George Akerlof's Presidential Address

This is well worth reading:

http://www.aeaweb.org/annual_mtg_papers/2007/0106_1640_0101.pdf

Apparently, a fair number of economists didn't like this, because it states that empirical findings undermine a number of neoclassical totems, such as the Permanent Income Hypothesis. But if we want to be a reality-base profession...

C Students

I think C students can be divided into roughly three types.

The first type sees the universe through a different prism than most of us, and often has wonderful insights that do not translate well to the stylized task of exam writing. I am grateful for these C students.

The second type must deliver pizza and clean bathrooms to pay for tuition, and so has compromised time and energy with which to do school work. I am grateful for these C students as well.

The third type is lazy, arrogant and uncaring. I was thinking about this third type while sitting on the lawn at Wolftrap for Prairie Home Companion the other day. Garrison Kieler was reading hellos to service members in Iraq and Afghanistan from their family members in the audience, and I found myself misting up a bit as I listened. The habits of the third type of C student has placed more than 150,000 young men and women in far more danger than they need to be, and those same habits are keeping them in danger longer than necessary.

When is the bottom of the housing market coming?

I don't know--and neither does anyone else. Here are three things to consider, however:

(1) A good harbinger of the housing market is the months supply measure. When the months supply rises beyond six months, it is hard to make a case for house prices going up anytime soon, unless builders stop building altogether. The reason: it takes about six months to build a house in most markets (i.e., to get from the beginning of the permitting process to the finished product). Thus prices have to fall until the inventory is absorbed.

The good news is that homebuilding has slowed down a lot, and that the months supply measure for new homes fell well below six months in April. The bad news is that the months supply of Existing Home Sales continues to rise, and is currently at 8.4 months. The other bad news (in a sense) is that the Existing Sales number is much less prone to revision than the New Sales number, and reflects actual closed sales, instead of sales contracts. Until the Existing Home Sales months supply number turns around, it is hard to see when the bottom will come.

(2) While the national number is important from a macroeconomic and mortgage securitization standpoint, it is not helpful to buyers in local markets. Some markets have supplies of less than six months, and buyers in these markets, particularly those who are planning to live in one place for awhile, just shouldn't worry about short-term price fluctuations. But other markets have huge supply gluts; in these markets, potential first time homebuyers are better off renting for awhile.

(3) Housing markets have substantial intrametropolitan variation. The detached housing market can be considerably different from the Condo market; housing near transportation lines can retain its value better than housing in far-flung suburbs. Moreover, there are some opportunities in weakness. I was looking at the San Diego MLS listings recently. Houses that would have been out of range for a finance professor a few years ago (i.e., houses with ocean views) are now within range. The principal reason to buy a house is the consumption benefit of the house--when an opportunity arises to obtain a great place to live, it is worth considering. Just don't be naive about it--make sure you plan on living in one place for a long time (in which case resale value doesn't matter so much), that you can afford the place with a fixed rate mortgage, and that you don't mind knowing that its price might go down for awhile before starting back up again.

It's been too long

The past two months have passed too quickly. One week I spent teaching finance in Busan. Korea is a remarkable place. When first I visited in 1992, it was clearly a place on the rise, but also one that retained a large number of very poor people, many of whom lived in very poor housing conditions. I have been back three times since then. The extreme poverty seems pretty much gone now, as its per capita GDP has risen from about 1/4 US and Japanese levels in 1990 to 1/2 US and 2/3 Japanese levels today. At the end of the Korean War, per capita GDP was roughly a dollar a day.

Korea is an exilerating place, because it has come so far so quickly, and as such, is an example for poor countries all over the world. It is hard to know the "secret," though, other than the fact that education has been an important part of the culture for a long time, and Korean parents probably care even more than Montgomery County parents about how well their kids do in school.

The infrastructure in Busan is quite remarkable, with a wonderful metro system, good roads, and one of the most beautiful suspension bridges I have ever seen. (The image below is from Slate). The city is the second largest in Korea, and trying to become the financial services center of the country. But it is still off the beaten path--as a Westerner I felt quite conspicuous.

Casino Royale

Tonight, for the first time, I made myself the drink James Bond creates in Casino Royale:

"Just a moment. Three measures of Gordon’s, one of vodka, half a measure of Kina Lillet. Shake it very well until it’s ice-cold, then add a large slice of lemon-peel. Got it?’”

