long last chapter on the future of the world economy in the face of climate change. I contrast the behavioral economics worldview with the Chicago view of households and firms having rational expectations about the future but knowing that they don't know what climate change will do our agricultural and urban sectors. I argue that there is so much money for entrepreneurs to make to come up with solutions for us that by a law of large numbers green innovation will be spurred because of our fear of climate change and that this will help us to adapt to many of the challenges we have collectively unleashed.  

Along the way, the reader learns plenty about externalities, public goods, the Tragedy of the Commons, free riders, resource depletion, population dynamics and government solutions ---- this is the bread and butter of any environmental course and I cover these topics in my own quirky way.   For those who teach urban economics, my book has a clear urban focus with the pollution problems being produced in cities and most of the social costs being borne in cities. For example, there is a long discussion of dog poop in Rome.  This is serious stuff!

Saturday, December 14, 2013

Climate Change and the Rise of Scottish Wine Production?

The NY Times reports that agricultural land can be used for its highest value! Comparative advantage can shift as climate conditions change. Yes, there are adjustment costs and new contingencies but this example shows you free markets adapt to changing "fundamental conditions". What is the future of wheat production?  Should you be buying land in Canada?   This is free market climate change adaptation. Is this a perfect substitute for strong mitigation efforts now?  No, but that was never the choice.  The real issue is how we allocate our scarce resources given the new realities we have created for ourselves.  This reorganization of economic activity helps to sharply reduce the impact of climate change.   How much is "sharply"? That's up to us to make that happen.

Friday, December 13, 2013

Vacation Time Allocation

I will be in Berkeley next week.  After a tough teaching quarter where I taught one 116 person environmental economics class and one 18 person freshman seminar class on China's Pollution Challenges, it is time for me to do some writing.   One of my goals for next week is to finish a full revision of my Amazon e-book on environmental economics.    The book now has two Amazon reviews (neither written by my son!) and both tell the truth.

Most Helpful Customer Reviews
4.0 out of 5 stars Strong ideas but polishing needed December 10, 2013
By Chubs
Format:Kindle Edition|Amazon Verified Purchase
This text contains a number of intriguing economic principles relating to the environment, is easy to understand, and very cheap! That being said, this text needs heavy editing. Some examples are weak or the conclusions are arrived at too quickly. The charts and graphs are so elementary. Still, I have a feeling this environment text is much more palatable than its competitors.
Comment | 
Was this review helpful to you?
By P. Ritz
Format:Kindle Edition|Amazon Verified Purchase
Kahn does a great job at simply describing environmental economics. Its a must read for every environmentalist out there. And Its a must read for economists too. Now if only they'd turn this into a movie...

I have a number of ideas for how to address these issues.  

On an unrelated note, I'm not going to the 2014 AEA meetings.  Philly is not for me.  For those with a taste for history, here is the program for the AEA meetings from 1973.   On page 45, you will see the "notice" that the new journals called;  Journal of Urban Economics and Journal of Environmental Economics and Management will soon be published.  Those journals have been important for me.  

Thursday, December 12, 2013

Hoarding Cabbage as an Adaptation Tool for Eating During Cold Chinese Winters

Given how much time I spend on airplanes, I have had the opportunity to watch the James Bond movie Skyfall at least nine times.  One of the lines in this movie is something like; "Sometimes the old ways are best."   The NY Times reports today that Beijing's senior citizens still hoard cabbage this time of year to raise the probability that they will not starve in winter.  A recent literature in economics has examined how one's experience when young shapes you at older ages. People who grew up during the Great Depression save more.  People who were teens in 1968 at Woodstock are more likely to be liberal greens now.  In the case of China, people who were 15-35  in 1965 during Mao's "free market" era are now 65 to 85.  If you anticipate that there could be shortages of food, then urbanites have strong incentives (like a squirrel) to bury some of it to eat in the future.  The young people in Beijing must find this funny because they have grown up when free markets were open and this guarantees access to food.  

To an economist, the interesting point is "rational expectations and investment".  Anticipating future trouble, self interested individuals take actions to self insure so that they do not starve.  In Climatopolis, I gave an example of hoarding dried fruit to make the same point.  Such dried fruit can last for 2 years and this insures the purchaser against the risk of having no fruit to eat if climate change impacts agricultural output.  Despite my wisdom, this reviewer in the LA Times didn't get the point.  The seniors in Beijing do and this is how we adapt to  Mao's past agricultural policies and to climate change.

Tuesday, December 10, 2013

A Productive Input?

Given budget cuts at my school, I proctor my own final exams.  Those 3 precious hours ticked away slowly.  As I sat and watched my 116 students think about my strange Becker Style environmental economics questions, I asked myself why I was sitting there and whether my campus makes money from my teaching.  Here  is my algebra;

In-state tuition is $13,000 and 80% of our students are in state while Out of State tuition is $36,000 and 20% are in this category.   Average tuition collected =  .8*13 + .2*36 = 17.6.  Each student takes 9 classes a year so UCLA is collecting $1,955 per student per course

This year I will teach 116 + 65 + 13 +17 undergraduates = 211   so the revenue I am generating is
211*1955 =  $413,000 .  I also give numerous guest teaching lectures because my kind colleagues always ask me to do so (they tend not to reciprocate!).

