Martin Feldstein gives MAE Distinguished Speaker Talk

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Martin Feldstein

Professor Martin Feldstein gave the MAE Distinguished speaker talk on “The Future of Taxes, Money, and the Stock Market”.

Professor Feldstein is the George F. Baker Professor of Economics at Harvard University and President Emeritus of the National Bureau of Economic Research.   From 1982-1984, he was Chairman of the Council of Economic Advisors and President Ronald Reagan’s chief economic advisor.  He was a member of the President’s Foreign Intelligence Advisory Board under President George W. Bush and of the President’s Economic Recovery Advisory Board under President Barack Obama.

Adriana Lleras-Muney wins Scoville Teaching Award

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In fall 2017, the economics department awarded Professor Lleras-Muney the Warren C. Scoville Distinguished Teaching Award for her class Economics 130: Public Finance. Professor Lleras-Muney’s popular lab-based public finance course introduces students to the latest issues on a range of public policy topics, ranging from health care to education. The class instructs students in data analysis, improves their analytical skills, hones their writing skills by teaching them how to write policy memos, and engages them in policy debates. Congratulations Adriana!

Debt Strategy

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Saki Bigio

A classic question in economics is: How to design an optimal debt strategy? This is a problem confronted by the treasury of any government or any big corporation. A debt strategy must determine an amount of debt issuances and its maturity structure. Economics offers a number of theories that guide that design. Although each theory brings different insights, each theory is cast through a common exercise: the theory sets up a fictitious economic environment and presents an optimal debt-maturity profile for that environment. That solution is translated into policy principles that can be applied by practitioners. Current work by Professors Saki Bigio (UCLA), Juan Passadore (Einaudi Institute) and Galo Nuño (Bank of Spain) is a new take on that classic problem.

In their recent paper entitled “Optimal Maturity-Debt Management”, the researchers make two innovations to study that classic question. Their first innovation is conceptual. Their theory highlights the importance of liquidity frictions, the notion that abrupt adjustments in the debt of a given maturity can saturate the market for that debt. The consequent price impact is a common consideration by practitioners, but has been neglected by normative studies on debt management. The second innovation is technical. In the past, theories could only deal with problems where the strategy considers a choice among only a few number of bonds of one specific structure. Those specific bonds, known as consols, assume that bonds mature by retiring a constant fraction of the outstanding principle every period. Consols are rarely issued in practice. Instead, their study adapts techniques from other sciences to allow the study of the debt management problem where it is allowed to have bonds of any arbitrary number of maturities and any arbitrary cash-flow structure.

A principle that emerges from this theoretical study is that the problem can be studied as if the Government delegates the issuance problem to a continuum of subordinate traders. Each trader is in charge of the issuance of bonds of a single maturity. In this fictitious delegation, each trader then follows a simple rule. Each trader computes the internal valuation of bonds of the maturity that he manages. For that valuation, traders use discount provided by the Government. To determine his optimal issuance, each trader compares his valuation to the market price of that bond. Typically, prices and valuations will differ. The authors derive a simple guiding principle for the optimal issuance of bonds of a given maturity:

%  issuance/GDP  = liquidity coefficient  ⋅ %   value gap.

The principle states that in a given period, the issuances of a bond of a given maturity (relative to GDP) should equal the product of a value gap and a liquidity coefficient. The value gap is the difference between the market price and the internal valuation of a bond, as a percentage of the price. Think now of a trader. A trader would want to issue as much debt as possible whenever the price he receives is higher than his valuation (when there is a positive value gap). The formula says that there is a force that contains that desire: the liquidity cost that is produced by the price impact. Mathematically, this liquidity force appears as a coefficient that can be estimated with measures of bond-market liquidity and intermediation spreads. The higher the liquidity coefficient, the greater the issuances.

One piece is missing. For this delegation principal to deliver the optimal debt issuance, the authors show that the Government must assign his fictitious traders an appropriate discount factor. The authors develop a numerical algorithm to solve for that discount factor given information on expected tax revenues, and the paths of expected interest rates. At the moment, the authors are developing applications of their methodology, and anticipate that these will be relevant for government and corporate treasuries optimal policy discussions.

