Monday, November 24, 2014

The Benefits of California Coastal Development: The Case of Morro Bay

The NY Times reports  that a defunct power plant's ugly structure remains on Morro Bay.   You don't have to be Don Trump to recognize that a real estate developer would pay the costs of dismantling it and removing it if he/she could then develop on the vacated land.  Can Jerry Brown and the Coastal Commission figure out such a private/public partnership? Or does Gov. Brown and his local equivalents anticipate that Morro Bay would gentrify after such an efficient reallocation of land and thus he would block such a move.  Look at this picture:

The power plant is not a natural part of of the scene but it is within the Coastal Commission's jurisdiction. Have you read my paper on the role of the California Coastal Commission and its regulatory ruling's unintended consequences of raising home prices and limiting new real estate development?

Here is a lot for sale close to the Bay with a view of the power plant.   $279,000 is not much $ to pay for 1/4 acre of California beachfront property.   In Malibu, such a lot would cost $5 to 10 million dollars.    If the power plant wasn't there and if some exciting retail was there, what would be the impact on the local economy's total property value?   Is there any push towards the efficient allocation of scarce resources (i.e land) in California?

Sunday, November 23, 2014

Two Photos Explain Why Coastal California Continues to Be #1

I will spend Thanksgiving in Carpinteria, California.   It is home to some of the world's most pleasant beaches.    Below I present two photos of our own "private beach".  We walk for about a mile along this beach and only occasionally see other people and horses.  In the top photo you get a sense of the sandy beach and the blue sky and the absence of other people and the rugged terrain..  In the bottom photo, you see some horses and their riders taking a peaceful ride and you see how the coastline evolves.   The calm ocean invites even an old guy like me to go out there and paddle around.

Economists understand that these are unique amenities and unfortunately Gov. Jerry Brown also knows this.  He can tax and many people do not run away to Texas because of the unique attributes that California offers.  Read Jan Brueckner's and David Neumark's insightful paper about this topic.  

Saturday, November 22, 2014

Climate Change Adaptation: Lessons from Urban Economics

Paul Romer serves as the Director of NYU's Marron Institute of Urban Management.   I am a Visiting Scholar at this Institute and try to show up there twice a year.   The Institute has just posted my new Working Paper titled: Climate Change Adaptation: Lessons from Urban Economics.    This paper builds on my 2010 Climatopolis book by tracing out my current thinking on the key issue of how cities help us to adapt to climate change.  I have found that a growing number of researchers are starting to work on this topic and I think that I've nudged many of them to think about how Sherwin Rosen's hedonic model helps to better understand this issue.

My Brief Talk at Thom Mayne's Morphosis Office

I was given the chance to speak for 5 minutes yesterday at a public event.  Unlike the other speakers, I stuck to my time limit and tried to give a punchy talk about the Future of Los Angeles.  The event took at place at Prof. Thom Mayne's studio called Morphosis Office in Culver City.

Embedded image permalink

Here is a photo of me talking and you can see that I'm having fun and the audience of roughly 45 people are listening.   I stressed four ideas;

1.  Competition
2.  Big Data
3.  Incentives and entrepreneurship
4.  Experimentation and humility among government officials.

1.   In an open system of cities, Los Angeles competes to attract, retain and grow the skilled. If in 2050, Los Angeles is no longer sexy to the mobile young and educated then its future is bleak.

2.  This is the Big Data age, we have an incredible amount of data about urbanites concerning their desires and their activities.   Where is the low hanging fruit in making LA a more energy and water efficient city? I talked about my research with Frank Wolak where we implemented a field experiment where we educated households about the increasing block tariff for which they pay for electricity, we find large reductions in electricity consumption among those who were high baseline consumers

3.  AB32 will raise energy and water prices and will incentivize more Elon Musks to enter the game of designing and marketing green products.  The same induced innovation optimism holds true for products that help us to adapt to climate change.

4.  The Mayor's office should acknowledge that it "knows that it does not know" what are good policies for encouraging sustainability. Such humility is a first step to running pilot field experiments to learn about what policies are cost effective. Since ideas are public goods, those policy ideas (such as dynamic pricing for parking in downtowns) that turn out to work can be replicating everywhere.

Thom Mayne is a really impressive guy.  He gets economics and that's a rare trait at UCLA.

