Read this NY Article about Internet freedom being limited in China.  Towards the end of the article, here is a direct quote: "The vast majority of Chinese Internet users, especially those not fluent in English and other foreign languages, have little interest in vaulting the digital firewall. But those who require access to an unfiltered Internet are the very people Beijing has been counting on to transform the nation’s low-end manufacturing economy into one fueled by entrepreneurial innovation."

I was in Manhattan on Monday night as the big snow storm got ready to hit.   The Subway was closed and all vehicles were ordered off of the roads as of 11pm that Monday night.  These stringent measures turned out to be too stringent. Roughly 6 inches of snow landed and this stuff was quickly swept away.   How costly was it for the city and its residents to have their lives disrupted for a day?  On the production side, can the lost output be produced at other times?  Yes.  How about the value of the "home production" of spending an extra day with your family? I was snowed in with my mom and dad and we had a great time. For parents with young kids, did they go sledding that Tuesday?  Did they enjoy the experience? This pleasure (which is hard to quantify) needs to be subtracted from the economic costs to yield the true cost of the "lost day".    Better safe than sorry so I see the day of lost work as no big deal.    The challenge of storm tracking does raise a "Chicken Little" issue of whether people will listen to the Mayor the next time he states that the end is near.  Credibility is hard to earn and hard to maintain.

I have been in NYC since Sunday night.  On Sunday night, I had the opportunity to sit snugly with some teenagers in the Economy Plus section of a United Flight.    I worked for several hours and then watched Think Like a Man.  Kevin Hart packs a punch.   When I fly back to LA tomorrow, I will sit in a larger seat with fewer close (or young) neighbors.  While my Manhattan Institute event was cancelled (due to the snow), I had a great time with my parents.  The silver lining of all of the snow was ample time to talk and laugh about many topics.  I've reached a fork in the road and it was quite valuable for me to have a frank talk with my parents about my plans.  I heard some of the things they said to me.  

The NY Times holds a diversified portfolio.  On page 3, I read an optimistic piece by David Leonhardt highlighting economic growth in Africa and the progress in their middle class' quality of life.  In the same front section, I read a pessimistic Opinion Piece by Nick Kristoff that since 1980 middle class life is going to hell in the United States.    A direct quote from Saint Nick;

"Since the end of the 1970s, something has gone profoundly wrong in America.

Inequality has soared. Educational progress slowed. Incarceration rates quintupled. Family breakdown accelerated. Median household income stagnated.

“It’s morning again in America” — that was a campaign slogan by President Ronald Reagan in 1984. But, in retrospect, the average American has been stuck since the Reagan era in a predawn darkness of stagnation and inequality, and we still haven’t shaken it off, particularly since 2000. Inequality has increased further under President Obama."

What can optimists point to that counters this gloom?

1. Life expectancy for all groups keeps rising.

2.  Crime is down sharply in U.S cities.

3.  Risk from airplane crashes, traffic fatalities keeps falling

4. Urban air and water pollution has fallen sharply.

5.  Smart Phones have diffused and the rise of the Internet have vastly increased social connection and entertainment opportunities. Does Nick Kristoff miss 8 track tape players and FM-radio filled with advertisements?

6. Relative to the year 1980, Minorities and immigrants have experienced a growth in their rights and respect they receive from other groups.

Turning to specific concerns stated in the OP-ED piece;

If the public schools stink, then does Mr. Kristoff endorse Milton Friedman's voucher approach?  Does he support legalizing drugs?  If poor kids had greater access to school choice and if drugs were legalized, what would these two policies do to "educational progress and incarceration"?    How would he rebuild the family?

Why is working age male labor market participation low?  What role will President Obama's health care plan play in affecting this?

How many people agree with Mr. Kristoff and would prefer to be young adults in 1970 versus young adults today? I doubt that many (any?) would be willing to trade places.

The NY Times  returns to Owens Valley near Los Angeles.  Recall that that water from Owens Valley played a key role in the growth of Los Angeles (we do use water here but it doesn't rain).  A consequence of grabbing the Owens Valley water was that the lake dried up and dust from where the lake was blows around sharply raising air pollution in the Owens Valley area.