Karen Williams

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Karen Williams

Karen Williams

Karen Williams’ success as a businesswoman, educator, and leader are testament to her ability to make smart calculated decisions, and her self-described scrappiness. Her long, winding, and triumphant journey has taken her through many paths and many pivots. A journey that started, right here, at UCLA.

Williams looks back at her undergraduate years very fondly. Initially enrolled as a pre-med student, Williams soon switched her major to economics. She fondly recalls that she really began to thrive when she switched her major, believing that she found her true calling. She enjoyed being able to take a variety of courses and emphasizes how UCLA allowed her to become an open-minded individual. She initially wanted to work in a more creative job, but unfortunately that was not financially feasible. Like so many students today, she had to find a way to merge feasibility with her passion for creative endeavors. After receiving her B.A. degree, Williams moved to the East Coast to work as an auditor. She urges all Californians to leave California and see what awaits outside.

After working as an auditor for 4 years, Williams concluded that she was not able to utilize her creativity and critical thinking skills at her job. She knew it was time for another pivot. Williams decided that her true passion lied in marketing and brand management and decided to enroll in an MBA program to pursue her goal. With a desire to build a stronger business and leadership foundation, Williams came back to pursue her MBA at UCLA Anderson. While at Anderson she was a part of the Executive Board of Women’s Business Connection and a member of the Marketing Club. Williams recalls being very involved during her time at Anderson because the atmosphere was very conducive to her success. It was as if she had found her way back home.

With lifelong friends at her side and indispensable skills she gained from UCLA, Williams was ready to venture into the marketing and brand management industry. She started her career in Brand Management at Johnson & Johnson, and Sara Lee. A few years later Williams began her journey in the media industry.

Williams says that she had always been drawn to the media industry. “I used to hang out with Theatre, Film, and Television majors and interned in CBS studios for a quarter (as an undergraduate)” she recalls. She describes working in marketing using the analogy of a candy shop. “I feel like marketing is similar to being an entrepreneur, it’s like managing your own little candy shop, it’s the closest thing to general management.” She highlights the structural differences between a regular corporate role and working for entertainment media. At the time, there was very little training for fresh undergraduates. She learned how to dive into a problem and tackle it using her scrappiness and resourcefulness. Needless to say, her educational background proved to be a valuable asset. She believes that since then many higher-education institutions have improved their process for preparing students for industry roles. Anderson Center for Management of Enterprise in Media, Entertainment & Sports (MEMES) being one of them. “When I went into the industry in the 2000s, something like that never existed” she comments. Enthusiastic about these changes, Williams chose to be a part of them. This brought her to the next big pivot. She began her career as an educator and leader.

Williams emphasizes the timing of her shift from the private sector to the public sector. Feeling as though she had reached all her goals in the media industry, Williams thought it would be best to transition while she was ahead of the curve. Williams started her career as an educator and counsellor at USC Marshall as a MBA career advisor. Later, she was recruited by Anderson as an executive director at MEMES. She advises students to thoroughly think about their decisions and to “take a step back before you take a step forward.” As someone with a lot of wisdom in career development, Williams underscores the significance of leadership. She emphasizes that leadership is not only leading people but also leading processes and plans. She stresses the ability to lead from point A to point B with dedication and responsibility. Williams embodies this philosophy through her actions as Director at MEMES. Some of her projects like the Big Data Conference and MEMES Summer Institute have become an important of the Anderson experience.

The next pivot in Williams life came, when she decided to pursue a challenge very close to her heart. Williams mentions that although Black, Hispanic and Native Americans make up 30% of the population, they only hold 3-4% of senior leadership roles. This motivated Williams to join Management Leadership for Tomorrow (MLT), an organization that offers mentorship programs for rising leaders of color. Starting out as a counsellor, Williams is now helping disadvantaged students succeed in an increasingly competitive world. Diversity and inclusiveness carry a special meaning for Williams, and she looks forward to taking on larger roles at MLT in the future.

Williams’ passion for educating the next generation of leaders is reflected in her work outside her day job. From the President of the Anderson African American Alumni Association to Advisor for the Academic Advancement Program, Williams has always been involved with the UCLA community.In the future, she wants to continue giving back to the UCLA community.