It is actually very good.

Mortgages and Houses

A few years ago, Alan Greenspan suggested that many households would have been better off financing their houses with adjustable rate mortgages. This is because for many years payments on adjustable rate mortgages were lower than on fixed rate mortgages--so after the fact, Greenspan was correct.

The problem with advising people to use adjustable rate mortgages, however, is that ARMs give households liabilities that have short duration--that is, liabilities whose market value remains close to face value at all times. This is because the rates on ARMs by definition change to meet market rates on a regular basis. Houses, on the other hand, are assets with lots of duration. The services they give to homeowners (shelter and a set of amenities) is pretty much invariant to market conditions. Consequently, house values change with market conditions, such as changing interest rates.

Good financial management practice suggests that to minimize risk, the duration of of assets and liabilities for any institution, including households, should be matched. In the case of houses, this means that households looking to minimize risk should use a fixed rate mortgage to finance their house. There are exceptions--if one buys a house and expects to sell it in five years, a five year ARM makes lots of sense, because the duration of the asset (housing services over five years) and the liability would match.

This is not to say there is anything wrong per se with people getting ARMS, so long as they explicitly understand the risk embedded in them. But a principle I have been pushing for years is that if people can't afford a house with a fixed-rate mortgage, they probably shouldn't buy a house. It is one thing to have the option of the FRM, and then decide to take the risk of the ARM anyway. One of the nice things about the United States is that FRMs are easy to come by--this is not true in most countries around the world. It is something else to be forced into taking a risk in order to buy. Under these circumstances, buying probably isn't worth it.

That said, there is probably too much ink being spilled on the downside of home-owning. The Times this morning had a piece that would make one wonder why anyone should own a house. But it is important to remember that renting is risky too--leases are usually only a year long, which means renters are subject to increases in rent or may even be forced to move every year.

Notice that I have not even mentioned the subprime market in this post. That will be for another day (probably tomorrow).

A few words about urbanization and growth

From a paper I am writing for the World Bank:

Every affluent country in the world is urbanized. Among OECD countries, 77 percent of people live in urban areas, and among World Bank-designated high-income countries, 78 percent of people live in urban areas. The poorest two countries in the OECD, Turkey and Mexico, are 67 percent and 76 percent urbanized, respectively. The least urbanized affluent country, Portugal, is 55 or 59 percent urbanized, depending on source. At the same time, the world’s lowest income countries are generally not urbanized: in 2004, the urbanization rate among the World Bank’s designated low income countries was 31 percent. All of the countries with urbanization rates of less than 20 percent, Burkina Faso, Burundi, Cambodia, Ethiopia, Malawi, Nepal, Papua New Guinea, and Uganda, are low-income countries, all with Gross National Incomes Per Capita of less than $660, and most with GNIs that are substantially lower than that.[1] The correlation between urbanization and PPP Per Capita GDP in 2000 was .70. In short, urbanization accompanies affluence.

That urbanization accompanies affluence does not, however, mean that urbanization causes affluence. First, it is worth noting that Latin America and the Caribbean are 77 percent urbanized, and the countries in that region are certainly not among the World’s richest (nor are they in general, among the poorest). There are also very poor countries in Africa--Cameroon, Mauritania, and Senegal--that are at least 50 percent urbanized. All of these countries have per capita GNIs of less than $1010.[2] Hence affluence does not necessarily follow urbanization.

One of the most interesting questions in development economics, then, is whether urbanization causes affluence, or whether affluence causes urbanization. Knowing the direction of causation is important, because it will dictate whether policy should encourage urbanization or be neutral with respect to urbanization. Discussion below will outline arguments for both directions.

Principles set forth by Richard Freeman, however, suggests that the evidence is already sufficient to know that policy should not discourage urbanization. Freeman’s three rules of econometrics are: (1) it had better be there in the ordinary-least-squares regression; (2) it had better still be there in the econometrically-sophisticated high-tech instrument procedures; (3) it had better still be there for small technical tweaks to the econometrically-sophisticated procedures. That urbanization has a deleterious effect on affluence is not there in scatter-plots and correlations, and, as we shall see below, is not there in the OLS regressions in the literature.

