Nobody believes it (and nobody cares) but I intended to become a macroeconomist. Some dreams do not die and now I've seized the day. While I'm not studying average national per-capita income or when Ben B. will bring down the hammer, I am studying a time series average fact. On the topic of electricity consumption, California's per-capita annual consumption has barely increased over the last 30 years while the nation's as a whole has doubled. Now, California a lot richer than it was 30 years ago and electricity is a good with a positive elasticity ---- so what is going on?
In this new NBER paper , Dora L. Costa and I conduct an aggregation exercise. We use a large, high quality micro dataset to estimate a "residential electricity consumption" equation and this yields several interesting findings concerning the role that household demographics, housing structure attributes, household ideology, building codes and climate and electricity prices play in determining consumption.
We then use our estimated regression estimates to create an average residential electricity consumption index. It resembles a Paasche Index. More interestingly, we decompose this index into its subcomponents and demonstrate the "gross flows". Over time, the average home is becoming larger and the average household is becoming richer --- these trends should lead to a greater electricity consumption and we measure this effect but partially offsetting this effect is the phase in of California's strict residential building codes.
The key idea here is that homes are long lived durables. If in Calendar year 2000, California enforces strict new building codes then the macroeconomist will see no change in average home electricity consumption in that year because 99.5% of the stock was built before 2000 (before the code was enacted) --- but by the year 2050 --- you will see the impact of this legislation in the "macro" average --- because a majority of the housing stock will have been built after the standard was enacted.
So, Dora views our new paper as part of her "Cohort Studies" program because at any point in time --- the average home is a weighted average of birth cohorts and using our micro data we document the shares of the housing stock by birth cohort/calendar year and document how the electricity consumption varies by birth cohort.
We have a funky result that homes born in years with low electricity prices have high electricity consumption even 30 years after the birth! Initial conditions matter! Maybe I should hire more tutors for my son.
Switching subjects --- the violence in Greece sends a bad signal. That their public is so angry about the upcoming IMF enforced cuts in pensions and retirement deals signals to world markets that they will not swallow these conditions and instead will default --- so this is a signalling game. World financial markets would be much less volatile right now if the average Greek said; "We've had too good of deal and now we will work until age 65 like everyone else, we can no longer afford our cushy past deal." But on the streets, it looks like this logic is not being accepted and thus "confidence" suffers in the face of political uncertainty.