Williams’ biggest advice for undergraduate students today is to “understand the way that leads to your end goal and figure out where you have gaps, and then create S.M.A.R.T. goals to fill these gaps”. This is something she has done in her own life; and if we look at the success she has achieved, the effectiveness of it is self-evident.

By Harsh Gupta and Sena Ustuner

Simon Board Gives Alumni Talk in London

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Professor Board with UCLA Alumni in London

Professor Simon Board gave a talk to UCLA alumni in London on the topic of “Reputation Design”. The talk discussed the challenges platforms like eBay, Yelp and IMDB face in eliciting and providing information to users. Professor Board discussed the different methods that are used to encourage participation, and also how they can give rise to biased feedback, gaming and retribution. He also discussed how platforms can mitigate such manipulation, and how economic theory shapes how information should presented. For example, is full transparency always a good policy?

The talk also discussed recent innovation in the UCLA economics department, including Partnership UCLA and the design of our data analytics training.

Robert Barro Gives MAE Distinguished Speaker talk

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Robert Barro

Robert Barro talked about his views of the effect of the 2017 “Tax Cuts and Jobs Act”. He argued that the lower corporate tax rates will lower the cost of capital, and raise the long-run GDP by around 8%. He also argued that the individual tax cuts will raise the incentive for individuals to work and could raise long-run GDP by another 1-2%.

 

Robert J. Barro is Paul M. Warburg Professor of Economics at Harvard University. His research includes empirical determinants of economic growth, the economic effects of public debt and budget deficits, and the formation of monetary policy. Recent books include Macroeconomics: A Modern Approach, Economic Growth, Nothing Is Sacred: Economic Ideas for the New Millennium, Determinants of Economic Growth, and Getting It Right: Markets and Choices in a Free Society. He was a viewpoint columnist for Business Week from 1998 to 2006 and a contributing editor of The Wall Street Journal from 1991 to 1998. He has written extensively on macroeconomics and economic growth.

You can watch this talk on YouTube

Adriana Lleras-Muney in Politico

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In an essay in Politico, Professor Lleras-Muney discusses the lessons from the Mothers’ Pension Program, an early 20th century welfare program that gave cash to single mothers. Using census records, she finds that children in the program lived one to two years longer, and obtained higher education and incomes. The article can be found here.

Merger Policy in a Globalizing World

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Volker Nocke

Merger approval decisions of national antitrust authorities have important effects on other jurisdictions. For example, the merger of two U.S. pharmaceutical companies may lead to higher drugs prices in Europe, or affect the worldwide level of innovation. As the efficiency gains induced by a merger might be sufficient to outweigh its anti-competitive effect in one country but not in another, conflicts between national authorities may arise.

The past two decades have indeed seen a number of high-profile competition cases which illustrate this potential for conflict. Prominent examples include the proposed merger between the two U.S.-based firms General Electric and Honeywell in 2001, the proposed merger of the South African platinum interests of Gencor and Lonrho in 1996, and the attempted joint acquisition of the British-based BOC Group by the French company Air Liquide and the U.S.-based firm Air Products in 2000. In the first two cases, the merger was cleared by the firms’ domestic antitrust authority but blocked by the EU Commission; in the third case, the merger was cleared by the authorities in the EU, Canada and Australia, but effectively blocked by the U.S. Federal Trade Commission.  A more recent example is the planned acquisition of the Italian company Metlac by the Dutch company Akzo Nobel, which was cleared by several European antitrust authorities but blocked by the UK Competition Commission in 2012.

In their recent paper entitled “Merger Policy in a Quantitative Model of International Trade” , Professors Volker Nocke (UCLA),  Holger Breinlich (University of Nottingham) and Nicolas Schutz (University of Mannheim) develop a quantitative framework that can be used to understand the determinants of conflict between merger authorities, to analyze which types of conflicts are likely to arise in practice, and to provide a sense of the economic importance of these conflicts. These insights are then used to derive implications for the coordination of national merger and trade policies.

Consider a merger between two firms located in the same country and exporting to another country. In both the home and foreign country, the merger’s impact on domestic consumer welfare is determined by two opposing forces: On the one hand, the merger raises market power; on the other hand, the merger gives rise to synergies that lower costs. The resulting net effect depends on the characteristics of the merger, market conditions and trade costs. As the merger may raise prices in one country but reduce it in the other, the approval incentives of the national authorities are not fully aligned. As the paper shows, whether merger control based on domestic consumer welfare is too tough or too lenient from the viewpoint of foreign consumers is shown to depend solely on an industry-level “conflict statistic” that summarizes the relative competitiveness of the domestic and foreign markets, adjusting for trade costs.