The fact that there is no evidence that urbanization inhibits development is in itself important. On my visit to Bangladesh in 2004, some officials were convinced that urbanization was shown scientifically to be “immoral,” and wanted to know where to find the work that would prove it to be so. I disappointed them when I was not able to point them to any such work.

---

[1] Afghanistan is likely within this group as well, but there is no good current data on urbanization in the country.

[2] Gabon, a sub-Saharan that is 84 percent urbanized, has a per capita GNI of more than $5000, a very high number for the region. But the primary reason for the high number is the presence of oil.

Taking the log out of our own eye

I admire Brad Delong very much: he is a wonderful blogger and scholar. He also is very tough on the Washington Post. I, on the other hand, consider the Post a treasure, and am grateful to have it on my doorstep every morning. To be sure, the paper has stories that I am not crazy about; it also regularly has stories that are breathtakingly good (such as the recent series by Dana Priest and Anne Hull on Walter Reed).


So let us stipulate that that even the best newspapers have reporters who are not particularly good at their jobs. Unfortunately, universities, even the best of them, have professors who are not particularly good at their jobs. Here at George Washington, we have many wonderful, inspiring teachers. We also have people who should be embarrassed to step into a classroom--people who are unprepared, are indifferent, or worse, haven't kept themselves up to date on their supposed area of expertise. Moreover, unlike reporters, who must meet short deadlines, professors have time to reflect on what they are going to say and do in their classrooms.

Some might argue that comparing George Washington with the Post is not really appropriate: the Post is supposed to be one of the greatest newspapers in the country, while GW is rarely listed as one of the greatest universities. OK. When I was an undergraduate at Harvard, I encountered some really horrible teaching (and of course, truly extraordinary teaching, from Gwynn Evans, James Q. Wilson, Stanley Hoffman, Benjamin Friedman, and my Ec. 10 TA. Jeff Wolcowitz, among others). That was between 1976-1980, so perhaps all the bad teachers are gone now, but based on what Derek Bok and Harry Lewis have been writing lately, I doubt it. I am guessing that even Berkeley has bad teachers.

This is not a plea for reducing the emphasis that universities place on research: many unproductive researchers are bad teachers, and the greatest teachers are often the greatest researchers. Gwynn Evans, my Shakespeare professor, was likely the greatest Shakespeare scholar of his time. During my time teaching at Wisconsin, I discerned a strong positive correlation between research productivity and teacher quality. And no wonder: active researchers know their subjects well, and that rubs off on their ability to explain and enlighten.

Nevertheless, we need to do a better job of quality control for teaching. How exactly we do this without compromising academic freedom is not entirely clear to me. Culture probably matters a lot. When I was a visiting Professor at Wharton, it was striking to me that even those who didn't particularly like teaching considered it important to avoid embarrassing themselves; people generally had too much pride to do anything less than well. More generally, I see too much complacency is our business; many professors are content in the knowledge that American universities are the best in the world, and so don't feel any urgency to change. One of my colleagues here at GW gets upset with me for being too self-flagilating.

I actually feel a great deal of pride in being a professor at a reasonably well-known university--I think that it is among the most rewarding things one can do in life. I think in generally our universities are wonderful. But before we go around removing other institutions' specks, we have some of our own timber to clear.

Best think I have found yet on Youtube

http://www.youtube.com/watch?v=AjnFGk4GTd0

My favorite living pianist playing the most beautiful nine minutes of the 20th Century.

Sub-prime mortgage really are more risky

The Wall Street Journal in the past few days has featured stories about the troubled subprime mortgage industry. There was a particularly telling graph today:

One thing about the graph that leaps out is that under all market conditions, subprime mortgages really are not just riskier and more costly, but substantially riskier and more costly than prime and Alt-A mortgages. While late payments do not necessarily lead to default (most of the time they do not), mortgages with late payment require more servicing, or individual attention, from lenders, and are therefore more expensive.

With the housing market slowing, it is also now more likely that late-payment mortgages will eventually go into default; this is the reason HSBC has had to set aside $10.5 billion reserves for potential sub-prime mortgage losses. To place this in context, HSBC earnings are about $15 billion per year.

Advocates worry that subprime borrowers pay too much for mortgages. While there are doubtless borrowers in the subprime pool who qualify for prime mortgages, and who should be encouraged to use the prime market, as a group, subprime borrowers are riskier. The data from the past few days suggest that it is possible that the mistake some lenders made was not charging too much, but rather not charging enough.

