Wednesday, June 5, 2013

Terra Nova's Apollo Program

Earth from Apollo 17.
Last night I gave a short interview to Monocle 24, an international radio program produced out of of London (you can hear me around minute 50 if you listen here) and one of the hosts asked me a good question:  what's the one thing America could do to make Terra Nova a reality?  What is the Terra Nova Apollo Program?  I gave what I think is the right answer, but which sounded so prosaic, I fear it fell a bit flat:  tax reform, I said.

Let me amplify here, as a way of making amends.  What we really need to do is get the economy to talk to nature.  We imagine our economy as if it was entirely a human creation, but as Adam Smith and economists long since have discussed, the social transactions of the economy - buying and selling, printing money, producing goods and services - are embraced by nature.  Smith said the economy is based on the interactions of land, labor and capital.  The latter two are human creations, but the first is not.  Land includes natural resources and the services supplied by nature, including recycling of our waste products and provision of energy from the sun.  Without natural resources, there is no economy, just as without human labor and ingenuity, there would be no economy.

Regulations are one way to force the economy to respond to nature, but I think a more effective and flexible way is to use taxation.  Tax what we don't want, and relieve taxes from what we do, which means taxation should fall heaviest on inefficient, wasteful uses of natural resources, and be lifted from applications of human effort and creativity.  In Terra Nova, I call for shifting taxes off of sales, property values (as measured economically), and even the corporate income tax, and rather raise these funds from natural resource use and production of wastes in the form of gate duties.

Gate duties are taxes collected at the "edge" of the economy - at the point of natural resource extraction (for example, oil drilling) and at the point of waste production (e.g. combustion of oil.)  This is an appropriate role for government because government is charged with establishing justice, insuring the domestic tranquility, providing for the common defense, promoting the general welfare, and securing the blessings of liberty to ourselves and our posterity.  For as long as we over-use what nature provides, at rates faster than nature can provide it, we put all of these aims of popular and democratic government at risk.  (Read the first part of Terra Nova to learn just how, based on a detailed case study of oil and land.)

So what is the "Apollo Program" for Terra Nova?  Well, obviously it's the Gaea Program, paying respect to the great mother of us all, through a system of gate duties.

Tuesday, June 4, 2013

Terra Nova on sale today!

At long last, Terra Nova:  The New World After Oil, Cars, and Suburbs, went on sale today!  Here's a picture from one of my favorite bookstores, Book Culture, on Broadway at 114th Street, not far from Columbia University:

At Book Culture on June 4, 2013.
For those of you who would like to read excerpts of the book, you can find examples at the Huffington Post Green and the Nature of Cities blogs (the latter entry also picked up by the Sustainable Cities Collective.)

And to hear me in my own voice, Leonard Lopate generously gave me a 40 minute interview yesterday afternoon on WNYC, the local New York NPR station.  You can hear it here.

This afternoon I'll be on Monocle 24 at 5:50 pm EST.  I hope you can tune in!

Monday, June 3, 2013

Terra Nova on Leonard Lopate Show - WNYC

Leonard Lopate of WNYC radio was kind enough to have me by today to talk about Terra Nova:  The New World After Oil, Cars, and Suburbs, which will be out tomorrow!  You can listen here.

Check out the comments too - they give some measure of how people might feel about my book.  Some are sure that the companies are to blame, wanting to destroy nature; other believe that there is some nefarious plot on the part of renewable energy supporters to drive everyone's power bill up, but the main response is what I'm hoping for:  a sense of hope, revitalization, and desire for a better future American future.

Friday, May 31, 2013

Are Higher Housing Prices Good for America?

Where will higher housing prices in the suburbs take us?
As I wrote the other day, the S&P/Case-Shiller Home Index is showing a long-awaited, much hoped for swing upward in the price of American single-family homes, primarily in the suburbs of America.  What does this change in prices portend for the American economy?

In terms of direct effects, it's probably neither here nor there.  Higher prices are always a boon for sellers and a detriment to buyers, but most people buy houses for the long-run.  (For example, of the existing inventory of some 69 million single-family homes in America, about 4.9 million sold in April according to this report.)  The only way to realize cash from a higher price is to sell or to go deeper into debt, for example with a second mortgage.  Lending standards are more stringent nowadays, and many people who could be approved for refinancing, already have done so.  Higher prices are of the greatest benefit to speculators, and there are some media stories that house flipping is coming back, at least in some hot markets, like Southern California.

It's the indirect effects of higher house prices that we should watch for.  Higher prices will likely induce new home construction.  As I write in Terra Nova, new construction (or even better, reconstruction of existing properties) can be useful it it serves to create more places to live near work, shortening the commute distance and enabling walking and biking.  More houses adjacent to employment will help lower costs in cities (these costs are not measured by the S&P/Case-Shiller Home Index unfortunately) and that will make cities easier places to live, and therefore help spur the overall economy.

