In the September 2013 issue of the Journal of Economic Literature, Siqi Zheng and I have a new paper titled “Understanding China’s Urban Pollution Dynamics”. Our paper’s abstract is presented below the fold. This paper lays out the broad plan for our 2014 University of Chicago Press book tentatively titled; “Blue Skies in China?”.
For those who reject, my Climatopolis vision that individuals (if they face market and social incentives) will adapt to emerging climate change risk then take a look at this quote from this Sunday’s NY Times.
“California has been a leader in adopting building codes and brush-removal regulations, but for the most part, despite the clear evidence from Cohen’s published research, municipal governments in the western United States have been slow to follow. Some people don’t want to cut down trees; others don’t want government telling them what to do with their property. Cohen said that when he took his research to urban firefighters, he didn’t find an enthusiastic audience. His experience with fire departments that had not been “kicked multiple times” by wildfire has been that they don’t want to be the ones telling homeowners they’re part of the problem; his impression is that urban firefighters prefer instead to say, “This fire was so big and fast, there was nothing we could do to save your house.” And that’s true, as far as it goes. But until people grasp or act on what Cohen has demonstrated — that homeowners would not need to rely on firefighters as much as they do if their houses were better built and maintained and the properties around them were prepared to withstand fire — changes to forest management and firefighting policies are unlikely to significantly improve matters.”
UC Berkeley’s Enrico Moretti has published an excellent piece in the Wall Street Journal.
“Since 1980, data show that the economic success of a city has been increasingly defined by its number of highly educated workers. Cities with many college-educated workers and innovative employers started attracting more of the same, and cities with a less educated workforce and less innovative employers—such as traditional manufacturing—started losing ground.
My research shows that scientists and software engineers are not the only ones who thrive as a result. Using data on nine million workers in 320 U.S. metropolitan areas, I found that for each new innovation-job in a city, five additional jobs are created—not only in professional occupations (lawyers, teachers, nurses) but also nonprofessional occupations (waiters, hairdressers, carpenters). For each new software designer hired at Twitter in San Francisco, there are five new job openings for baristas, personal trainers, therapists and taxi drivers. The most important effect of high-tech companies on the local economy is outside high-tech.”
Moretti calls this the “local multiplier effect”. Those mayors who can deliver high quality of life will be able to attract and retain the skilled and then will enjoy the tax base benefits that Moretti sketches. The city competition for the skilled does not have to be a zero sum game if mayors implement policies that “grow more local” skilled people. Here then, we must embrace the Heckman Agenda and also change the rules that govern local public schools to allow them more flexibility in educating kids. Since the RBC has a taste for “doom and gloom”, this case study of Detroit by George Galster will interest you.
Yale’s Paul Sabin revisits the Ehrlich vs. Simon bet on limits to growth. His nuanced piece makes many reasonable points. Towards the end of his piece he says some things that I strongly disagree with. I know that the readers of this blog will agree with him, so let’s have some fun. Here is a direct quote which I will “deconstruct” after the fold;
“Mr. Simon liked to argue that new problems prompt solutions that ultimately leave people better off than before. But we cannot surmount our challenges if we simply deny that they exist.
Instead of using science as a resource for human betterment, conservatives who reject the evidence of human-caused global warming prevent the very creative problem-solving that Mr. Simon advocated. And if environmentalists like Mr. Ehrlich hadn’t urged action back in the 1970s, would all that creativity have been channeled into the cleaner air and water that we enjoy today?
We face choices about our future direction. As Mr. Ehrlich and many other environmental scientists have documented, by pouring carbon dioxide into the atmosphere, we put things we value and love in danger, from the coral reefs to the Jersey Shore, from homes threatened by wildfire to farms endangered by drought.
And even if Mr. Simon is right that humans can adapt and prosper on this rapidly changing planet, we have to ask ourselves whether the risks and inequalities of this change are desirable.”
I am in Singapore working at NUS but I continue to read the New York Times. David Autor and David Dorn have written an important piece about the role that computers have played in hollowing out middle class jobs. They end on an optimistic note;
There will be job opportunities in middle-skill jobs, but not in the traditional blue-collar production and white-collar office jobs of the past. Rather, we expect to see growing employment among the ranks of the “new artisans”: licensed practical nurses and medical assistants; teachers, tutors and learning guides at all educational levels; kitchen designers, construction supervisors and skilled tradespeople of every variety; expert repair and support technicians; and the many people who offer personal training and assistance, like physical therapists, personal trainers, coaches and guides. These workers will adeptly combine technical skills with interpersonal interaction, flexibility and adaptability to offer services that are uniquely human.
Three points: For this new “nimble economy” to replace lifetime jobs will require some capitalist magic;
1. Health insurance will need to be portable across jobs. Read Dr. Madrian’s paper on job lock.
2. Internet services in providing kosher “rankings” of quality of different artisans will have to be developed. In a fair world, a good artisan will be able to objectively signal to potential customers that she offers high quality services per $ she charges.
3. This will be a risky world as self employed workers may still face periods of low demand. In the Keynesian model, consumption today is a function of income today (do you remember: C = a + b*Y?) . If we take this model seriously, this means that artisans could face very volatile consumption as their incomes bounce around over time. Since people prefer smoothed consumption over time, such artisans will have to become shrewder life time consumers and explicitly embrace the permanent income hypothesis of consumption. In this age of behavioral economics featuring myopic consumers, the nudgers will have to think about how to incentivize the Homer Simpsons to save for a rainy day.