To shed light on which types of conflict are likely to be relevant in practice, Professor Nocke and his coauthors calibrate the model using industry-level data from the United States and Canada. The results show that at the present levels of trade costs, mergers that benefit domestic consumers also benefit foreign consumers in the vast majority of sectors. Hence, whether or not national authorities have effective veto rights over mergers involving foreign firms matters surprisingly little at current levels of trade costs. However, the calibrations also reveal that if trade costs keep falling, conflicts will arise in which the domestic authority wants to approve a merger whereas the foreign authority wants to block it to prevent harm to its consumers. To the extent that trade costs keep falling, this means that veto rights over foreign mergers will become more important, and the introduction of a (hypothetical) supra-national agency will become more valuable.

Michael Terry

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Michael Terry

Terry emphasizes the importance of learning in diverse settings and engaging with people of different views and backgrounds, especially since UCLA epitomized his

UCLA alumnus Michael Terry’s sprint in the business world is comparable to his time as an Olympic track runner: fueled by boundless energy and determination. Terry graduated magna cum laude from UCLA with a degree in Business Economics and later received an MBA from the Anderson School of Management. He currently works as an Executive Vice President in Account Management at PIMCO.

With the diversity and talent present at UCLA, excellence was Terry’s only option. Adopting a ‘constructive paranoia’ mindset, which is hard work induced by the realization that there are more challenges on the way, continually pushed him to thrive both as a student and as an athlete. Moreover, it prepared him for new endeavors that rapidly came around the corner. In fact, as Terry fondly recalls, his most memorable race was right after graduation at the Atlanta Olympics, and less than three weeks later, he had to start working at PwC.

philosophy of ‘contrast brings clarity’ by giving him a rich multicultural experience. To this point, he encourages Bruins to take advantage of college by getting to know people outside of their major. Another way to become more open-minded and think clearly is to travel. Having backpacked in Europe during the summer of his junior year, he found the experience to be truly enriching and worthwhile. So it is no surprise that today he has traveled to 83 countries.

It was also at UCLA where Terry met one of his mentors, Professor Stephen Cauley. Having understood the difficulty of managing academia and athletics, Professor Cauley took Terry under his wing during Terry’s junior year and offered him valuable advice that he still remembers. A few years after graduation, Terry had made a name for himself in day trading and was featured in Business Week. Upon reading this article, Professor Cauley reached out to Terry and provided some personalized advice for ways Terry could join his lifelong career goals with his passion for the financial markets. Terry took the advice and used the next few years (including his time at UCLA Anderson) to successfully network and position himself for a Sales and Trading role on Wall Street.  In hindsight, the professor’s words helped steer Terry’s career sprint into a marathon, as he now finds himself thriving in his role at one of the world’s premier investment management firms.

As Terry talked about his career, he emphasized emotional intelligence and openness to change as important, but often overlooked, drivers of success.  Terry has learned that the ability to influence coworkers and clients is essential and that it has less to do with what you already know; it’s how well you listen and react.  Also, as technology and globalization rapidly impacts all industries, Terry would have a hard time hiring someone that has never failed, as resiliency is becoming more important than ever before. He underscored that new graduates should focus their attention on not only being ‘right’, but also being liked.  While Terry believes UCLA students already excel at this, the ability to effectively collaborate is crucial.

Having been through the process himself, Terry has experienced constant personal development and success throughout his career. The relationships that he built throughout his time at UCLA contributed to pushing him forward and provided lifelong friends and mentors. Even now, he works alongside many fellow Bruins who share a bond through their Bruin spirit.

By Natsharee Pulkes and Radhika Ahuja

Katherine Meckel article in the Washington Post

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Research done by Katherine Meckel about how hydraulic fracking decreases infant health was featured in the Washington Post.  Katherine Meckel’s research findings were also reported in other major news outlets, including CNN, The Wall Street Journal, NPR, The Los Angeles Times, and many other news outlets.  The Washington Post article, titled “Fracking Sites May Raise the Risk of Underweight Babies, New Study Finds” is posted here in its entirety:

‘Living within half a mile of a hydraulic fracturing site carries a serious risk for pregnant women, a new study has found. The drilling technique, also known as fracking, injects high-pressure water laced with chemicals into underground rock to release natural gas.

