While the NY Times doesn't report any NBA news today, it is filled with other interesting stuff.
1. The local externality imposed by New York City's old garbage trucks. Yes, these trucks pick up the garbage but they emit plenty of particulate matter and cleaning this up will cost millions. Who should pay that bill?
2. A new sustainable beef business is launched in California. Perhaps green products can thrive under specific circumstances.
3. The horrible news from the Philippines related to the death toll from the typhoon highlights the importance of economic development and providing trusted information to nudge coastal households to live in higher quality structures and to move to higher ground before storms hit.
4. The Wall Street Journal has a great section today called; "The Power of Tomorrow" focused on the future of different energy sources and the market and political barriers they face to enhance our energy supply.
Outsourcing in Cities
Catherine Rampell has written an excellent piece about how we allocate our scarce time. Note that neither the word "city" nor "population density" appear in her article. Robinson Crusoe would not have had the option of outsourcing his cooking or dry cleaning. Outsourcing and urbanization and specialization go hand in hand.
Conspicuous Consumption in Los Angeles
I was in a West Los Angeles parking lot next to where my son takes fencing lessons. While I agree that this is not a location chosen at random, take a look at the makes of these three parked cars. From left to right, I see Tesla, Lexus, Tesla. Why do the wealthy live in Los Angeles? Is it because this is a productive place? Are these folks rich because they live in Los Angeles?
Fixed Effects
A psychologist reports that those who smiled in their College yearbook photo were much less likely to subsequently divorce than those serious people who didn't smile. The causal effect here is likely to be due to a 3rd variable; "stress and attitude". Is it the case that easy going people are more likely to smile and live a happier life?
Why do I like this finding?
Why do I like this finding?
The Evolving Geography of China's Industrial Production
In joint research, I have just released a new NBER Working Paper that examines the causes and consequences of shifts in the economic geography of China's industrial production. Led Zeppelin recorded a famous song called; "The Song Remains the Same". This applies to this piece of my research. Back in 1999, I published a JUE paper using U.S data examining the air quality benefits of Rust Belt decline. Cities such as Pittsburgh experienced sharp improvements in quality of life.
My new paper argues that a similar dynamic is now playing out within China. Coastal rich cities feature high land prices, high labor prices and increasingly stringent environmental regulation. These factors encourage land intensive manufacturing to leave these cities and to move to Western China and to leave China. The powerful central government and local Western Mayors are offering incentives for such factories to move West. This migration brings about some income convergence across regions but also impacts the spatial distribution of pollution and quality of life. We survey the emerging literature on China's industrialization and present a lot of new empirical evidence in this paper.
My new paper argues that a similar dynamic is now playing out within China. Coastal rich cities feature high land prices, high labor prices and increasingly stringent environmental regulation. These factors encourage land intensive manufacturing to leave these cities and to move to Western China and to leave China. The powerful central government and local Western Mayors are offering incentives for such factories to move West. This migration brings about some income convergence across regions but also impacts the spatial distribution of pollution and quality of life. We survey the emerging literature on China's industrialization and present a lot of new empirical evidence in this paper.
The Evolving Geography of China's Industrial Production: Implications for Pollution Dynamics and Urban Quality of Life
Siqi Zheng, Cong Sun, Ye Qi, Matthew E. Kahn
China’s rapid economic growth has been fueled by industrialization and urbanization. Given its export focus, this industrialization was spatially concentrated in the coastal eastern cities. Over the last decade, a spatial transformation has taken place leading to a deindustrialization of the rich coastal cities and sharp industrial growth in the inland cities. This survey examines recent work that studies the economic geography of industrial production, per-capita income, pollution and quality of life in China’s cities. We focus on the interaction between firms, local governments and the central government that together determine the new economic geography of industry and pollution within China.
Free Riding and River Water Pollution in China
In September 2013, I visited the National University of Singapore and had the opportunity to work with two economists at their Institute of Real Estate Studies. Pei Li, Daxuan Zhao and I have just released this new NBER Working Paper.