The data also suggest that for many borrowers, the absence of a subprime market would produce an absence of opporuntity for any mortgage.

Great Lyrics Period

Goethe, Erlkönig Original German

English Translation

Wer reitet so spät durch Nacht und Wind? Es ist der Vater mit seinem Kind; Er hat den Knaben wohl in dem Arm, Er faßt ihn sicher, er hält ihn warm. "Mein Sohn, was birgst du so bang dein Gesicht?" "Siehst, Vater, du den nicht? Den Erlenkönig mit Kron und Schweif?" "Mein Sohn, es ist ein Nebelstreif." "Du liebes Kind, komm, geh mit mir! Gar schöne Spiele spiel' ich mit dir; Manch' bunte Blumen sind an dem Strand, Meine Mutter hat manch gülden Gewand." "Mein Vater, mein Vater, und hörest du nicht, Was Erlenkönig mir leise verspricht?" "Sei ruhig, bleibe ruhig, mein Kind; In dürren Blättern säuselt der Wind." "Willst, feiner Knabe, du mit mir gehn? Meine Töchter sollen dich warten schön; Meine Töchter führen den nächtlichen Reihn, Und wiegen und tanzen und singen dich ein." "Mein Vater, mein Vater, und siehst du nicht dort Erlkönigs Töchter am düstern Ort?" "Mein Sohn, mein Sohn, ich seh es genau: Es scheinen die alten Weiden so grau." "Ich liebe dich, mich reizt deine schöne Gestalt; Und bist du nicht willig, so brauch ich Gewalt." "Mein Vater, mein Vater, jetzt faßt er mich an! Erlkönig hat mir ein Leids getan!" Dem Vater grauset's, er reitet geschwind, Er hält in Armen das ächzende Kind, Erreicht den Hof mit Müh' und Not; In seinen Armen das Kind war tot.

Who rides, so late, through night and wind? It is the father with his child. He holds the boy in the crook of his arm He holds him safe, he keeps him warm. "My son, why do you hide your face so anxiously?" "Father, do you not see the Erlking? The Erlking with crown and cloak?" "My son, it's a wisp of fog." "You lovely child, come, go with me! Many a beautiful game I'll play with you; Many colorful flowers are on the shore, My mother has many a golden robe." "My father, my father, can't you hear, What the Erlking quietly promises me?" "Be calm, stay calm, my child; It is the wind rustling in the dry leaves." "Do you want to come with me, fine lad? My daughters shall serve you; My daughters lead the nightly dances And rock you and dance and sing you to sleep." "My father, my father, and can't you see there, The Erlking's daughters in the gloomy place?" "My son, my son, I see it well: It is the old grey willows gleaming." "I love you, your beautiful form entices me; And if you're not willing, I shall use force." "My father, my father, now he takes hold of me! The Erlking has wounded me!" The father shudders; he rides swiftly, Holding in his arms the moaning child. He reaches the yard with fear and dread; In his arms, the child was dead.

Great Lyrics for Urban Economists

From Talking Heads

Cities
-------

Think of London, a small city

It's dark, dark in the daytime
The people sleep, sleep in the daytime
If they want to, if they want to

CHORUS

I'm checking them out
I'm checking them out
I got it figured out
I got it figured out
There's good points and bad points
Find a city
Find myself a city to live in.

There are a lot of rich people in Birmingham
A lot of ghosts in a lot of houses
Look over there!...A dry ice factory
A good place to get some thinking done

Down el Paso way things get pretty spread out
People got no idea where in the world they are
They go up north and come back south
Still got no idea where in the world they are.
Did I forget to mention, to mention Memphis
Home of Elvis and the ancient greeks
Do I smell? I smell home cooking
It's only the river, it's only the river.

Brad Delong cites AngryBear on Tyler Cowan

http://delong.typepad.com/sdj/2007/01/steven_kyle_thi.html

The issue of income distribution is problematic. We like to think that income is a function of virtue (i.e., hard work, honest dealings, etc.), but the reality is that it is also a function of endowments at time of birth. The most conventional of these endowments is parental wealth, but the most important (at least within the contect of the United States) is the initial store of human capital--that is, talent.