Thursday, November 20, 2014

Work Disruption and Continued Productivity in the Urban Economy

Suppose that upstate New York has a snow blizzard.   What types of workers produce the
same level of output on such a day?   I recognize that guys who operate snow plows are more productive on those days!   But, there more and more indoor workers who are just as productive at home than if they commute to the office for face to face interactions with peers.    A benefit of deindustrializing is that fewer people must work face to face to produce something.  An assembly line's output could not be produced at home son a snowy day.

 Let's consider a couple of cases.  A Buffalo 5th grade teacher will produce less output during the snow blizzard because school will be cancelled.  An economist who teaches at SUNY Buffalo will have her classes cancelled but she will get more research done while working at home.What is the difference?  The school teacher's output requires face to face meeting while the Professor of Economics (who is judged on research and teaching) is able to produce more "output" at home.

My big point is that with the increased ability of more and more workers to work and be productive at home that disruptions to our economy (yes I"m talking about adapting to climate change again) become less costly.   While a dentist can't practice medicine at  home,  a software designer can.  Skype calls can take place rather than face to face meetings.

With the Big Data revolution, more people can work and be monitored at home. Read this China experiment on this topic.  

Weather storms create logistical issues but what are the productivity benefits of bearing the commuting and hassle costs of leaving your house?   For which urban jobs, does face to face communication really matter? If fewer and fewer jobs fall into this category then we are better protected from severe weather shocks.  This is another example of how labor markets evolve to help us to adapt.

Wednesday, November 19, 2014

Ingenuity in Protecting Wild Salmon: All Hail the Salmon Cannon

Professor Jeff Reimer was kind enough to send me a great example of ingenuity at work to protect natural capital in the Pacific Northwest.  Julian Simon would respect  the salmon cannon.  This video from Last Week from John Oliver tells the story.

Jeff correctly points out that the rise of the Salmon Cannon is due to a public/private partnership.  The private company; Whooshh Innovation sells it to state and federal agencies.  This highlights the potential for government to play a positive role in solving the wild vs. domesticated salmon problem.  The company's video is here:

Will Paris Build More Tall Buildings?

An honest discussion is now taking place concerning the unintended consequences of limiting new construction.   Paris hasn't allowed many high rise buildings to be built. Would Paris continue to be "Paris" if there were Hong Kong style buildings?   Everyone appreciates the basic prediction of econ 101 that by limiting supply that real estate prices rise in restrictive cities.  People seem only now to be willing to contemplate that a select sample of cities (those that are liberal and run by progressives) are most likely to engage in these policies.

Here are some quotes from Paris:

"But many older Parisians fear that city officials did not learn the lesson of Montparnasse, a building that regularly makes lists of the 10 ugliest buildings in the world. They believe that skyscrapers are simply out of place in the heart of Paris.

“We are not in Dubai,” said Danielle Outreman, 60, who is retired. “I like it that in Paris I am not surrounded by enormous buildings. I think that putting them all in La Défense is just fine.”

So note the generational war.  Those older people who own properties in Paris enjoy the fact that housing constraints inflate their house values and they value the continuity of the city (that it does not change over time perhaps except for a few Starbucks opening up).  The young renters (if they understood general equilibrium effects) are likely to support more real estate construction.    There should be more European economists working on the cross-generational fights across Western Europe concerning what are "good public policies".  In the case of housing supply limits, is this a zero sum game or a negative sum game?  When incumbents control laws through local voting, is the efficient allocation of resources achieved?

Many environmental economists work on the demand for non-market goods. This Paris case raises this same issue.  What is "Paris" with respect to its characteristics?  Which of these attributes would be "injured" if more development took place?  How do we measure the character of a city and its uniqueness?  How do we know if small changes to its architecture and its neighborhoods produce great changes in the local quality of life? If people who live there say this, is that merely cheap talk?  What is the market test that Paris' quality of life is declining?  To an economist, tourism trends would offer one market test. Do mobile tourists continue to visit? If the answer is "yes", then an economist would conclude that Paris still "has it".

Adapting to Extreme Cold Weather

I have read that it is quite cold in Chicago right now.  Cold winters can kill.  How do we protect the urban poor against such climate shocks?  Cook County Chicago has opened up Warming Centers.   Many shut by 5pm and I'm not sure where people are supposed to go then.   A logistics issue also arises concerning how people travel to the Heating Centers.  What is the equivalent of "Uber" for those who don't own cars?  If these issues can be addressed, then this is a clear strategy for coping with extreme weather conditions.  This is how we adapt.