In this age of product differentiation and celebrating the individual, it makes perfect sense that new artisans will arise in cities around the world. Such services are often non-tradeable and this means that these producers will locate close to the final consumers. Such final consumers will often be the 1% and in this sense they create jobs. Read Moretti’s Local Multipliers paper.
August 12th 2013 is my parents’ 51st wedding anniversary. To celebrate this day in my family’s life, Amazon will give away free copies (just on Monday) of my e-book; Fundamentals of Environmental Economics: Solving Urban Pollution Problems. I will learn what the demand curve for my book looks like. It is selling a few copies at a price of $2 and we will see how many more copies are sold at a price of $0! Amazon gives authors the option to give away their books on certain days (up to 5 days). Other publishers should consider this? I don’t fully understand their business model but perhaps I’m not supposed to.
You can’t always “get” what you want? UCLA Professor Patricia Greenfield has a new empirical study documenting that the words “choose” and “get” rose significantly in frequency between books published in 1800 versus 2000, while “obliged” and “give” decreased significantly over these two centuries. This is an interesting empirical finding and highlights how empirical humanities research will make advances. She is quoted as attributing these trends to the rise of individualism and materialistic values. How would she test this hypothesis? A possible selection bias issue lurks here. Who wrote books (and who read books) in 1800 versus today? Has the world changed or has the set of authors changed?
This post builds on Michael’s recent post. I focus on two changes to the incentive system. Al Roth shared the 2012 Nobel Prize (with my colleague Lloyd Shapley) for his work on mechanism design. This subfield offers some clues for how to achieve our worthy goal of a better education at a relatively low cost.
1. The University of Chicago’s Booth School of Business gives each MBA student a fixed amount of “currency” to bid on enrolling in classes. Prices adjust so that the aggregate demand for each class equals the total capacity for the class (perhaps 60 people). Professors receive a bonus and recognition if their course prices are high. Students face key tradeoffs. Do they pay a high price to take a class with Cochrane, Fama, or Goolsbee but then must enroll in “Average Joe” sections for their other courses? Or, do they substitute away from superstar teachers and enroll in a set of very good classes? Why can’t the UC campuses adopt some version of this? Intro and intermediate classes have several sections. At the upper division level, departments offer multiple electives that could be bench-marked relative to each other. Today, the UC has an inefficient enrollment system that maximizes “mismatch”. Each quarter, there are dozens of students signing up for my class and then dropping out while dozens of other students send me sad emails about why they have always wanted to take my class but again they are locked out. A price system would allocate the scarce resource efficiently as my classes would enroll the students who want to be there. The time averaged market prices (perhaps over 3 years) would give Deans the material they need to evaluate teacher quality. An economist would allow students to buy more of the “course bidding currency” but I have the feeling that the RBC would oppose this.
2. A second idea for improving UC undergraduate teaching is to allow the campuses to set their own tuition. Weak teaching institutions would charge a lower tuition price. Each professor at the UC would be required to post a lecture (chosen at random by Oakland) to YouTube so that potential students could judge “the goods”. The UC President’s Office could conduct some random audits where “students” sit in lectures and listen. While of course academic freedom must be protected, such accountability audits would increase Professor effort. With floating tuition, Deans would be incentivized to nudge Department Chairs and to invest more in Ph.D. graduate students who might have some skills as Teaching Assistants. Department Chairs would think harder about new faculty hires, the assignment of incumbent professors to classes and the attributes of new admits to their Ph.D programs. Rules matter!
Mark’s recent endorsement of nudges nudged me to post this. You will see that Richard Thaler will be the next President of the AEA. Economists are a diverse group and I hope and expect that Dr. Thaler will win a Nobel Prize in the near future. The University of Chicago is a “big tent” for various ideas and intellectual competition thrives there. In posting this, I want you to look at the race for the Executive Committee. My favorite UCLA professor is one of the candidates. While I don’t know how many voting economists read the RBC, I hope you will consider voting for her. For a guide to her NBER research, click here.
How much of center city resident poverty is caused by physical distance from suburban jobs? The “spatial mismatch hypothesis” posits that the answer is “a lot”. The core story is that the urban center city poor are poor because they can’t easily commute to suburban jobs. Free cars might solve this problem! Glaeser and I discuss job sprawl in this paper. My colleague Michael Stoll (and my friend Steve Raphael) have written about the social benefits of increasing access to cars for the urban poor. In today’s NY Times, Paul Krugman endorses the key role for the spatial mismatch theory. John Kain, the great late Harvard economist, wrote the best early paper on this subject and revisited the topic in this 1992 paper. John Quigley, my co-author and good friend who died in 2012, wrote one of the better natural experiment papers using the BART expansion to test for the impact of spatial mismatch.
Now for policy wonks, the spatial mismatch hypothesis is an attractive idea because it suggests that through improving urban travel speeds that economic opportunity will increase. The true test of this optimistic hypothesis would be to take center city residents and randomly choose a subset to live closer to suburban jobs and then to later test whether this “treated” group is now more likely to be employed and earning higher wages relative to the “stranded” control group. Such a field experiment has been slightly tried with the MTO experiments and unfortunately the answer appears to be “no”. Take a look at this.