The initial distribution of talent is anything but "fair." Doctors make a good income in part because they work very hard to become Doctors, but if they also tend to be people who were lucky enough to be born pretty smart.

Remarkably, people seem to be more or less OK with the outcomes that the distribution of talent produces--there doesn't seem to be that much resentment of the incomes of Tiger Woods or orthopedic surgeons. But problems do arise and there is resentment when those who work 40 hours a week cannot grasp certain basics--an affordable house, a decent neighborhood, a decent school for their kids, a reasonable commute. It used to be that people without the intellectual acument to go to college could have these things, but they often no longer do.

These are not unreasonable things for working Americans to want, and there is only one way to make sure they have them--some form of income redistribution. There seem to be two acceptable ways to do this politically. The first is to increase the minimum wage. While conventional economic theory predicts that this will lower employment, the most likely outcome of an increase in the minimum wage is that businesses (all of which are subject to the wage floor) will raise their prices to consumers--implicitly tax all of us who consume. Personally, I am fine with that.

The other method for raising living standards for working Americans at the bottom of the income distribution is to get a larger Earned Income Tax Credit. To do this without increasing the fiscal deficit means some of us will have to pay higher taxes. I am fine with that too. My first choice: increase the tax on gasoline. We'll talk more about that soon.

New Orleans (again)

In 1960, New Orleans had 627,000 people and was the largest and perhaps still most important city in the South. It now is smaller than Lexington, Kentucky. Most of the reason for this is, of course, Katrina, but much of the reason is not. New Orleans had already lost around 20 percent of its peak population before Katrina, and as such was very much like unglamorous cities such as Milwaukee, Cincinnati, and Baltimore. So while it didn't lose as much as Buffalo, Pittsburgh, St. Louis and Cleveland, it was hardly putting in an all-star performance, even before Katrina hit.

A question I want to focus on over the next year is why New Orleans--a city I rather love--has evolved (devolved?) as it has. Race certainly has a lot to do with it, but cannot by itself explain the city's fade. Atlanta is a heavily black, southern city that has performed far better--if less charmingly--than its neighbor to the southwest.

Of the course if this year, I will be president of a small association of academics who do what I do--the American Real Estate and Urban Economics Association. I will be giving my presidential address next January in New Orleans. I therefore think that the focus of the address should be about New Orleans. I have a lot of reading to do between now and then; I welcome suggests for reading, people to talk to, and just opinions from well-informed people about the city's history and its future. You may read my preliminary views in the archives.

Thanks for any suggestions or help.

News from a tough real estate market: Metropolitan Detroit

Susan Carter, a Realtor from the Detroit area, writes:

As I thought about ways to best characterize the real estate market in Southeast Michigan in 2006 I looked at last year’s market report…and found I could almost repeat word for word the general market condition comments I made at the end of 2005. The characteristic optimism of Realtors has again been tested by the challenging economic issues facing Michigan AND continued consumer concerns about making major financial commitments. The supply of homes and condos for sale has been high all year and the number of motivated buyers low (especially in the over $250,000 price range)… a condition that can only be sustained for so long without discounted values…basic economics 101. 2006 saw a softening of prices in all areas and price ranges, in some cases up to 12-15 percent of 2004 values. Sellers who simply had to move in 2006 decided there was no point in waiting for a price recovery, especially as we saw the erosion of values tied to supply and demand as the market year progressed. People who wanted to trade up often could not sell their current house or condo, disrupting the typical home ownership cycle….first home, second home, then the keeper until retirement. The current soft real estate market is a complicated issue, one with many factors influencing the fundamentals of supply/demand/pricing, including…
1. Highly motivated sellers: relocation or long term owner sales. When employees are transferred or leave the area for new job opportunities some employers have guaranteed buy-out or sales support programs in place but most do not. At some point in a slow market people without relocation benefits just do not want to own or maintain homes here any longer….and they become the most motivated sellers in town. Owners undercut the market, reducing the list price to below the price of competing homes, to generate offers. When the property sells, the sales price is used to establish market value for future sales. Long time owners with a lot of home equity have started to do the same thing…undercut neighborhood pricing to sell instead of waiting for a market recovery. Buyers have access to sales data and make offers based on the lowest neighborhood price these days as opposed to overbidding in hot markets ten years ago.
2. I have said for the last 5 years that trendy, creative mortgage programs can be good tools when used in the right circumstances…the right buyer and the right home. Many of these programs are based on an assumption of appreciating real estate values, sustained employment and increasing incomes. Unfortunately most lenders do not explain the potential downside of interest only, balloon, adjustable, negative amortization or highly leveraged financing programs…and the impact of job loss or layoffs, which can make refinancing of adjustable or balloon mortgages impossible. Homeowners can be forced to sell if they cannot afford to refinance at current interest rates.
3. Michigan has the highest foreclosure rate per household in the country. Many people bought homes in the last few years counting on a continued robust, appreciating real estate market. Then the local market softened and people could not sell without bringing money they did not have to the closing table. Buyers just stopped making payments and waited for the inevitable. The number of foreclosed homes scares potential purchasers…they think that the bottom has fallen out of the real estate market and the only prudent thing to do is take a wait and see attitude while assessing the direction prices are heading.
4. The media often has banner headlines about the number of unsold homes without looking at the hard facts of real estate sales: there are a lot of reasons a home does not sell besides a weak local economy including a negative equity position that does not allow for price negotiation, changing buyer tastes in terms of style, location and lifestyle, a price that is way out market value range or the overall condition of the home. The power of the press in creating or killing consumer confidence has always amazed me.