Tuesday, November 18, 2014

Strangely Quoted in the Wall Street Journal Tomorrow

Tomorrow, the WSJ will publish an editorial called "China's Environmental Whitewash".  Here is a quote from their piece that mentions me:

"This is the context for Supreme Leader Xi Jinping ’s pledge last week “to achieve the peaking of CO2 emissions around 2030,” which has U.S. officials rejoicing and academics such as UCLA’s Matthew Kahn enthusing that “China’s political system is more nimble at getting green things done.” So nimble it will take 16 years to start."

The WSJ piece doesn't bother to weblink to the actual article where I was quoted:   Here are my quotes in the article:

From China's perspective, the deal looks smart. "The leader of China is killing three birds with one stone," said Matthew Kahn, an environmental studies professor at the University of California, Los Angeles. First, Chinese President Xi Jinping is showing the rest of the world that his country can be a leader on climate change, the global issue of ultimate importance. Second, a move away from coal -- now a crucial source of China's winter heating and electricity -- will help the country combat the notorious smog problem that has galvanized political protests and threatens to drive some of China's most talented citizens, not to mention foreigners, away. And third, says Kahn, climate change mitigation is "creating a new export market for China," as Chinese-made solar panels and wind turbines head to fields and roofs around the world.

a few paragraphs down

It may be easier for China to achieve its targets than the United States, and not just because it's easier to reach a peak than it is to make a cut. China's command-and-control political system can make big things happen -- and faster -- than the United States' messy democracy. "China's political system is more nimble at getting green things done," said Kahn. For example, he said, mayors will start taking environmental problems seriously because the central government is starting to evaluate them on their respective city's energy intensity (output per energy used), as opposed to simply economic productivity and degree of civil unrest. And mayors want to keep Beijing happy.

a few paragraphs down

It may be easier for other countries to join the climate fight if the United States and China go first. That's because, as Kahn points out, the United States, China, the European Union, and other early actors can show how greenhouse gas emissions can be reduced without flattening the economy. Will China's cap-and-trade schemes work better? Or Europe's? Or California's? Will American coal-plant regulations result in emissions cuts without harming the economy? If China and the United States seem set to meet the emissions targets set out in the new deal and are still able to deliver prosperity to their citizens, even the Indians may be convinced that it's possible.

Monday, November 17, 2014

A Day at UCLA

The Grateful Dead once asked; "Where Does the Time Go?"    Permit me to offer a time diary for today;

1.  I woke up early and worked on a submission for Chuck Mason's journal.  The paper is now titled;  Climate Change Adaptation: Lessons from Urban Economics.

2.  I taught my undergrad Environmental Economics course from 930am until 1040am.  While 90 students are enrolled, I don't believe that all of them attended.  The wild video tapes are available here.  I thought I gave a really good lecture but the students on this Monday morning were tired and sluggish. This made me mad and I told them so.   Here are my lecture notes for today. You judge.

3.  One of my star undergraduates wants to take my wife's Health Economics course this Winter at UCLA.  Her course includes papers that use instrumental variables estimation.   I used Steve Levitt's crime and election cycles paper to teach him the Wald Estimator. We covered the material in 20 minutes.  We discussed imperfect instruments (see Nevo and Rosen).

4. From 1130am until 1pm, I attended an Anderson School lunch presented by Professor Jerry Kang of UCLA Law School.  He gave a talk on the causes and consequences of "Implicit Bias".    He is an excellent public speaker and he melded several peer reviewed pieces of research into a cogent and coherent talk.  The food wasn't good but the ideas were interesting.

5.  From 115pm until 4pm, I worked on the item I mentioned in #1 above

6.  At 430pm, I met with Marlon Boarnet of USC who had given a seminar at UCLA earlier in the day.

7.  At 545pm, I met with my Ph.D. student Devin Bunten and he had some good news about his most recent research.

8.  At 6pm, I attended my first UCLA Chess lesson supplied by a 14 year old phenom named Luke. Read about him here.  I lost two games that I played as I made a series of dumb moves.

9. At 8pm, I took an Uber to pick up my son from fencing.

10.  I received some emails from colleagues giving me some useful comments on #1, I incorporated their ideas into my paper.

11. It is now 907pm PST and I want to watch the end of the Bulls vs. Clippers game.

Is this how you life ticks away?

Sunday, November 16, 2014

Could Utica Rebound Because of Climate Change?

I attended Hamilton College in the mid 1980s.  Utica, at that time, was a depressing declining place.  This article in the NY Times suggests that things haven't changed.  Wikipedia says that its population has declined by 38% since 1930.    Could climate change change that?