Pollution Control Effort at China's River Borders: When Does Free Riding Cease?
Matthew E. Kahn, Pei Li, Daxuan Zhao
At political boundaries, local leaders often have weak incentives to reduce polluting activity because the social costs are borne by downstream neighbors. This paper exploits a natural experiment set in China in which the central government changed the local political promotion criteria and hence incentivized local officials to reduce border pollution along specific criteria. Using a difference in difference approach, we document evidence of pollution progress with respect to targeted criteria at river boundaries. Other indicators of water quality, not targeted by the central government, do not improve after the regime shift. Using data on the economic geography of key industrial water polluters, we explore possible mechanisms.
So, our study builds on Hilary Sigman's classic AER paper where we demonstrate the role of leaders and their power in China to change the status quo. As usual, the key issue focuses on incentives. What incentives does the leader face to address the issue? Are there unintended consequences of the new policy choices that are made?
The Efficient Allocation of Rural Land in Upstate New York
Back in the mid-1980s, I attended Hamilton College. I would take the Amtrak train from Westchester to Utica and as the train traveled North and West, I would see decaying manufacturing towns in upstate New York (think Schenectady --- whose population has declined by 25% over the last 60 years) and farmland. At the time, I wondered about why so much space was offering so little value to the U.S economy. Flash forward to today and I just read this great WSJ opinon piece by Fred Siegel. For economists who teach environmental or urban economics, this is a great teaching tool. Siegel tells a story of conflicting visions for how upstate NY land should be allocated.
On the one hand are the "liberal NYC landed gentry" who live in Manhattan and have bought large 2nd homes in upstate New York (i.e people such as Sean Eldridge profiled in this story). Siegel tells a story of how these land owners have formed a coalition with liberal university students and faculty at upstate NY universities to oppose fracking activity. Is upper New York State a place where produce things (besides for apples)? Or is it a place for the rich to retreat to for serenity?
In contrast, there are pro-fracking land owners in upstate New York who tend to be poorer and more conservative. So, should we ask Joni Mitchell? What is the right balance between preserving versus using land? If there are cross-parcel externalities associated with fracking, what safeguards should be built in to protect the property rights of land owners who choose to not lease their parcels for fracking? Could the frackers post a bond? Could their be random audits to see if fracking equipment safety protocols are being followed?
On the one hand are the "liberal NYC landed gentry" who live in Manhattan and have bought large 2nd homes in upstate New York (i.e people such as Sean Eldridge profiled in this story). Siegel tells a story of how these land owners have formed a coalition with liberal university students and faculty at upstate NY universities to oppose fracking activity. Is upper New York State a place where produce things (besides for apples)? Or is it a place for the rich to retreat to for serenity?
In contrast, there are pro-fracking land owners in upstate New York who tend to be poorer and more conservative. So, should we ask Joni Mitchell? What is the right balance between preserving versus using land? If there are cross-parcel externalities associated with fracking, what safeguards should be built in to protect the property rights of land owners who choose to not lease their parcels for fracking? Could the frackers post a bond? Could their be random audits to see if fracking equipment safety protocols are being followed?
Safety Net Convergence? Will France Imitate Texas?
This article is worth reading. For decades, France has ignored Milton Friedman's logic and has heavily taxed its economy to provide for a generous safety net. The Socialist President of France is well aware that this is not sustainable and he must choose which "neo-classical" set of policies in order to simultaneously reduce his nation's budget deficit and stimulate long term growth. On one level, this is funny and on another level it is sad. Perhaps he should consider visiting Texas to learn about a different vision of the good life? For those who want to see some economics research on the taste for redistribution read this IZA Working Paper.