On top of this I will co-teach a MBA course this Winter that will attract 40 students each of whom is likely to be paying $5,000 per course --- so that's another $100,000 revenue going to the business school.

Believe it or not, I am not paid $513,000 per year.   This example suggests that UCLA could certainly generate some "profit" with larger classes taught by good teachers.  While I lecture in large classes, I view myself to be a "serious" researcher and rankings such as REPEC's Ranking of economists over the last ten years agrees.  

This will require a serious investment in the Ph.D. graduate programs.  I worry that our graduate students are drowning in paper grading and this is displacing time they could be spent thinking and doing research.

Sunday, December 08, 2013

A Preview of the Future of Economics

Want to know what economists will be working on in ten years?  This webpage provides an easy way to  preview the future.

Lars Hansen's Nobel Lecture

Professor Hansen delivers a great lecture tying together his key research themes and linking to his current research.  I wish I had heard this lecture back in Spring 1989. I would have paid more careful attention to the material!

Thursday, December 05, 2013

A Trip to the Midwest

Recently, I opened my closet and pulled out something called a "winter coat".  Ten years ago, my wife bought me a fancy coat and I wear this thing 3 or 4 days a year when I travel to a cold place.  I put on this heavy coat and flew to Chicago.   Arriving in the late afternoon in Hyde Park, I had the opportunity to walk the neighborhood with a good friend of mine. The following day, I met with a number of my friends at the University of Chicago and gave a seminar about public buses.  Professor Becker and his colleagues offered dozens of constructive points and our paper will be much better because of this.  That night I went to a Bulls game thanks to another good friend of mine.   The next morning I flew to Madison Wisconsin and had great fun with more of my friends at the Economics Department.  My bus seminar in Madison was extremely useful as the empiricists offered several really useful suggestions for how to make the paper more convincing.  The next day I hung out at the Harris School at the University of Chicago.   I met with my old friends on the faculty and had the chance to meet some of their new junior faculty.   I am back in warm Los Angeles a wiser man because I went to the Midwest.  My coat is back in the closet.  Whether it will stay in the closet, is an open question.  

Could the 2014 Super Bowl Crowd Out NYC Tourism?

In February 2014, the Super Bowl will be played near New York City.  The conventional wisdom is that the city that is host to the Super Bowl experiences a short term off-season boom as NFL lovers from around the world converge on their city.  But, the media is now reporting a puzzle.  Hotel occupancy for that week in New York City is surprisingly low.  What is going on?  I would conjecture that "crowding out" is taking place as "sophisticated New York City visitors" have decided not to go to the Big Apple that weekend because they don't want to interact with the football lovers.   This is crowding out.  The question is whether the sophisticates are going to London that weekend or have they rescheduled their visit to NYC to a non-Super Bowl weekend.  So, for a scholar interested in urban quality of life dynamics --- the funny thing here is that the same "treatment" --- the Super Bowl is a localized amenity to some and a local disamenity to others as the city is congested with football freaks.   

Sunday, December 01, 2013

Could Al Gore Be Wrong About Coal's Future

Energy economists have long talked about the "energy ladder" which says that as a person or a nation gets richer that they seek higher quality, cleaner fuels.  For example, very poor people burn dung for heating and cooking services and this activity sharply raises local particulate levels causing serious breathing issues.  The NY Times reports that China wants to burn cleaner coal for its electricity and heating and it is now buying coal from Australia.  If such "clean coal" exists, this would mean that China's CO2 emissions will rise but that there will be less particulates and SO2 associated with power generation that relies on cleaner coal.   I thought Al Gore told us that coal has no future?  As I mentioned in a previous blog post, a boycott only works if no major potential purchaser steps in to purchase when the boycotted good's price falls.  It is ironic that communist China knows how to play the capitalist game.  It would have received an "A" in my class.   How will Al Gore incentivize China to not rely on "clean coal"?  He could argue that it isn't clean.  He could pay the Chinese not to use it but who will be taxed to pay for this side payment?

The Efficient Use of Mexican Land: Wine vs. Sprawl

The NY Times revisits the urban growth debates but this time the setting isn't California but instead south of San Diego.   The Mexican poor want jobs and economic development while the environmentalists root for "no growth".  There are some silly quotes about "running out of water" but no economists are quoted about current water pricing and ways of discouraging excess water consumption (i.e raising water prices!).  A King Solomon might suggest surveying the land to see what is the most valuable agricultural land versus what land has the most value as hotel and golf resorts.  Set aside the key agricultural land and allow some development to take place on the marginal land.  Make the real estate developers post a bond of $10 million dollars that they will lose if their project has significant adverse environmental implications (these would need to be spelled out ex-ante) and allow these fat cats to go ahead.  Are the capitalists; innocent until prove guilty or guilty until proven innocent?  The same issue arises with reforming California's CEQA.

You have read my 2011 LA Times letter on this subject?