Several points arise.

1. There were gains to trade between the water sellers (the Owens Valley farmers) and the urbanites.  The people of LA valued this water more than the farmers of Owens Valley. Gary Libecap has done great academic research on this topic for an ungated piece read this.   Libecap argues that Los Angeles gained most of the consumer surplus from this trade but that the farmers still benefited.  

2.  The people who live near Owens Valley have suffered from elevated air pollution levels because of the dust.  The good news is that smart engineers have come up with a water efficient solution to reducing the dust;

"In what may be the most startling development yet, the end of one of the great water battles in the West appears at hand: Instead of flooding the lake bed with nearly 25 billion gallons of Los Angeles water every year to hold the dust in place — the expensive and drought-defying stopgap solution that had been in place — engineers have begun to methodically till about 50 square miles of the lake bed,  which will serve as the primary weapon to control dust in the valley."

The NY Times this morning wrote about three new companies that I have never heard of.  Each of them seeks to make loans to people who they believe will pay them back.  These potential lenders rely on crunching "big data" to determine if an individual is "worthy" of a loan.  A direct quote:

"None of the new start-ups are consumer banks in the full-service sense of taking deposits. Instead, they are focused on transforming the economics of underwriting and the experience of consumer borrowing — and hope to make more loans available at lower cost for millions of Americans.

Earnest uses the new tools to make personal loans. Affirm, another start-up, offers alternatives to credit cards for online purchases. And another, ZestFinance, has focused on the relative niche market of payday loans.

They all envision consumer finance fueled by abundant information and clever software — the tools of data science, or big data — as opposed to the traditional math of creditworthiness, which relies mainly on a person’s credit history.

The new technology, proponents say, can open the door to far more accurate assessments of creditworthiness. Better risk analysis, they say, will broaden the lending market and reduce the cost of borrowing."

Here is the key piece of the article that caught my eye;

"The data scientists focus on finding reliable correlations in the data rather than trying to determine why, for instance, proper capitalization may be a hint of creditworthiness."

What I like about these new firms is that they are using all available data to impute a person's permanent income. If someone is young and graduated from an Ivy League school but doesn't have any savings, this person may still be a "safe bet" to loan money to.   At the end of the article, an example is given of a woman who majored in Computer Science at Barnard and why she borrowed $850 from one of these firms to pay for a mattress rather than exceeding her credit card limits and paying 17% on the balance.  This is what I meant by the blog post's title.  

BUT,  this new set of firms should be aware that by basing on the whole business on the belief that past correlations are predictive of future correlations, they are subject to the "LUCAS CRITIQUE".

Intuitively, these firms will make $ if their data crunching allows them to identify low risk targets and make loans to these individuals.  Or if they charge higher interest rates to those they identify to be riskier.   If the low risk potential borrowers turn out to be high risk borrowers , then these firms will go broke.

The Lucas Critique focuses on times when there has been a large shock to the macro economy.  Dynamic optimization theory predicts that consumers (and hence borrowers) will change their consumption and savings patterns because of the shock.  If these firms do not update their models to incorporate these behavioral changes then these lenders are at risk of losing money because the macro shock has changed the "rules of the game".

This suggests that a potential weakness for these lenders is that they are engaged in naive reduced form prediction models of default when they should probably be hiring structural econometricians as consultants to help them make better "out of sample" predictions.

To see precisely what I mean, read paragraph 2 of this technical paper and keep reading!





   

In this new world where more scholars are focusing on the development of a child's non-cognitive skills, it still is interesting to ask where you stand in the pecking order with respect to your cognitive ability.  Today, the lead piece in the NY Times Book Review is written by someone named Leon Wieseltier.  This gentleman mocks economists when he writes;

"Meanwhile the discussion of culture is being steadily absorbed into the discussion of business. There are “metrics” for phenomena that cannot be metrically measured. Numerical values are assigned to things that cannot be captured by numbers. Economic concepts go rampaging through noneconomic realms: Economists are our experts on happiness! Where wisdom once was, quantification will now be. Quantification is the most overwhelming influence upon the contemporary American understanding of, well, everything."