New home construction on the periphery however is not desirable.  Further suburban sprawl creates misery for the people who have to endure the extreme commutes, causes the conversion of agricultural and open space land, and enforces a dependent on fossil fuels that weakens our national security, enhances the susceptibility of the economy to oil shocks, and contributes to climate change.  Obviously public policy should be oriented to avoid these pernicious effects, starting with gate duties.

Meanwhile the whole economy may take clues from widely circulated press stories about higher home prices.  Housing is an important part of the economy, but even more important is people's attitudes about the economy.  Consumer confidence is on the rise, as are expectations for the future, as is the stock market.  All these statistics, plus our day to day experience in the economy, suggest clues about what we might do individually:  should we buy today or save for tomorrow?

Spending is fine, great, wonderful, as long as the economy as a whole doesn't heat up so fast that the huge wall of money that the Federal Reserve Bank has created over the last few years crashes down upon us.  The monetary expansion is really quite remarkable, as you can see in this graph from the St. Louis Federal Reserve Bank marking out three recent periods of significant quantitative easing. As a result approximately 4x (400%) more dollars exist in the world today than existed in 2007.  Most of these dollars have been transferred to a small set of investment banks and other firms through of "open market operations" conducted by the Fed.  Here's an explanation from Salman Khan of Khan Academy, posted by CNBC, of how those operations work.

Expansion of the US monetary base since 1984.  From the St. Louis Federal Reserve Bank.

Of course what the Federal Reserve Bank giveth, it can taketh away.

Wednesday, May 29, 2013

Ah! The Data: the Case-Shiller Home Price Index

Change in single-family homes according to the Case-Shiller Home Price Index

The news for the last couple days has been all about higher home prices, based on data like you see above.  The New York Times headline reads:  Housing Prices Rise, Putting Country in Buying Mood.  The Wall Street Journal enthuses:  Home Sales Power Optimism, following with the subhead:  Prices Rise at Fastest Pace Since 2006, Calming Investor Fears of a Spring Swoon. The data that underlie these rosy headlines is from Standard & Poor's Rating Service, a "financial intelligence" company, who issued a press release on Tuesday, about the latest monthly change in the S&P/Case-Shiller Home Price Index.

The Case-Shiller Index is named after the famous economists, Karl E. Case, of Wellesley College, in western Massachusetts and co-author of a popular undergraduate economics textbook, and Robert J. Shiller, of Yale University, frequent commentator for both the New York Times and the Wall Street Journal, and author of many books, including the best-selling Irrational Exuberance, which has an interesting chapter on the history of housing prices in America and whose datasets can be accessed here.

There are a few things you should know about the Case-Shiller Index that are not often mentioned in the standard press story.  Here are some contextual notes:

First the Case-Shiller Index is a repeated measure index, which means that the compilers look for houses that have sold in the period of interest (like the last three months), then go back to see what the price of that house was when it was sold before; the difference provides a change in prices.  Take across a lot of homes selling (remember a house has to sell in order for it to be indexed), a statistical measure of overall housing prices is obtained. The statisticians go to some heroic work to make sure that the houses are of "constant quality", that is have not been expanded or significantly remodelled or changed class (like a house converted to apartments) and to weight the calculations to remove bias from price anomalies, high turnover frequency, time interval between sales, and initial home value.

The second thing to know is that only single-family houses are included.  No business or government properties obviously, but also no apartments, condominiums or multi-family dwellings.  In New York City that means most of the residential real estate in Manhattan is excluded; rather Case-Shiller, as a function of its definition, measures primarily at housing in the suburbs and exurbs of a metropolitan region.  And those regions are broadly defined, either by the US Census Bureau through its Metropolitan Statistical Area descriptions, or in the case of New York City, idiosyncratically.  The New York City region includes the following counties in its definition:   Fairfield CT, New Haven CT, Bergen NJ, Essex NJ, Hudson NJ, Hunterdon NJ, Mercer NJ, Middlesex NJ, Monmouth NJ, Morris NJ, Ocean NJ, Passaic NJ, Somerset NJ, Sussex NJ, Union NJ, Warren NJ, Bronx NY, Dutchess NY, Kings NY, Nassau NY, New York NY, Orange NY, Putnam NY, Queens NY, Richmond NY, Rockland NY, Suffolk NY, Westchester NY, Pike PA.  For reference, as of the 2000 Census, single-family houses represented 60.3% of the total housing stock, or 69.9 million units.

Third, what gets compared are market values, unadjusted for inflation.  Though it's common, given our jaded perspective, to think that inflation recently has been low (for example, here), in fact it has varied between 1.5 - 3.0% per year over the last several years, according to the U.S. Bureau of Labor Statistics.  Here's the data.  And we know the money supply has been expanding at a truly exceptional rate. Nevertheless there are reasons to think that Case-Shiller coming back to its 2003 levels is more than just inflation talking; after all the stock market is at an all time high, mortgage rates are still low, and there must be some pent-up demand, since the population of the country has risen by 14.5 million people between July 1, 2008 and April 1, 2013 according to the US Census Bureau. 