Women who lived within that distance to fracking operations in Pennsylvania were 25 percent more likely to give birth to low-weight infants than were mothers who lived more than two miles beyond the sites.

The five-year study of more than 1.1 million births in the state between 2004 and 2013, published Wednesday in the journal Science Advances, also found lower birth weights, although not as low, in infants whose mothers lived between half a mile and two miles from a fracking site. Beyond two miles, there was no indication of any health effect to newborns, a significant drop-off, the study said.

“I think I was surprised by the magnitude of the impact within the half-mile radius,” said Michael Greenstone, a professor and director of the Energy Policy Institute at the University of Chicago, and one of three authors of the study. There are about 4 million births per year in the United States. According to the study’s research, about 30,000 births are within half a mile of a fracking site and 100,000 are within two miles. “I don’t think that’s an insubstantial number,” Greenstone said.

Greenstone said it’s important not to read too much into the study’s conclusion. “I like to joke that there’s a little bit for everyone to hate in this paper,” he said. “There’s a big effect within one kilometer of sites, which the oil and gas industry dislikes, but the impact on the population beyond that may not be massive, which opponents of fracking won’t like.”

Reid Porter, a spokesman for the American Petroleum Institute, an advocacy group for the oil and gas industry, condemned the study, saying that while it addresses a legitimate health issue in the United States, it “fails to consider important factors like family history, parental health, lifestyle habits” and other factors that lead to low birth weight.

In his emailed statement, Porter did not address why those factors might have led to underweight babies near the sites but not farther from them.

Food and Water Watch, a nonprofit environmental group, referred to the study in calling on Pennsylvania Gov. Tom Wolf (D), who wants to expand hydraulic fracturing in the state, to reverse course.

“This study adds to existing scientific literature that tells us the serious health consequences linked to fracking,” the group’s executive director, Wenonah Hauter, said in a statement. “Unfortunately, Gov. Wolf [is] encouraging news drilling and expanding fossil fuel operations. We call on him to heed the science.”

When Greenstone and his co-authors — Janet Currie, a Princeton University economics professor, and Katherine Meckel, an assistant professor of economics at the University of California at Los Angeles — embarked on the research, he said, the aim wasn’t to condemn fracking, which is a relatively new method of drilling vertically underground, then switching to a horizontal direction to reach gas trapped in shale rock formations.

The practice has come under scrutiny because of the potentially toxic chemicals used to crack the shale and the amount of water used to force out natural gas. State health officials and residents near fracking operations have complained that wastewater from fracking taints local drinking water. Companies in some cases have been forced to provide bottled drinking water for residents who relied on underground wells. A number of states, such as Maryland and New Jersey, have banned fracking.

A U.S. Geological Survey study in 2014 said pumping wastewater into deeply buried storage wells was probably why Oklahoma was experiencing more small earthquakes than California. The sites are also known to leak methane, a gas that’s up to 100 times more harmful than carbon dioxide in causing global warming in the atmosphere.

But those drawbacks are offset by the benefits of natural gas, Greenstone said. Hydraulic fracturing for oil and natural gas “has led to a sharp increase in U.S. energy production and generated enormous benefits, including abruptly lower energy prices, stronger energy security and even lower air pollution and carbon dioxide emissions by displacing coal in electricity generation.”

The authors hope that policymakers will use the study’s finding as a talking point in a robust debate over fracking. They chose to study Pennsylvania because they got access to birth record data that identified “the exact locations of the mothers and the wells,” Greenstone said. “This was like a great success of big data.”

Most drilling operations sit in remote areas where they have little chance of harming pregnant women.

But some sites in Pennsylvania are near Pittsburgh, and others in Texas are inside heavily populated Fort Worth.

“Different communities are going to feel differently about this,” Greenstone said. “If you’re in Fort Worth, where fracturing is occurring in a dense area, you’re probably going to feel differently about it than if you’re in rural North Dakota.”’