These were the only sentences I understood in his long erudite essay. Your IQ test is for you to read his strange piece and see if you understand it. If you do, then a lower bound on your IQ is clearly 180.  Good luck!

Back in the 1980s, Hyde Park in Illinois looked a little run down.  The housing stock was a series of single family homes and brownstones that looked old and battered.   Flash forward to November 2014 (my last trip to Hyde Park) and tremendous reinvestment has taken place making this area look a lot better.  Much of this investment must be tied to falling crime, and improvements in local quality of life and the increased vibrancy of the University of Chicago.   As reported in this article , the University of Chicago hopes that the future President Obama library will open up nearby;

"The University of Chicago has suggested two possible locations: in Washington Park, a 380-acre space designed by Frederick Law Olmsted, where surrounding neighborhoods could use the economic boost a sparkling new library would bring. The second location, Jackson Park, on the South Side lakefront, has considerable support."

Here is a map showing both locations.   Washington Park is just West of the University of Chicago close to its main Hospital.    Jackson Park is just East of the campus.

When I was a student at UC from 1988 to 1993, we were discouraged from going to Washington Park. We were told that it was a "tough part" of town and I never even walked there even though I lived for two years at 55th and Drexel.

I can imagine that the creation of the Obama Library at either of those locations will gentrify the local area and create a larger footprint and connectivity of the UC campus as a whole.   In terms of urban economics, I'm confused about what is the "multiplier effect" from attracting a Presidential Library?  In this Internet age, will historians show up to look at documents there? Will South Korean tourists show up to go to the Museum feature of the Library?  Will fancy restaurants pop up nearby?

Chicago's South side always appeared to have a lot of land and buildings were not high.  What activities in terms of businesses and people will cluster near the new library?  I could imagine that high end housing nearby would be attractive for young doctors at the UC hospital who work the night shift.

In terms of real estate investment, should investors be buying properties close to the Washington Park site where the Library will be built?

Here is the Ronald Reagan Library.  You judge what the multiplier effect for Hyde Park will be.

The NY Times achieves quite a feat today. It simultaneously gossips about Prince Andrew's life while it also gets philosophical and ponders what is a meaningful life.  I am impressed with this "two for one bundle".    This "news item" implicitly gives Prince Andrew "thumbs down".  At the mere age of 54, he is written off as a has been who has been pampered and had too much fun during his life.   This article raises deep issues that all academic economists should ponder.  Are we like Prince Andrew? Are we having too much fun? What have we done for the social good?  Or is our rugged pursuit of "self interest" sufficient?  What is your double bottom line?   I would also ask the New York Times the same question.

My long plane ride to Boston for the annual ASSA meetings provided me with the chance to read a biography of UCLA's great coach John Wooden and Leon Panetta's autobiography.    At UCLA, John Wooden's long run of multiple NCAA College Basketball Championships sets a high bar for the athletics program. His success also poses a challenge for the nerdy UCLA faculty because everyone thinks of basketball when you think of UCLA. I would much prefer if people thought about "Economics" when UCLA is mentioned but this link hasn't been made by many.

John Wooden lived to the age of 99.  During his long life, he was straight arrow who did not drink or curse and he was always trying to teach his players.  A Midwesterner, he had to adjust to teaching "individuals" such as Kareem and Bill Walton. The book portrays him as a "square" in the midst of the turbulent 1960s and Vietnam, race relations and the Hippies raised issues on  the college campuses. Through all of this turmoil, he kept his cool and just did his job.

The most interesting part of the book is how little his players really knew him when he was their coach.  He was a private man and he wasn't a cheerleader or their buddy.   In his later life, his wife died relatively young and he spent his later years reconnecting with his old players.  The book does a wonderful job sketching how his players (who were now grown men and middle aged) sought to connect with their old coach and how at this later date he was willing and able to connect with them. While the players (especially the bench scrubs) didn't fully appreciate the life lessons he was teaching them when they played for UCLA, in later life these same athletes each had an epiphany concerning the role that Coach Wooden had played in their life.  Many professors can read this book and wonder whether we are having a similar impact. While we spend fewer contact hours with "our players" (the students), we should still aspire to have the same impact that he did.