With its buildup of its durable housing stock but low demand to live there, home prices are low.   For example,  Here is a house for sale for  $119,000.

187 Victoria Dr,Utica, NY 13501  3 beds,  2 baths1,144 sqft
That works out to $104 a foot which is 90% cheaper than housing near UCLA. These low home prices have attracted new immigrants to live in Utica. I have read in the NY Times that Bosnians have formed a cluster there. As climate change warms up cold upstate New York Winters and if Amtrak increases its speeds to New York City, then this whole area could enjoy a renaissance.    Real estate investors should be thinking through what might be future "hot areas" to live where quality of life will be relatively high.  

Saturday, November 15, 2014

Is Keystone a Bad Investment for TransCanada if China Decarbonizes?

Joe Romm unintentionally poses an interesting question here .   He focuses on the carbon production implications of the Keystone Pipeline.  He is right to raise the old issue that if the oil in the Canada tar sands stays in the ground then this will reduce global GHG emissions.   But, we knew that.   A more interesting question is to ask;  "given that a pipeline is an irreversible investment of 7 billion dollars, will the investors regret this investment if a global carbon treaty is enacted next year?"

Who bears the incidence of carbon taxes?      Is it the buyer of fossil fuel or the sellers of fossil fuels?  Does the expectation of an international deal shift fossil fuel infrastructure investment patterns?

In the medium term, I would expect that the demanders of fossil fuels (so car drivers and electric power consumers) will pay higher prices.

While Al Gore argued that a carbon tax will quickly mean that companies such as Exxon have billions of dollars of stranded assets, in reality such taxes will only slowly rise and if fossil fuel sellers anticipate that carbon taxes will continue to rise in the future then this tax on their future revenue will provide them with an incentive to sell their oil now.  In this case, the tax pattern actually accelerates the short term GHG emissions as the fossil fuel companies "cash out". In general equilibrium such actions will lower global fossil fuel prices and will reduce the diffusion of electric cars in the short run.

Will the fossil fuels say in the ground?  In a world of 7 billion people where each of them would like to have the same energy consumption as the typical American, I doubt it.

What if China is serious about decarbonizing? Doesn't that mean that there will be less demand for Keystone oil?  Oil is sold on a world market and China is 15% of world GNP.  There are many other "thirsty" nations looking to motorize.

Thursday, November 13, 2014

A Couple of Links to My Recent China Quotes

While I am very happy to hear about the agreement between China and the United States to reduce GHG in the medium term,  there appears to be a fashionable "boosterism" among academic environmental economists and NGO economists to seize this "momentum" to try to claim that there will be  self fulfilling prophesy that the World is about to take a united step forward on this issue.  While I want a credible global cap on emissions to take place in France next year, will it?  What does it mean to lead a coalition?  Will other nations such as India join the party?    What is the causal effect of the joint Xi and Obama Announcement?  What is the control group to answer this question?  What is the business as usual path for emissions and what will it now be because of this agreement? What are the penalties if either nation misses their targets?  What will be the causal effects on the power generation sectors and transportation sectors for both nations?

Yesterday, I participated in two interviews related to this subject;

1.  Article #1 in Foreign Policy

2. Article #2 on CBS.Com

Wednesday, November 12, 2014

Back to the Future: Watch Me Graduate from Scarsdale High School in 1984

Now there is video proof that I did graduate from Scarsdale High School in 1984.  Here is the video from 30 years ago.  I walk across the stage at the 58:51 mark and after collecting my diploma, I turn to the crowd and make a face.  Some things do not change!

Tuesday, November 11, 2014

Anticipating Expected Demand Increases: The Life of Gary Morse

The NY Times has published an interesting obituary for Gary Morse. He became a billionaire by building high quality retirement communities in the outskirts of Orlando, Florida. He anticipated that the mobile homes where people had spent their time were not of sufficient quality for the increased number of richer, healthier Florida retirees. He built more elegant retirement communities where he bundled in amenities (i.e golf) that healthy seniors wanted.   His life suggests a general lesson with respect to how entrepreneurs change the world.  He anticipated a trend and took a gamble by investing his capital to create this new retirement community.  Senior citizens benefited as they had a greater menu of housing options to choose from.  This is the "invisible hand" at work.   As usual, I want to link this to climate change adaptation but I will not repeat myself for the 500th time.  This is a prime example of how capitalism adapts and evolves to emerging shifting demands for the bundle of housing, location and lifestyle.   For those who worry about the 99%, I bet that his units are quite affordable. Click here for the proof.