Fourth and finally, S&P only reports data back to 1987 for 10 cities for comparison, which is a real shame, because the housing market of the last 26 years has been a roller coaster, with flat spots and some serious bubbles, including the latest one which peaked in 2005 and popped in 2007-2008, igniting the Great Recession.  As I write in Terra Nova, back in the late 1980s, most of the easy to build, close to work places had already been built, leading to a leveling of house prices and a recession in the economy, especially when coupled with the S&L collapse and the Gulf War.  Then a set of policies enacted under the Clinton Administration, with the intention of bringing more people into the housing market, did just that, fueling the housing bubble.  For a longer-time series, you can see the nominal (i.e. market value) and real (i.e. inflation-adjusted prices), bridging several different data series, back to 1890 in Robert Shiller's book.

So what do rising housing prices mean for Terra Nova?  That will be subject of my next post.

Saturday, May 25, 2013

Maybe Not So Crazy

Excelsior, the motto of New York State, means "Ever Upward."
Informally I've been receiving some feedback that my suggestions about Indian Point being replaced by windmills, and generally the renewable energy recommendations in Terra Nova, are, in a word, crazy.  Fortunately I'm not alone in my madness.  I can also count on Mark Jacobson of Stanford University, Robert Howarth of Cornell University, Mark Delucchi from University of California, Davis, and their colleagues, who recently published this article:


They think it's practical from a technical and resource perspective for New York State to eschew fossil fuels entirely by 2030.  Their recipe?
  • 10% on-shore wind (4,020 5-MW turbines)
  • 40% off-shore wind (12,700 5-MW turbines)
  • 10% concentrated solar (387 100-MW plants)
  • 10% solar-photovoltaic plants (828 50-MW plants)
  • 6% residential rooftop photovoltaic ( 5 million 5-kWsystems)
  • 12% commercial/government rooftop PV (~ 500,000 100-kW systems)
  • 5% geothermal (36 100-MWplants)
  • 0.5% wave (1,910 0.75-MWdevices)
  • 1% tidal (2,600 1-MW turbines), and
  • 5.5% hydroelectric (6.6 1,300-MW plants, of which 89% exist)
And what would we get from this medley of renewable sources?  Well, not to put too fine of a point on it:  jobs, health, and happiness.  Jacobson et al. estimate that
  • Approximately 4.5 million jobs will be created during construction and approximately 58,000 jobs per year to maintain the system after 2030. (Note that some jobs might be displaced, but are likely far fewer than what are created since there are currently only about 5,700 jobs in mining in New York State and about 37,100 people working in utilities.)
  • Mortality from air pollution in New York State would decline by approximately 4,000 deaths/year and saving approximately $33 billion/year in health costs
  • Taxation will decrease as motor vehicle registration, fuel surcharges, highway use taxes, and other charges related to fossil fuel consumption are no longer paid.  They suggest these revenues could be made up to the government by charging a road use tax or similar consumption taxes, but I think they would be better off finding other kinds of resource use severance taxes to deal with externalities.
Externalities are the costs currently imposed by fossil fuel consumption on human health and climate change, but not paid by the producers and consumers of fossil fuels.  Jacobson and colleagues estimate these costs are approximately 6.2 cents/kWh for coal, 2.9 cents/kWh for natural gas, and less than 0.002 cents/kWh for wind, solar, and water (hydroelectric) energy sources.
The surest ways to include these costs into the economy, so that the economy adapts to them, is through a system of gate duties.  Those same gate duties, applied in the form of ecological use fees, would also help compensate and steer the extension of infrastructure, which Jacobson et al. estimate will require 1.46% of New York State's land area.  (An odd thing about the paper:  even though the areas required are compared to the land area of the state, most of the area required - especially for spacing of off-shore wind turbines - is in the water, but gate duties can work there too!  Especially if the government is required to pay them along with the rest of us citizens.)

So... maybe I'm not so crazy!

Friday, May 24, 2013

Terra Nova Events in New York

Terra Nova will officially be launched on June 4!  I'll be doing a few events around the launch in the New York City area.  Here are the details and links:

Battery Park City Conservancy Walk & Talk on Sunday June 2 at 2 pm at 6 River Terrace, Battery Park City.  Free!  Book signing to follow.  More info.

92Y/Tribeca Conversation with Alexandros Washburn, Chief Urban Designer for New York City, on Wednesday June 5 at 7:30 pm in at 200 Hudson Street (corner of Hudson and Canal), Tribeca.  Tickets here.

Bartow-Pell Mansion Conservancy Luncheon on Thursday June 6 at noon, Pelham Bay Park, Bronx, NY.  Tickets here.