Climate Change Adaptation and Big Data
The New Yorker Magazine tells an optimistic story about how "Big Data" will help farmers cope with climate change and climate risk. In a nutshell what the article argues is an analogy; Baseball's Billy Bean (think Moneyball) is to Baseball what Jeffrey Hamlin is to farming. Both use analytics to achieve efficiency increases given limited resources. Human ingenuity increases our productivity and helps us to adapt. This is the Climatopolis logic and this is how Jeffrey Hamlin will grow rich and you will still have food on your table to eat. Elizabeth Kolbert should read her own magazine!
Redistribution in Cities: The Case of Mayor De Blasio
While Google doesn't have it recorded, roughly 15 years ago, Ed Glaeser, Jordan Rappaport and I wrote a paper titled "Redistribution in Cities". With the election of the new progressive mayor of NYC, this paper merits a second look. Using data from the Census of Governments, we studied the determinants of which cities spend the most on health, and welfare. A New York City version of the paper is published here. Our work focused on the simple idea of product differentiation and substitutes. A progressive mayor can redistribute if the tax base can't flee. Are there other cities in the United States that are "close substitutes" in the minds of the 1% for New York City? If Woody Allen and Mia and "their" son are willing to move to Philly, then Mayor De Blasio won't be able to raise taxes much without learning about the Laffer Curve. If NYC is a monopolist then he will be able to tax his golden goose without experience a revenue drop.
An Unusual Day in My UCLA Environmental Economics Class
I've been a professor for 20 years now so I'm seldom surprised by what goes on in the classroom. Today was funny. If you click here and go to the November 4th 2013 lecture, you will first hear me say some crazed stuff about negative externalities and the case of undergraduates kissing at Stanford and spreading infectious disease. You will then listen to several sets of my students giving excellent presentations on "green products". I asked the students to answer the following;
Select a company that you believe produces a “green product”. Answer the following questions using Google research,
1. What environmental externality is mitigated by consuming the product you chose versus consuming a “conventional” alternative?
2. Are consumers willing to pay a price premium for this product?
3. Would your product be sold if there was no government to offer it special subsidies or other incentives?
4. Are you optimistic that sales for the product you picked will rise over time? Why
If you watch the video, you will see some of my excellent students present their findings from their homework assignment. Undergraduates do not get enough practice with public speaking. This 120 person class gives them a large audience and I thought my students did a great job.
At the end of class today , one of my students approached me and told me that I remind him of his grandfather! He told me that his grandfather is very smart and quite opinionated. I've reached an age (47) where I am certainly willing to be compared to a grandpa. This young man was kind enough to give me a copy of his grandfather's recent book. Robert V. Wills has written a book titled "A View from the Hill" Trading the Courtroom for the Ivory Tower. I am going to read it right now and here is its Amazon link.
Select a company that you believe produces a “green product”. Answer the following questions using Google research,
1. What environmental externality is mitigated by consuming the product you chose versus consuming a “conventional” alternative?
2. Are consumers willing to pay a price premium for this product?
3. Would your product be sold if there was no government to offer it special subsidies or other incentives?
4. Are you optimistic that sales for the product you picked will rise over time? Why
If you watch the video, you will see some of my excellent students present their findings from their homework assignment. Undergraduates do not get enough practice with public speaking. This 120 person class gives them a large audience and I thought my students did a great job.
At the end of class today , one of my students approached me and told me that I remind him of his grandfather! He told me that his grandfather is very smart and quite opinionated. I've reached an age (47) where I am certainly willing to be compared to a grandpa. This young man was kind enough to give me a copy of his grandfather's recent book. Robert V. Wills has written a book titled "A View from the Hill" Trading the Courtroom for the Ivory Tower. I am going to read it right now and here is its Amazon link.
Houston Apartment Up For Sale
I received word this weekend that the Houston apartment complex is up for sale. In fact, we already have two offers for it. Unfortunately, I'm not allowed to discuss any details at this time, but after any sale completes, I'll talk about them. The property was just appraised at between $13.2 million and $14.5 million. We bought it for around $12 million back in 2008.