Monday, November 10, 2014

Office Space in Cities Will Diminish

While academics take for granted that they will have a "nice office", the NY Times reports that more and more real world urban workers are getting used to working in cubbies.    Does this simply represent a cost savings by profit squeezed firms as Amazon introduces publishers to the tough world of perfect competition?    While an office is a nice non-taxed perk, in aggregate such total real estate square feet adds up to a major cost for the firm.  In this WiFi connected age, most urban workers can do their job at a coffee shop or anywhere.  Even a doctor can do many tasks without face to face contact (of course a patient physical is an exception).  

There are good academic papers to be written on the conversion of urban space from land used by firms to more of it being used by residents.  More firms will fragment such that they lease out a smaller and smaller % of the total land in a city.  More people will work from home or from coffee houses and public parks. At UCLA, I do much of my work at the UCLA Faculty Club sitting outside at the patio (look for me there!).

Sunday, November 09, 2014

Energy Infrastructure Maps of Flood Risk

The EIA is producing useful maps that highlight which power plants in which geographic areas face flood risk.  I was just taking a look at a coal fired power plant in Norfolk Virginia.    These maps raise several issues.  If a flood does take place, how long does it incapacitate a utility?  2.  What protective measures can a utility take to reduce its reliability risk in the face of a flood?  How costly are such self protective investments? Are the power plants  making these investments?  This is the "small ball" of how we adapt to changing climate conditions.

Do Demographers Really Predict Future Population Trends Without Incorporating Women's Economic Incentives?

While the University of Chicago recently celebrated Gary Becker's amazing career, the statisticians and demographers who publish in Demography and Science have ignored his work.   This Demography paper is not behind a firewall while this Science paper is more difficult to access.   Neither cite any of Gary Becker's work on the determinants of fertility.  Google Scholar suggests that this work has generated around 50,000 cites but the "scientists" in the paper above ignore it. Why does this matter?

World population stabilization unlikely this century

Patrick Gerland1,*,†, Adrian E. Raftery2,*,†, Hana Ševčíková3, Nan Li1, Danan Gu1, Thomas Spoorenberg1, Leontine Alkema4, Bailey K. Fosdick5, Jennifer Chunn6, Nevena Lalic7, Guiomar Bay8, Thomas Buettner9,‡, Gerhard K. Heilig9,‡, John Wilmoth1


The United Nations (UN) recently released population projections based on data until 2012 and a Bayesian probabilistic methodology. Analysis of these data reveals that, contrary to previous literature, the world population is unlikely to stop growing this century. There is an 80% probability that world population, now 7.2 billion people, will increase to between 9.6 billion and 12.3 billion in 2100. This uncertainty is much smaller than the range from the traditional UN high and low variants. Much of the increase is expected to happen in Africa, in part due to higher fertility rates and a recent slowdown in the pace of fertility decline. Also, the ratio of working-age people to older people is likely to decline substantially in all countries, even those that currently have young populations.

To my amazement, this work does not discuss how women's potential earnings in the labor market correlates with fertility decisions.  At least in the Demography paper linked to above, the word "incentives" does not appear in the paper and nobody makes a choice based on the costs and benefits of fertility.     Without incorporating such factors, how can a statistical model yield a credible prediction?  I suggest that the authors read this Becker and Lewis paper that was published in the 1974 JPE.

They then could read these papers by Jim Heckman;

The relationship between wages and income and the timing and spacing of births: evidence from Swedish longitudinal data

JJ Heckman, JR Walker - Econometrica: journal of the Econometric Society, 1990 - JSTOR
... 1412  Cited by 408 Related articles All 10 versions Cite Save

New evidence on the timing and spacing of births
JJ Heckman, VJ Holtz, JR Walker - The American Economic Review, 1985 - JSTOR
New Evidence on the Timing and Spacing of Births By JAMES J. HECKMAN, V. JOSEPH HOTZ,
AND JAMES R. WALKER* This paper is a first progress report of an ongoing empirical study
of the determinants of life cycle fertility (see our 1985 paper for a more complete report). ...
Cited by 132 Related articles All 8 versions Cite Save More

Saturday, November 08, 2014

NYC Prepares for More Intense Stormwater

How will cities handle more intense and variable weather patterns? If there is a heavy snowstorm or if there is heavy rainfall, how will cities handle it?  If the city is incapacitated for a day, how costly is that?  The NY Times reports about a "small ball" investment by NYC in "curbside gardens".  Here is a quote:

"Begun as a pilot program under Mayor Michael R. Bloomberg — about 250 of the gardens are already in the ground — the initiative is set for a major expansion that will bring thousands of gardens to neighborhoods across the Bronx, Brooklyn and Queens in the coming months.

