For those of you grousing about looking for the whens and wheres of the Lawrence Scholars in Business Entertainment Summit, you’ve come to the right place. It is today at 4 p.m. in the Hurvis Room of the Warch Campus Center. Dinner to follow at 6, space permitting.
This is the final LSB event of the year, and should appeal to folks of all stripes, from the economics majors to the Conservatory and Arts students.
Click the poster for the full report.
Given the dwindling attendance in my courses, either the weather has become appreciably better, Midwestern style, or Professor Finkler is giving another macro exam. Both are sure signs that summer is just around the corner. That means it’s time to unveil the Innovation & Entrepreneurship Reading Group‘s summer books.
The first book comes recommended from Professor Garth Bond, who offers us Moneyball: The Art of Winning and Unfair Game. I’ll let him tell you about it:
It’s a bit off the beaten path, but it is a great read and certainly raises questions about innovation in a decidedly different context: Michael Lewis’s Moneyball. If you’re not familiar with it, it’s basically a book about the sabermetric revolution in baseball, focusing on Billy Beane and the Oakland A’s in the early 2000s. It is decidedly about the difficulties involved in introducing innovation into baseball, exploring where and how new ideas arose and how they actually came to be implemented (and ultimately copied). I think it might be particularly interesting because many of us have a hard time thinking of sports as just another industry, so that it can challenge our abstract theories by applying them to matters of the heart. The other nice thing about the book is that it is extremely approachable and short.
That is a clear winner.
If you are still on the fence after that, consider that Hollywood is (potentially) making a movie version of the book that will star Brad Pitt. Here is a review — of the book, not the movie — from the San Francisco Chronicle.
The second book is The Marketplace of Ideas: Reform and Reaction in the American University by Louis Menand. This is a provocative piece about why although academics tend to be liberal as a bunch, but institutional change within the academy is slow going.
Menand is a brilliant writer, and the book certainly adds much to the discussion of “how can we at Lawrence be more innovative.” Here is the review at Slate that tipped me off to the book.
Also a clear winner.
The tentative meeting date for the faculty group will be in late July. You should be able to find out more right here on this blog, or on our group site on The Moodle. In early July, I will begin “live blogging” and posting some associated content. As was the case with the first book, any students interested in reading should let me know so we can get together to discuss it.
Those of you not interested in the I&E Reading Group might find some of these useful.
The American Power Act is the latest climate bill making its way through the Senate. For both of my classes this term we have talked about the tradeoffs between policies that economists like and policies that might have a chance of passing. Ted Gayer at Brookings definitely puts the APA in the latter camp:
The bill auctions only 24.8 percent of the allowances in the early years (the share devoted to auctions is highlighted in blue), the remainder of the allowances being given away to such things as electricity local distribution companies, trade-exposed industries, refiners, commercial developers of carbon capture and storage, and a National Industrial Innovation Institute. The auctioning ramps up to 79.5 percent of allowances in 2030, and then full auctioning only occurs in 2035
And concludes:
By failing to use a full allowance auction to offset economically harmful taxes and deficits, the Senate bill sacrifices economic gain for political support from interest groups.
Robert Stavins, on the other hand, seems to look up at the sky and see a different color. Stavins is perhaps the most prominent environmental economist in the field, and he seems pretty upbeat about the whole thing:
Over the entire period from 2012 to 2050, 82.6% of the allowance value goes to consumers and public purposes, and 17.6% to private industry. Rounding error brings the total to 100.2%, so to be conservative, I’ll call this an 82%/18% split.
I’m going to have to side with Gayer on this one. It may well be the case that on average the “value” goes to some “public purposes,” but it sure doesn’t seem that way looking at the early splits (Here’s the blown up version for those of you preparing to squint).
For the first 13 years of the program, more than half of the allowances are going to industry, it appears. Not until 2025 do we see the industry percentage phased out (rapidly) and the auction percentage jump (also rapidly). So, to put it another way, today’s Congress is committing the 2025 Congress to implement the tough changes that will accompany climate change. I am going to put the odds on this commitment being credible as “improbable.”
What could be more exciting than a full New York Times expose, complete with action photos, on the new OIRA director, Cass Sunstein?
