The NY Times reports about Beijing's use of a vehicle registration lottery to attempt to reduce traffic congestion in Beijing.   Since such lotteries do not raise the marginal cost of driving at congested rush hour times, they will not reduce road congestion.  Siqi Zheng and I discuss the economics of car ownership and use in China's cities in our recent 2016 book;  Blue Skies Over Beijing (you can read chapter 1 here).

A more subtle point is that we know how to "solve traffic congestion".  Watch this video of Singapore's Electronic Road Pricing.    Due to this policy, vehicles move at 40 MPH at any time.  Since the roads are priced, this nudges people to use public transit. When middle class people use public transit, this creates an interest group of demanders and thus politicians supply high quality public transit.  The net effect is a city that you can move around in and this increases the gains from being in a city as the gains to trade across the city can be enjoyed.

It is true that Singapore's taxes for buying a vehicle are quite high.  Beijing could have lower purchase prices but introduce high peak time road pricing.

Why has Beijing ignored these lessons learned from Singapore? This raises the issue of why the Communist Party chooses to use quantity regulation rather than price regulation? What do Communists have against Hayek?  Use the price system to signal scarcity!!

In 2016, we are finally allowed to talk about urban resilience to climate change.  As I have argued for 8 years now, richer cities can "take a punch".  Go visit Singapore to see proof.  The NY Times writes a "city section" piece that the recent week of extreme heat caused NYC residents to stay inside and to suffer when outside but that long term damage was minimal.

Andrew Browne has written a fascinating piece in the WSJ sketching a new tragedy of the commons such that China is using its military muscle to harvest valuable resources in disputed waters in the South China Sea. Mr. Browne tells a story that the powerful Chinese Navy is providing cover for Chinese resource extractors to come in and grab resources such as big clams, turtles, sharks, eels and oysters.  Mr. Browne arguess that the Chinese do not have property rights to these resources and that they are now "over-extracting" these resources such that coral reefs are vanishing.

To an economist, the solution is obvious (but perhaps unfair),  the region should simply admit that the Chinese have property rights here.  I recognize that this would create a dangerous precedent (that sending in a big navy confers de-facto property rights).   The payoff from acknowledging this uncomfortable truth is that if the Chinese recognize that they do have property rights to these resources. Once the Chinese have the property rights, they will have strong incentives to conserve the natural capital (i.e the reefs).  Right now, the Chinese face a "use it or lose it" mindset.  Since they do not have legal property rights to these resources, they recognize that if their boats don't grab the resource that some other nearby nation will harvest it. If the Chinese recognize that they have the property rights to the resource, then standard Hotelling Logic predicts that they will efficiently harvest the resource.  Why? Because, they would lose if they grab the resource "too soon" rather than allowing the natural capital to thrive.

The new point in Mr. Browne's piece is to highlight the synergy between the old "Tragedy of the Commons problem" (i.e the the oceans and seas are common property) with the rise of a new regional military and the likely unwillingness of the U.S military to devote serious resources to a regional issue (i.e protecting Asian common property).   Rather than putting the world at risk of a global "Bay of Pigs" style military showdown, an easier solution (with much better environmental consequences) would be to simply grant the Chinese the property rights here.   You can call this an "appeasement strategy" but I'd like you to explain to me how the current status quo protects the environment?  For those "tough guys" who think we should confront the Chinese Military, are you willing to put your child on a ship to fight this fight in the South China Sea?  Threats require credibility.  In July 2016, what can the U.S credibly commit to?

Mark Thoma's recent piece caused me to briefly think.  He writes about why he started blogging.   I started blogging to help market my academic work.   Think back 25 to 50 years ago when there was no email, tweets or blogs.  A few elite economists wrote for Business Week or Newsweek.  Their names were Samuelson, Friedman, Becker, Krugman, Dornbusch, Barro.   Their pieces would appear once a month and people would skim them as they picked up a free copy on the Delta Shuttle from NYC to Boston or NYC to Washington DC.   Did economists have more influence back then when the "entry cost" of being a public intellectual was higher?

As the cost of entry has dropped to zero, there are two effects.  First, the entire spectrum of opinions is fully filled (so readers who lean left can find a Krugman like economist to read and enjoy the echo and similarly on the right -- even though the conservative economists are too busy consulting to bother blogging) and second there is adverse selection as the marginal entrant into the public intellectual arena is not of the same intellectual heft as the folks listed in the first paragraph. Just to be clear,  I count myself as one of these simpletons!

There is also something "undignified" about twitter (which is now used more than blogs).  Everyone looks slightly silly with our 140 character expressions.  Those who take their reputations very seriously in econ (you know who you are) don't bother to tweet because they don't want to be locked in the twitter box "squawking" like everyone else who doesn't have a Ph.D.    Has the profession undermined its reputation by our wanting to have it "both ways".  We want to be pristine academics and we want to be heard in Washington (and considered for plum jobs).

Suppose that economists all agreed that each blogging and tweeting economist would only issue 36 tweets a year, would higher quality tweets emerge?   Has there been a negative externality imposed on the profession as the line between opinion and "science" has been blurred?  There are no footnotes in Twitter!   Economics is all about nuance and hypothesis testing.   When we don't have clean evidence on a key policy counter-factual, what do we say to the public?  Robert Lucas always said; "I don't know".  Has Paul Krugman ever said that?  Has Larry Summers said that?