The goal, according to the city’s Department of Environmental Protection, is to soften the “impervious urban landscape” of asphalt and concrete and absorb rainfall that might otherwise funnel into the combined sewer system. (During heavy rain, storm water can exceed the capacity of the city treatment plants. Overflows are discharged into local waterways to avoid flooding the plants, which can harm water quality.)"

This is a piece in the adaptation puzzle.  These gardens are not free but they simultaneously offer urban areas a new amenity and provide a type of insurance against fat tail events.  There are interesting local public finance issues of who pays for these gardens and what is the right interest rate to use in evaluating whether the upfront cost of these gardens is less than the PDV of future expected benefits from such gardens.  But, the point I want to raise here is to highlight how urban adaptation occurs.  It isn't sexy and it isn't particularly salient but it is happening.

I'm especially interested in the diffusion of "good public policy ideas".  Will mayors from other cities visit New York City and see these and then from this experience make a push to do the same project in their city?   While economists who study development have studied whether farmers learn from nearby farmers, we need more research on how local government officials learn and mimic their peers.

Blue Skies as an Experience Good: Future Air Pollution Progress in Beijing

With the APEC meetings about to begin, China's Central Government has introduced a series of rules to reduce Beijing's air pollution.   The NY Times reports about these new rules but the tone of the piece is a pinch cynical hinting that this is a short run intervention intended to trick the foreign dignities into thinking that Beijing is a 1st world Superstar city. 

While I agree that this may be a goal of the CCP, these rules will also have medium term benefits for Chinese urbanites.  The CCP is effectively running a field experiment. It will learn what is the marginal cost of achieving blue skies.  As it restricts construction crews, delivery trucks and burning of other fuels, it can measure what it cost the local economy to comply with these restrictions.  At the same time, it can also measure how much people value reduced air pollution.  Urbanites will learn how much they value cleaner air.  As Beijing grows richer and more educated, this valuation of clean air will only rise.

Since Deng, China's CCP has been used to factories being the nation's "Golden Goose".  Moving forward, especially for Eastern cities, such factories will not be the engine of urban growth.  Such cities will become human capital cities and the brain functions better when the air is clean.  For more details read this Forbes piece about my China work.   

Friday, November 07, 2014

Media Slant at the New York Times: The Case of Naomi Klein's New Book

An author named Rob Nixon has written a fawning review of Naomi Klein's new book "This Changes Everything".  Ms. Klein seeks to throw a punch at neo-classical economics and Mr. Nixon is supportive of this effort.

A Direct Quote;

"That philosophy — ­neoliberalism — promotes a high-consumption, ­carbon-hungry system. Neoliberalism has encouraged mega-mergers, trade agreements hostile to environmental and labor regulations, and global hypermobility, enabling a corporation like Exxon to make, as McKibben has noted, “more money last year than any company in the history of money.” Their outsize power mangles the democratic process. Yet the carbon giants continue to reap $600 billion in annual subsidies from public coffers, not to speak of a greater subsidy: the right, in Klein’s words, to treat the atmosphere as a “waste dump.”

So much for the invisible hand. As the science fiction writer Kim Stanley Robinson observed, when it comes to the environment, the invisible hand never picks up the check."

While these words are hard to understand, it is important to note that Milton Friedman would agree with her that subsidies for any producer are crazy. The point of libertarian logic is to shrink back the role of the state in "picking winners".  Friedman and the next generation of Chicago Economists oppose all industrial subsidies.  Gary Becker was a fan of subsidies for basic research such as increasing the budget for the NSF and the NIH.  Such research enhances the stock of  public goods and increases the likelihood of a fundamental breakthrough.

The NY Times has every right to review a book such as Klein's but it should have selected an economist such as Ed Glaeser or Robert Barro to review it.   Mr. Nixon's review reads like an Amazon blurb for the book rather than a critical review of a highly controversial piece of red meat  (red tofu?) served up to rouse progressives to "fight on".

Monitoring Water Pipe Leaks Using Smart Sensors: Will Public Sector Unions Oppose?

Los Angeles is no longer a "new" city.  The city's population soared between 1910 and 1970 and the roads, homes and the airport! are showing their age.   Apparently, there are water pipes underground and a majority of them are in bad shape.  The proudly inefficient LADWP is in charge of supplying sewage treatment and water delivery in the LA area.  Their workers enjoy very good public sector pay as they slowly jackhammer roads, fix the problem and repave.