Climate Change and the Food Supply
The NY Times has a lead article saying that the IPCC says that climate change will reduce the food supply during a time of global population and income growth and this will lead to higher prices for food and hence increased starvation risk for the world's very poor.
Suppose that everything the IPCC says will happen will indeed happen (and the reported price effect actually looks quite small but let's pretend that the reporter got the magnitude of the effect wrong). What happens next? To predict true doom and gloom, you need to believe the following;
1. Under new climate conditions, farming cannot be productive in current cold places such as Russia and Canada that will now have warmer winters. Instead, farming remains where it currently is and just dries up in the heat and drought.
2. Human ingenuity and new GMO entrepreneurs will not figure out ways to increase agricultural yields.
3. People's tastes for foods are such that we are unable or unwilling to substitute to varieties that can be grown under new climate conditions.
4. The world's very poor do not enjoy the growth miracle that has lifted hundreds of millions of people out of poverty in China and in many parts of Africa so that they do not have the income to buy foods at higher prices.
5. The world's engineers do not figure out ways to recycle water and to enhance our stocks of key agricultural inputs.
6. Global population growth continues to rise sharply.
7. Consumers in the rich nations (who are increasingly obese) do not respond to price incentives by reducing their consumption and allowing others in the rest of the world to eat these calories.
8. Shifting global demographics such as the aging of the world's population doesn't reduce the average number of calories that a person eats each year.
50 years from now readers of this blog will see me write a post on November 2nd 2063 highlighting that each of these 8 claims is proven to be false.
Since the IPCC is dominated by non-economists, basic economic ideas such investment under uncertainty and rational expectations do not enter the predictive models these scientists supply. Implicit in IPCC research is a mass behavioral economics vision of myopia. In the real world, self interested people form their best guesses of the future and reports such as the NY Times article today help to guarantee that their pessimistic predictions never occur. As I explain in Climatopolis and repeat in points #2 and #5 above, expectations of future scarcity create necessary conditions for entrepreneurs to smell big profits and this is the start of averting doom.
Suppose that everything the IPCC says will happen will indeed happen (and the reported price effect actually looks quite small but let's pretend that the reporter got the magnitude of the effect wrong). What happens next? To predict true doom and gloom, you need to believe the following;
1. Under new climate conditions, farming cannot be productive in current cold places such as Russia and Canada that will now have warmer winters. Instead, farming remains where it currently is and just dries up in the heat and drought.
2. Human ingenuity and new GMO entrepreneurs will not figure out ways to increase agricultural yields.
3. People's tastes for foods are such that we are unable or unwilling to substitute to varieties that can be grown under new climate conditions.
4. The world's very poor do not enjoy the growth miracle that has lifted hundreds of millions of people out of poverty in China and in many parts of Africa so that they do not have the income to buy foods at higher prices.
5. The world's engineers do not figure out ways to recycle water and to enhance our stocks of key agricultural inputs.
6. Global population growth continues to rise sharply.
7. Consumers in the rich nations (who are increasingly obese) do not respond to price incentives by reducing their consumption and allowing others in the rest of the world to eat these calories.
8. Shifting global demographics such as the aging of the world's population doesn't reduce the average number of calories that a person eats each year.
50 years from now readers of this blog will see me write a post on November 2nd 2063 highlighting that each of these 8 claims is proven to be false.
Since the IPCC is dominated by non-economists, basic economic ideas such investment under uncertainty and rational expectations do not enter the predictive models these scientists supply. Implicit in IPCC research is a mass behavioral economics vision of myopia. In the real world, self interested people form their best guesses of the future and reports such as the NY Times article today help to guarantee that their pessimistic predictions never occur. As I explain in Climatopolis and repeat in points #2 and #5 above, expectations of future scarcity create necessary conditions for entrepreneurs to smell big profits and this is the start of averting doom.
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