So, to summarize.  If you know that you get one chance per month to reach "the people", do you invest more time and effort to write something good?  Second, does salience matter? If people are bombarded 24/7 with tweets from "the economists", do they simply tune us out?

What happened to our reputation? Will  you say that the 2008 crisis tarnished it?  If that is the case, then we should all just listen to Rajan who called it.  

I've joined an ambitious institution.   It is clear to me that USC aspires to be "Stanford South".  I respect that goal.  As the new academic year starts in 4 weeks, USC Economics welcomes five new faculty (including myself).  Here are some details.



David Zeke (Top Left),  Mattthew Kahn (top center), Michael P. Leung (Top Right),  Fanny Camara (bottom left) and Romain Ranciere (bottom right) join the faculty.  Dr. Zeke works on macroeconomics and finance topics. Dr.  Kahn works on environmental and urban issues. Dr. Leung works on Econometrics, Social Networks and Applied Microeconomics.Dr. Camara works on media and industrial organization issues. Dr. Ranciere works on international macroeconomics and urban issues.  

Jacob Mincer was a great labor economist at Columbia University. We were colleagues together in the 1990s.  He didn't think I was funny but he was very kind to me and to Dora.   Here is a Mincer Regression that I doubt he ever ran.  I take Federal Employee data from 1998 to 2014 (I'm hiding some details because I'm not ready to publish this yet).   I regress log annual nominal earnings on state dummies, a male dummy,  dummies for one's rank in the government bureaucracy, year dummies and occupational dummies).  Note the 11.8 million observations in the regression.  All hail Stata!

Two points to note;  first the R2=.96.   Kevin Murphy taught us that in private markets that the R2 in the Mincer is never about .35.   The U.S government follows its compensating rules very closely. I don't see much discretion here.  Note the monotonic returns to seniority (the G variables).  Second, note the absence of a Federal male/female wage gap.  Men earn .4% more per year.  So, if Women earn $75,000 per year, then men earn $75,300.

If my return to labor economics interests you, then you'll have to wait to see what we are really doing here.  I'll give you a hint.  It involves Berkeley, California.  

The NY Times reports that the Democratic Party seeks a winning issue.   Some argue that "infrastructure" could be that issue.  Why?  Such bricks and mortar would create American jobs and it would build up our capital stock and presumably this would foster long term economic growth.  What are the problems with this argument?

1. Public sector construction unions will charge too high of a labor bill and this will mean that taxpayers will not receive that much "new capital" per $ invested.   Economists have not done a great job calculating an inflation index for government services.  We have a CPI for private consumer goods but we don't have an index for what it costs to purchase government provided services and how this changes over time.  While this would be tricky in cases such as national defense (what is a unit of national safety?), it is easy to do for services such as public transit.  Read my co-authored 2016 paper. I recognize that there are two sides to a budget constraint. Yes, tax payers would pay higher taxes but union workers would receive a larger paycheck.  In this case, the costs of the agenda are spread across the hundreds of millions of taxpayers while the benefits would be concentrated. How that affects the political economy of determining support for public infrastructure expansion is an open question.

2. Where will this infrastructure be built?  While Larry Summers and Tom Friedman keep saying that we need a new JFK airport (and LAX is only slowly be upgraded),  Kevin Murphy in this video argues that a more likely scenario is that government public investments would be used to upgrade airports in the middle of nowhere as Senators from small states use their clout.     There is precedent for Murphy's point. Hilary Sigman found that political factors do matter in determining what Superfund sites are cleaned up.

3. Infrastructure and Other People's Money ;  Given that Republicans tend to live in the suburbs and work in the suburbs,  center city infrastructure tends to be redistribution as the main winners would be urbanites, the urban poor and the progressives who live downtown.    Here I'm thinking of infrastructure as repairing center city public transit, older sewage systems, the electricity grid and cleaning up center city past industrial sites.    Given this spatial separation of tax payers and recipients, supporters of a public infrastructure expansion need to explain how the gains of such place based investments are widespread.


So, across these 3 points --- I'm relaxing the "representative agent" framework.  We are diverse and spread out.  Rational voter/taxpayers know this and vote accordingly.  

Secretary John Kerry made an interesting claim as he equates the risk from terrorism and climate change.   While I understand why he said this, I disagree with him.  I have published a paper on this topic.  

In my paper, I argue that Mother Nature is not a strategic opponent.   There is a predictability to where she throws her punches.  Florida experiences hurricanes. New Orleans and Manhattan face sea level rise.  This geographic persistence of shocks means that a good statistician can observe these patterns and similar to Paul Revere can notify the political leaders and concerned citizens (you have heard of your cell phone) and then adaptation occurs.

In the case of terrorism, the terrorists are our strategic opponent.   They seek to scare us by punching us when we least expect it. Now that airports are stripping us nude, the wise terrorist doesn't strike there again.   The wise terrorist engages in randomization and this means that their actions aren't predictable and this lack of predictability precludes our ability to adapt.