In this "Smart Grid" era, I have to wonder if there are new technologies that can be used to figure out which water pipes are depreciating.  Can water engineers predict a pipe break before it happens? From a quick search of Google, I found Libelium's web page.

Here is a direct quote:

"Water leakage problems: sensor technology solutions

The problem of water must be faced, not only in cities but houses because every drop counts. Wireless Sensor Networks provide the technology for cities to more accurately monitor their water pipe systems and identify their greatest water loss risks.

Cities that are addressing water leakages with sensor technology are generating high savings from their investment. Tokyo, for example, has calculated they save $USD170 million each year by detecting water leakage problems early.

Libelium’s Smart Metering Sensor Board includes a water flow sensor that can detect pipe flow rates ranging from 0.15 to 60 litres/minute. The system can report pipe flow measurement data regularly, as well as send automatic alerts if water use is outside of an expected normal range. This allows a smart city to identify the location of leaking pipes and prioritize repairs based on the amount of water loss that could be prevented."

Has Los Angeles installed such sensors?

I doubt that the public sector LADWP has the right incentives to install these sensors because they will cost workers valuable overtime hours.   Am I right?

Thursday, November 06, 2014

Compact Cities and Faster Elevators

Speed is crucial in cities.   If you can move faster, you can trade and learn from more people and thus gain more from urbanization.   The construction of highways since the 1950s in the United States and in recent years in China has allowed private cars to move at high speeds and this has caused rapid suburbanization.  But, new innovation with respect to elevator speed could allow more compact development in high rise buildings.  I recognize that Building Height regulations will be binding in many cities but if cities allowed for taller buildings then with these new faster elevators urbanites could have the best of both worlds.

Why Can't Jessica Chastain Promote Her Own Movie?

Celebrity endorsements must be an effective advertising tool.  I don't believe I have ever seen a credible estimate of such a "treatment effect" but as a dogmatic Bayesian I believe in this effect.  Recently, Hollywood provides one control group.  Jessica Chastain has two new movies out and her contract for one of the movies prohibits her from promoting the other movie for at least two months.  This raises some mildly interesting economic issues.  Stars such as Michael Jordan promoted multiple products at the same time.  Does endorsing one "crowd out" another?  In the case of movies, I see how this might because of our limited time budget but I do not believe that the two movies are in the same category.

Ms. Chastain is more versatile than the typical economist; here is quote:

"The current conflict, according to those who described it, escalated as it became apparent that Ms. Chastain, who plays a scientist struggling to save humanity in “Interstellar,” might also be an awards contender for her performance in “A Most Violent Year.” In Mr. Chandor’s film, a tale of corruption set in 1981 New York, she plays the ferocious, mob-connected wife of a struggling heating oil entrepreneur played by Oscar Isaac."

Wednesday, November 05, 2014

Implicit Pay Cuts at Harvard!

Harvard has the world's highest university endowment.  Their faculty receive generous housing perks, their kids have a higher probability of being admitted to their College, they receive high salaries, nice offices, a light teaching load, an extremely generous leave policy, and the ability to borrow art work from the Harvard museum.  But, the price of their health insurance is going up and they are now going nuts.   The Harvard faculty wonder why they are being asked to pay more for their health insurance. The Crimson today reports some quotes that are a little bit over the top.  The faculty are embracing their inner Kahneman and are angry about this "takings".

Here is a direct quote:

"Faculty members have principally criticized the plan for its introduction of deductibles for non-routine health appointments and the introduction of copays up to $1,500 a person and up to $4,500 a year for families of three or more.

All of the non-administrative members of FAS who spoke on Tuesday expressed their disapproval for the new policy, in turn calling it an unnecessary measure, effectively a pay cut, and an unfair reallocation of risk to the most vulnerable members of the community.

Mathematics professor Mark Kisin said that whether or not the University’s claims about reducing costs while maintaining health outcomes are true, there are other costs associated with the policy change, including decreased attention to research and teaching because professors will be distracted by their healthcare costs. Kisin also suggested that the policy would damage the Harvard brand and reputation for providing strong health care benefits and disproportionately harm female faculty members.

During the meeting, however, Provost Alan M. Garber ’76 maintained that the changes were necessary to reduce the University’s health care costs. He said the University Benefits Committee, which recommended the policy changes, would continue to look for ways to “improve what we offer to our faculty and staff." "  

Alan Garber is an infinitely reasonable man and a very kind person.  What "secret agenda" would he have to tax Harvard faculty if the University didn't have legitimate reasons for introducing these new incentives?   As the Provost, he has strong incentives to build and maintain excellence.