Well, how about a blistering response from University of California professor, Brad DeLong?
Here we have yet another example of why law professors should simply not be allowed to practice law and economics or moral philosophy without a license–and of how Cass Sunstein has never bothered to do the work necessary to acquire a license to practice law and economics.
Both pieces are interesting reads alongside our work in Econ 280 this week on The Stern Review and William Nordhaus’s critique of it.
Wait, what’s that? You don’t know what OIRA is? Well, it’s the Office of Information and Regulatory Affairs, housed in the White House’s Office of Management and Budget. These are the folks who review agency regulations twice (!) during the federal rulemaking process. The OIRA is charge, among other things, with helping agencies to work through benefit-cost analysis — the source of Professor DeLong’s ire in this case.
So if administrative regulation piques your interest, this is your lucky day.
… is certainly worth a barrel of cure. Instead of having these guys with big yellow boots (I thought only 4-year old boys ran around in public in galoshes out of season), perhaps it would pay to have more egghead types crunching data on safety risk. That was the message I gave in both my classes this week, as we sat down to read Shultz and Fischbeck’s “Workplace Accident and Compliance Monitoring: The Case of Offshore Platform Inspections,” from RFF’s Improving Regulation. In that paper, they identify a set of factors (using factor analysis and a logistic regression model) that does a pretty good job of identifying the high-risk platforms. Pretty good compared to what? Well, certainly much better than random chance, and also better than the Minerals Management Service inspectors who were extensively interviewed for the project.
Neither Shultz nor Fischbeck have been in the press too much, but yesterday we finally did hear from one of them here:
Data problems date back at least a decade. According to John Shultz, who as a graduate student in the late 1990s studied MMS’ inspection program in depth for his dissertation, the agency’s data infrastructure was severely limited. “The thing I regret most is that, to my knowledge, MMS has not fixed the data management problem they have,” said Shultz, who now works in the Department of Energy’s nuclear program. “If you have the data you need, the analysis becomes fairly straightforward. Without the data, you’re simply stuck with conjectures.”
Anyone interested in taking a look at the Shultz and Fischbeck is welcome to contact me, for the paper or for a PowerPoint of their work. Anyone interested in doing research or an independent study related to transportation fuels regulation should also contact me.
After what is certain to be a grueling 240 exam, what better way to kick off a Monday night than a visit to the Economics TeaBA with economics faculty and students?
Remember, it’s TeaBA because, unlike other disciplines, we don’t want to lock ourselves into an inefficient technology in the event that relative prices change. In fact, given the warm weather, it might be a good time to switch to Iced TeaBA.
As always, the fun begins at 4:15 in Briggs 217.
It never occurred to me to ask the question: 
Vikings did not wear horned helmets. According to [Cecil Adams], “contemporary Viking era artwork shows roughly half of Vikings in battle bareheaded, while the rest wear unremarkable dome-shaped or conical helmets.” The idea that Nordic invaders of the ninth and 10th centuries wore headgear festooned with ox horns developed a thousand years after the fact, when a Swedish artist illustrated them as such for a poem based on an old, Icelandic saga.
And, evidently, there’s a good reason why:
No self-respecting Viking warrior ever wore a horned helmet in battle–they weren’t that dumb. As anyone who has done any slaughtering can tell you, horns provide nothing more than a good handhold to steady your work while you’re slitting someone’s throat.
Keep that in mind next time you enter hand-to-hand combat.
No, this isn’t a post about the goodies at this-coming Monday’s Econ TeaBA (where, rumor has it, Professor Galambos will explain the competitive market model to Professor Corry in 15 minutes. Whether he can make good on this promise remains to be seen. In either case, please, no wagering at the TeaBA).
This is a post about who will benefit and who will lose from the climate legislation. We have been talking about the distributional issues in Economics 280 for a couple of weeks, that there are many ways to get the same “quantity,” but who wins and who loses can vary radically. The projected shares are a big key to determining political feasibility — businesses like free permits much more than auctioned permits, and certainly much more than (egads) paying a tax. On this front, we will be reading a paper called “Carbon Geography: The Political Economy of Congressional Support for Legislation Intended to Mitigate Greenhouse Gas Production” in our political economy course next week. The basic idea here is that representatives from states with high per-capita carbon emissions are less likely to support costly carbon restrictions. (Actually, I haven’t read the paper yet, but I would have bet a dollar that’s what it says. That is, I would bet a if I hadn’t discouraged wagering in the previous paragraph).