Now, where Sec. Kerry is correct is that more of the world's population is exposed to a climate shock on any given day relative to the count of the population exposed to a terrorism attack on any given day.

So, there are 2 offsetting forces here.  Climate shocks are more likely to occur than terrorism shocks but we have a better shot (especially in richer urbanized nations) to adapt to climate shocks than to terrorism shocks.

From basic statistics;   expected loss =  (probability of bad event)*(probability not prepared for the shock)*($ value of Loss of life and assets when exposed to a bad shock that you weren't ready for)

My intuition is that climate shocks impose larger expected costs than terrorism shocks but that Sec.Kerry is aware that Trump would mock him if he explicitly said this in public.

The NY Times published a piece two weeks ago making the well known points that economists endorse carbon pricing but the leading Democrats are not willing to endorse such  a policy.  One leading economist offers the quote: "“But it’s not surprising, given the politics, that Secretary Clinton would not want to explicitly talk about carbon pricing.”

As serious economists, let's think about the "politics" here.  The article doesn't bother to delve into such details.  Why is talking about carbon pricing a "non-starter".

Let me use my own peer reviewed work to discuss this.   I will not talk about carbon pricing with recycled revenue.  Such bundling is unlikely to happen and in an economy featuring heterogeneous agents the taxpayers and those receiving the tax cuts would be two different sets of people.   This means that a complicated general equilibrium model featuring heterogeneous agents and locations would be needed to evaluate the winners and losers from this bundled policy.

Here are my points;    

Point #1:   Carbon pricing is opposed by low income, Republican and high-carbon areas of the nation.   San Francisco is the opposite.  Read my 2013 paper.

Point #2:  Even in California, suburbanites oppose carbon pricing. This is due to the fact that suburbanites tend to be Republican but they also drive more and live in larger homes and thus this group consumes more fossil fuels and would face a higher carbon tax.  Read my 2015 paper.  Given that a majority of America lives in the suburbs, you don't need to be a superb data cruncher to foresee that this policy will not excite suburban moderates.

Point #3;  Some U.S manufacturing remains energy intensive.  Carbon pricing would raise industrial energy prices and would lead such energy intensive jobs to move to areas with cheaper electricity.  Read my 2013 paper.  and my blog post from the other day

Point #4;  Many suburban households recognize that climate change poses serious risks but they are also confident that we can adapt to many of these challenges.   Read my 2014 paper.  

In this "politicized age",  economic analysis is more useful for thinking about current events if we use economics to understand the politics.  The political economy of support for carbon mitigation is an interesting topic that I have made a few contributions to.

I am now working on the political economy of climate change adaptation.  I invite you to join me in thinking about this topic.

I was very sorry to learn that Chip Case recently passed away.   I work at the intersection of environmental and urban economics.   In 2016,  environmental economics is a young person's field.  I am one of the "graybeards" in this area.   In urban economics, there are many great active researchers (see the recent Handbook) but in recent years we have lost John Meyer, John Kain, John Quigley and now Chip Case.  All of these great scholars had close links to Harvard.

I had the opportunity to get to know Chip Case when we co-taught in Beijing as part of the Lincoln Institute's summer school in association with Peking University.  Chip was a very energetic and optimistic man. His students loved him.  Each night he was heading off somewhere with former students who lived in Beijing who wanted to honor their professor.  I thought that was wonderful.

Over the 25 years that I knew of Chip's work, I read many of his papers.  He did big work with my friend Chris Mayer.

Case KE, Mayer CJ. Housing price dynamics within a metropolitan area. Regional Science and Urban Economics. 1996 Jun 30;26(3):387-407.

Bradbury KL, Mayer CJ, Case KE. Property tax limits, local fiscal behavior, and property values: Evidence from Massachusetts under Proposition 212. Journal of Public Economics. 2001 May 31;80(2):287-311.

His Econ 101 textbook must have been used by millions. A rare feature of his book is that he and his publisher were smart enough to have "economist baseball cards" included.  When I was an Assistant Prof at Columbia I was teaching Principles and I was given a stack of these cards.  I recall that I kept the University of Chicago "players" but that I didn't want my Olivier Blanchard card (MIT guy) and I placed it in a Professor's mailbox who had a MIT PHD.

Chip's big work was joint with Shiller and this quality adjusted house price index will live on.  As an "efficient markets guy", I've always been bugged by this strange expectations work.  For example, in a Brookings paper;  Chip and Shiller use survey data to document that people in specific cities have crazy over-expectations of future price growth for housing.  This work has been cited!

Look at the cite counts here:

I had forgotten that Case had co-authored this paper.

Case KE, Quigley JM, Shiller RJ. Comparing wealth effects: the stock market versus the housing market. Advances in macroeconomics. 2005 Jun 28;5(1).

I thought this paper asked a great question concerning how consumption is affected by stock market (which is more liquid) than housing market wealth.  This is a great example of both an applied micro and applied macro question.

The Chip I knew always had a smile on his face.  He was a war veteran and he was a fascinating man. He lived his life and he had fun.  I'm not sure if all economists can say that.