Tuesday, November 04, 2014

Green Consumers Change the World!

The WSJ reports that for profit meat companies are changing their game as they respond to shifting demand for "organic food".   A direct quote about the power of free market environmentalism;

"Brandon Glenn had already gone further. Not at the behest of the government, but of a meat company for which he raises chickens.

“I was pretty apprehensive,” the Kentucky farmer says of instructions three years ago from Perdue Farms Inc. to halt almost all antibiotic use. “How are we going to keep these chickens alive without giving them their medication? But Perdue said: ‘This is what the market is going to.’ ”

Perdue is among a growing array of food producers moving to limit the routine use of antibiotics in livestock production—less in response to regulatory action than to consumer pressure."

"Moats" Will Mitigate the Pigouvian Externality Caused by Local Fracking

The WSJ reports  that in Denton Texas that there is disagreement among land owners concerning the net benefits of fracking. Some property owners adjacent to fracking activity complain about the noise and pollution associated with this production activity.  Coase might say that the answer here is for the frackers to purchase the land around where they plan to produce to create a "buffer zone" so that there are no neighbors.  I recall in the past that Exxon-Mobil purchased large pieces of land around its chemical plants in Louisiana.  You can see what a powerful memory I have!  That article was published in 1990 and here is a link to it!

Monday, November 03, 2014

A Photo of Some of Gary Becker's Students

How many Gary Becker students do you recognize in the photo below?  For example, do you see Claudia Goldin to the far left in the front row?  Do you see me in the second row to the right in my red power tie? Do you see Ed Glaeser and Kevin Murphy in the middle to the left?  For those of you who missed the Becker Conference click here to see some of the highlights.

Sunday, November 02, 2014

Hollywood Tackles the Topic of Adaptation

I just saw the trailer for the new move "Interstellar".  The NY Post talks about the movie.  Last year, the movie Elysium came out featuring Matt Damon.  That movie posited that in the future that the 1% will be able to escape the damaged planet Earth.  Both movies stress the possibility that migration allows us to adapt but at least Damon's movie voices the pessimism that only an elite subset will be able to move to this higher ground.  I reject this pessimism.   The Earth is a big place and we will figure out where higher ground is actually located.  

Does the movie have a happy ending?  Does human ingenuity figure out how to cope with the "new normal"?

Uber Makes Los Angeles a Better Consumer City

The conventional wisdom from the empirical literature is that computers make the skilled more productive.  A related question is whether "computers" make our leisure time more productive?  This NY Times article correctly argues that Uber has made Los Angeles a much better "consumer city".  Why?

  • Adults can now drink and "drive" as Uber's professionals handle the driving.  Less drunk driving at night offers broad social gains and thus improves the metro area's overall quality of life. Young people anticipating that they can have a "wild night out" are more likely to go out and have fun and this creates more aggregate demand for a vibrant downtown.  
  • The Uber cars keep moving so there is no stress of searching for parking at the place you are trying to get to.  Cruising for such parking in LA is a major pain.
  • The Uber cars are nicer than what most people drive so you make a "grand entrance" at public scenes.  By delegating driving to a professional (the Uber driver), the person sitting in the backseat can enjoy some comfortable leisure and look at the City of LA as you wait to get to your destination.  
  • The text feature of the Uber App allows people to minimize exposure to possible crime that you only step outside when you know your Uber car has arrived.  This should especially help protect young women.
  • Young people who don't have licenses can go out and have fun and safely return to their parents.  My son attends events 30 minutes from our house. If we take him, we must make 4 trips round trip and this adds up!  There is a time budget constraint and I believe in comparative advantage. 
  • The Uber Black cars are large and I can fit into the backseat and get work done and arrive fresh at events I attend in LA.
  • If startup "consumer city" bars and restaurants anticipate that there will be more "Uber" traffic, then this increases their incentive to invest more to create a great public space and new shopping and eating and leisure opportunities because more people will show up. In this sense Uber helps to create an urban network effect making specific neighborhoods in LA even more desirable. 
The net effect of these points is a more efficient and fun city.  So note that this point builds on Glaeser's classic paper arguing that the Internet makes cities stronger.  Information technology (the Uber App) permits more gains to trade to take place and cities are all about trade but in this case these trades discussed above are related to leisure and the spatial allocation of our scarce time.