As for the distribution front, Ted Gayer from Brookings has some preliminary estimates on who is going to capture the value of freely-allocated and auctioned permits over the first 20 years of the program. The program will start with about 75% of the permits being handed out and more than half of the value of those permits accruing to electric utilities. Less than 10% of the revenue will flow to deficit reduction or to offset other taxes. Between 2026 and 2027, however, the percentage of auctioned permits jumps and ascends from 20% to a full 100%. And, if you believe that is a credible commitment, I would encourage you to sleep it off and rethink your position tomorrow. Consumer relief — that is, higher prices reduce consumer benefits — stays steady about 10% throughout. Believe him or not, Gayer’s short brief is worth reading precisely because he hits the heart of the environmental policy debate.
Well, that’s not quite accurate because over-the-counter genetic tests are already here. That is, if you consider that in the time it takes for me to type this post, I could, with an internet connection and a credit card, procure any number of genetic tests from www.23andme.com or a bunch of other companies.
Just don’t try to sell the kits at Walgreens.
Now obviously we’re not talking about your garden-variety paternity tests, which are available on pretty much any street corner these days for about thirty bucks, we’re talking the big test, the one that will tell you your predisposition for Alzheimer’s, obesity, or a physical attraction to Larry King.
Anyway, here’s the scoop:
Pathway Genomics announced Tuesday that its saliva swab would be on Walgreen’s shelves later this month, offering millions of Americans the chance peek into their genetic code for signs of inheritable diseases like Alzheimer’s.
But within 24 hours the company’s plan was met with stiff response from FDA regulators who said the products may run afoul of federal laws governing medical tests. On Wednesday, the FDA posted a letter to Pathways online, indicating the San Diego-based company never submitted its product for federal review, a requirement for medical devices.
I put my face in my hands at least three times while reading this article. We have a very curious regulatory state indeed.
Der Spiegel, a widely-read German publication, lays out the bad news this week with “How China and India Sabotaged the UN Climate Summit.” I’m not sure I agree with laying the blame at the feet of the developing world (I thought it was doomed form the get-go). Even so, the article quotes Chancellor Merkel, in a lucid moment, who puts things in perspective:
“Let us suppose 100 percent reduction, that is, no CO2 in the developed countries anymore. Even then, with the (target of) two degrees, you have to reduce carbon emissions in the developing countries. That is the truth.”
We talked about climate arithmetic a bit in class this morning in Econ 280. It’s very difficult to imagine a scenario where the US reduces its CO2 emissions enough even to stabilize “our share” of atmospheric concentrations. That is, reducing carbon emissions on the order of 50-80% of current levels. Of course, to stabilize global concentrations, the entire world would have to fall in line with such a strategy, and Der Speigel piece points out that this isn’t going to happen.
In other news…
A few weeks ago, Povolny Lecturer and funnyman Yoram Bauman stood up for the “cap and tax” proposal. He didn’t literally propose a tax, but emphasized that the higher price associated with the cap was the incentive to reduce energy consumption.
On the other side of the pond, there actually is a cap & trade system in place, and it is really all over the price. Carbon prices have ranged from €8 to €30, and the volatility can stymie long-term investments. In other words, there is likely to be an inverse relationship between carbon prices and the payoff to greener (or at least lower-carbon) energy sources. If investors don’t believe that carbon prices will be high, then green investments simply won’t be as attractive.
Enter the British Conservative Party, which has proposed a “Cap and Tax” of its own. The basic idea is that because of the tendency for carbon prices to bottom out, a carbon tax would kick in if permit prices went below a certain level. This would provide some stability to the market, as well as a potential revenue source.
That’s pretty clever.
Now, getting a government to make a credible commitment to a long-term tax is another story.
There seems to be some difference in the moment-to-moment intensity of an auction theory class and that of an actual auction. Especially when the S&P is amidst an epic tank.