While unemployment is high…almost 7 percent in Oakland County…I prefer to focus on the 93 percent of the people in the area who are working and could buy homes if they wanted or needed to. Housing corrections do not last forever and there are indications that consumers are feeling confident about local market conditions and are ready to move back into the housing market in 2007. Literally dozens of people have told me that they are tired of waiting; this will be the year to make a move. Once there is market activity I suspect that prices will rebound within 12-24 months. Our market is unique in that pricing still bears a relationship to actual construction costs. The number of sales tied to speculators is quite low here compared to other parts of the country. It seems to me that people are spooked by perceived loss of home equity…remember the dot.com stock market bust and the huge loss of paper wealth ….but they will not need a lot of encouragement to get back in the housing game if they need more space, want a different location or style of home. Home ownership can be a warm, fuzzy lifestyle benefit, hard to put a price tag on or quantify as strictly an investment.

While I think Susan overstates the power of the press, she is otherwise very much on target as to what is happening in her region. I also appreciate her remarks about exotic mortgage products.

I also think Susan demonstrates something that people don't think about very often when they think about Realtors--that the good ones know their markets exceptionally well, and that it takes a lot of diligence to know markets so well. The is the reason most people who go into the real estate business do not succeed--the median compensation for real estate agents is very low. As is the case in most businesses, long term success in the residential real estate market requires intelligence and hard work. I remember driving down a street in Madison some years ago with a well-known broker from that town, and he could tell me something about every single house on the street.

So how does one choose a good Realtor? When we are buying in Bethesda, we began by going to someone who was a leader in number of listings, a man named Gary Ditto. It turns out he was completely obsessed with the market. Susan seems pretty obsessed too. Go for the obsession.

Why Public Housing is Scorned

I came across this on You-tube:

http://www.youtube.com/watch?v=t29fgA5M7VA

This comes from the film Koyaanisqatsi (a Hopi word meaning life out of balance). From roughly minute 3 to minute 6 of this clip are shots of the notorious St. Louis public housing project Pruitt-Igoe, a subsidized housing project that was so awful, it was never more than 60 percent occupied. The eleven building complex of nearly 3000 units was torn down before it was 20 years old.

In a terrific essay ( http://www.soc.iastate.edu/sapp/PruittIgoe.html), Alexander Von Hoffman argues that even a well-designed Pruitt-Igoe would have been a failure, because St. Louis had been (and in fact continues to be) a dieing city. And so it has; the 4th largest city in the country in 1890 is now not among the top 50.

But Pruitt-Igoe was a representation of the modernist movement at its worst. The buildings were faceless and difficult to cool. Public spaces were neglected and shadowy, and bred crime. The shame is that the complex gave high-rise living for the poor a bad name. High rises can work well, so long as they are well maintained and managed (some of the most desirable places to live in Chicago, Vancouver, Hong Kong and, of course, New York are high rises). More important, the complex lent such a stigma to public housing that it eliminated it as a mechanism to house the poor.