As evidence of that proposition, here is the highly-recommended audio from an auction pit in Chicago. Sounds pretty exciting listening to a trillion dollars in wealth evaporate. So exciting, in fact, that I just set the “79s are trading” part as my ring tone.
I guess the LSB Chicago trip made it there a day late for this mayhem. I look forward to hearing all about it. Was there blood on the floor?
And, speaking of the Chicago trip, what is there to say about the level of awesomeness of the LSB program at this point? To quote Ben Lichtenstein from our audio clip, “Stop it, it’s got to hit a limit.”
(Picture taken from the Brokers with Hands on Their Faces blog).
A few weeks ago, despite its substantial girth, I added the new Kaufmann Foundation volume, Invention of Enterprise: Entrepreneurship from Ancient Mesopotamia to Modern Times to the black hole that is my reading list. The reason for my excitement was the extra-ordinary group of volume editors. David Landes is a pioneer in entrepreneurship and development, having written the highly-regarded The Wealth and Poverty of Nations. Joel Moykr is the author of a classic in the economic history of technology, The Lever of Riches. And William Baumol has written the seminal article on productive and unproductive entrepreneurship, as well as The Free Market Innovation Machine. Those of you embroiled in our burgeoning I&E curriculum will certainly hear from these gentlemen.
So, with these three pulling together a volume on entrepreneurship for the Kaufmann Foundation, this seemed like a can’t-miss deal.
But, according to Reuven Brenner, it missed.
It doesn’t take much time for him to find fault, either. He starts out:
Carl Schramm, who wrote the Foreword to this book, and who, through the Kauffman Foundation, paid for it, states clearly that the book is about “entrepreneurship” as people — entrepreneurs in particular — understand the term: Someone who creates a business that, in some respects, differs from existing ones.
Yet, just two pages later, William Baumol writes in his Preface that the book is about both “redistributive” and “productive” entrepreneurship, the former covering warfare, crime, bribes, lobbying — any innovative ideas. Since this covers just about everything from Napoleon and his Code to Robin Hood, and from Muhammad, the merchant and one of the very few of Heavens’ intermediaries on this Earth to 35,000 registered lobbyists in Washington — it is little wonder that most of the 18 chapters, written by 18 different academics are all over the map, and provide little illumination on Schramm’s targeted subject matter.
A Ph.D. student at Harvard is taking on Max Weber (pronounced VAY – burr) over the whole Protestant work ethic thing. Davide Cantoni uses several hundred years worth of German data and finds no effects on economic growth. Here, I’ll let him tell it:
Many theories, most famously Max Weber’s essay on the ‘Protestant ethic,’ have hypothesized that Protestantism should have favored economic development. With their considerable religious heterogeneity and stability of denominational affiliations until the 19th century, the German Lands of the Holy Roman Empire present an ideal testing ground for this hypothesis. Using population figures in a dataset comprising 276 cities in the years 1300-1900, I find no effects of Protestantism on economic growth. The finding is robust to the inclusion of a variety of controls, and does not appear to depend on data selection or small sample size. In addition, Protestantism has no effect when interacted with other likely determinants of economic development. I also analyze the endogeneity of religious choice; instrumental variables estimates of the effects of Protestantism are similar to the OLS results.
So, for the econometrically challenged amongst you, that means he ran a lot of regressions a lot of different ways, and the religion variables don’t ever seem to matter.
Scratch that one off the Freshman Studies reading list.
Of course, we here at LU know a thing or two about the economics of religion. Just come by for TeaBA some time and we’ll tell you all about it.
Bad news on the climate front according to Joeri Rogel and colleagues in their pessimistic new article in Nature, “Copenhagen Accord pledges are paltry.” Their bottom line is that even if we were to gird up our loins and somehow comply with the agreements of the recent Copenhagen accord, we’re still looking at 2C+ increases in global mean temperature. (And for those of you who think those accords will actually be met probably could stand a splash of cold water in the face).
Taking a look at the figure on the right, you can see that the authors have done a probabilistic analysis of likely scenarios, with the 50% percentile being the “expected” or “best guess” case. As you can see, that is somewhere north of 2C, with 3C not being out of the question within 90 years.