Malpezzi and I have written that the public housing that the US has built has been invariably inefficient as a means for housing low-income people in expensive American cities. This doesn't necessarily mean that it must be so, but the disasters of Pruitt-Igoe and other large scale public housing projects (Cabrini-Green and Robert Taylor Homes in Chicago are almost as notorious) means we might never find differently.

Recruiting for MBAs in the Middle East

I am home from recruiting MBA students in Dubai and Cairo.

Cairo is one of the greatest cities I have ever visited; the architecture, street life, and, oh yes, the antiquities are beyond compare. The people there were exceptionally hospitable, and the streets are safe, if heavily littered. I bought some cool if corny papyrus paintings; the Nefertiti will hang in honor next to my velvet Elvis.

I met great potential students in both Dubai and Cairo, and would love to bring at least a half-dozen from each place to George Washington. The sticking point, in their minds, was getting a student visa. The perception was that getting student visas to the US is too much of a hassle; as a friend of mine at National University of Singapore said to me, the difficulty in getting visas to the US has made recruiting at NUS much easier. Don't get me wrong, NUS is terrific (I have very much enjoyed my two visits there), but I would rather students come here.

My reasons for this are not entirely altruistic. I think having college and graduate students coming to the United States is extremely important to our image in the World. While people in Egypt complained bitterly about US Middle-East foreign policy, they nevertheless wanted to come to America. In the 17 years I have been teaching (has it been that long?), I have seen generation upon generation of international students transformed by their experience in America--and transformed for the better. Once students are here for a few years, they often appreciate America's openness, and generosity, and they embrace American ideals. They can't help but feel better about America's place in the world, even as they continue to oppose US foreign policy. In some small way, this must leave us safer.

A State Department Official in Cairo told me he get could get visas for students accepted at US universities in 3 days. If this is really true, I am optimistic about increasing the flow of students from Morocco to Jordan to Oman into the United States. This would benefit us all.

On my eight day trip, I took one morning off. This is what I saw:

I would say that if you get a chance to see one wonder in your life, this should be it. Astonishing.

Mumbai

I am currently in Mumbai, recruiting MBA students. This is my second trip to this marvelous, vibrant, horrible city. When I walk the streets here, I think about Dickens' London.

The city is remarkably entrepreneurial . There are people selling stuff everywhere, and lots of cottage industry, even in the slums. Kids are going to school here in much larger numbers than 30 years ago, and so literacy has risen dramatically. One sees fashionable shops, and the street along the sea, Marine Drive, could become among the most attractive in the world, comparable to Lake Shore Drive in Chicago.

Yet it is a city of eight million in which 20 percent have no access to toilets; in which the largest slum in the world sits; in which commuter trains run with 4 to 5 times the number of passengers for which they were designed; in which live many pavement dwellers. Many workers do unspeakably difficult tasks--such as breaking up old ships with hammers--for about $2 per day.

Some of the horrors here are a function of the fact that this remains a city that, despite substantial progress, remains extraordinarily poor. But land use policy here makes things worse. Two issues stand out in particular. First, government and quasi government enterprises own vast swatches of land here--the old port is one example. To say this land is underutilized is a severe understatement. Mumbai badly needs to use its developable land--right now land here is as expensive as it is in Montgomery County Maryland, while incomes here are about 1/50th of what they are in Montgomery County.

Second, there is a hostility here to tall buildings. But the Mumbai peninsula, with 150,000 people per square mile, is twice as dense as Manhattan. The only way people can be housed reasonably here is to build up. High rise housing had a bad reputation, I think, because of the ugliness perpetrated in the former Soviet and Soviet-satellite cities. East Berlin was not very attractive (nor was most of the high-rise public housing built in the US). But Hong Kong, Singapore, New York and Chicago demonstrate that high rise housing can be attractive. Shanghai has used high-rise housing to rapidly improve housing conditions there in the past 15 years.

One could talk about a lot of other things Mumbai needs to do to move forward--infrastructure development--including good sidewalks--needs to be on the top of the list. But giving people more room to live might do more than anything else to improve living conditions here.

New President at George Washington!

We have a new president: Steven Knapp, who is currently provost at Johns Hopkins. I was hoping against hope that our new leader would be the provost of a World-class research university, and that is exactly what we got. I am excited.

Too much fun; Weird Al Yankovic - White and Nerdy

Weird Al Yankovic - White and Nerdy