If you have been paying attention I doubt you will find this all that novel of a conclusion. In the recent Povolny lecture, Yoram Bauman expressed pessimism on the climate front. The emerging tigers like China and India aren’t going to curb emissions and potentially hamstring economic growth. Rich countries are rich and can afford to take adaptive steps. Poor countries can’t adapt, but also are too poor to do anything but see how the experiment plays out.
That seems about right to me.
That’s the answer. The question is from a nice piece at Slate.com is: How do we deal with low probability, high consequence events? And the source of the quotation in this case is John Harrald from George Washington University.
The article is a pretty nice profile of what I would call risk regulation. I am pretty certain risk regulation is somehow different than regulating externalities, but I’m not sure exactly how and I’m not certain that there’s always a bright line. So, I’m asking my political economy class to figure this out for me.
One reason, of course, is that damages are determined in terms of expected values. Regulating low probability events with highly-uncertain outcomes and benefits is problematic indeed. Homeland security measures are notoriously difficult to even frame, let assign a “net benefit” to. How many incidents have our securities regulations discouraged or prevented? What bad things would have happened? What benefit would we have assigned to them? See, for example, this paper by Farrow and Shapiro on the analytical tractability of this problem.
So that gets us back to the original question, which is, should we think about the regulatory framework for the current oil spill fiasco in terms of regulating some sort of risk or internalizing an externality? And, does it make a difference which approach we take in terms of the types of regulations we would want?
All that said, I’m not sure we always wait until bad things happen and then overreact. In many cases, I would think there is excessive ex ante precaution that mitigates the intrepid adoption and diffusion of new technologies.
The good news is that these are exactly the sort of issues we grapple with in the Political Economy of Regulation course. The bad news is, I’m not sure how far we get with these problems.
It is too bad that as we begin looking at benefit assessment in my environmental and regulatory classes that we have this gusher gushing up the Gulf Coast providing us with such a vivid real-time example. So how do we go about valuing environmental benefits? Well, here’s a recycled piece from Slate.com, here’s Trudy Cameron at at The New Palgrave Dictionary of Economics, and here’s the guys over at www.env-econ.net with some estimates of lost fishing value. That should get you started.
As you know (or should know), there are a couple of ways of doing this. One is through market-type valuations, and another is through “contingent” valuation methods. We economists typically prefer watching what people do rather what they say they would do in some hypothetical situation, but sometimes we get what we get.
And for those of you who think this is no big deal, it would appear that you are wrong.
As we have just seen, there is a lot going on around Briggs second these days. We’ve got the attention of the University with the This is Lawrence video, there is the upcoming Chicago weekend, we are in the midst of class registration, and the Entertainment Industry Summit is on the horizon.
That means there is no better time than now to join us for the Economics TeaBA in Briggs 217 at 4:15. You never know who’s going to show up. Last week we were joined by visiting Scarff professor and Povolny lecturer, George Wyeth, as well as comic genius and fellow Povolny lecturer, Yoram Bauman. This week, perhaps it will be all-time hockey great, Henri Richard.
Well, perhaps not, but it promises to be a good time. As ever, the menu is subject to the department income and changing relative prices.
See you after class.
This week’s This is Lawrence video gives a big shout out to the Lawrence Scholars in Business program, spearheaded by the intrepid, semi-fearless and always venturesome, Professor Adam Galambos.
Can you believe all the talent on display? I spotted trustee and LSB champion Bob Perille, LSB-Scholarship winner and I&E reading group member Katelin Richter, Tyler Vane, Suzie Kraemer, Colin Smith, Murtaza, Professors Galambos and Finkler, and many others. Make sure to send it to your parents and friends. And your friends’ parents. And your parents’ friends. It’s simply the best This is Lawrence video in memory.
Speaking of LSB, the Chicago trip is coming up. That should be educational and entertaining. Don’t miss it.
And, speaking of entertaining, the Entertainment Industry Summit is coming in May.
Could LSB rock any harder?
“It was a good idea to get science and democracy from the ancient Greeks. It’s not such a good idea to get fiscal policy from the modern Greeks.” — David Boaz from The Cato Institute
I’m guessing Professor Wulf would find this amusing.
Speaking of Professor Wulf and Freshman Studies, it is shaping up to be awesome this fall, so I encourage you to enroll as a Freshman to take advantage.
