Friday, October 13, 2017

Networked networks

Tyler Cowen noted that Cities and Suburbs Are Becoming Pretty Similar.  Of course.  A city-suburb dichotomy is much too simple. Nevertheless because Census and others report many data series this way, we keep using the two categories.

The idea of (suburban) "sprawl" is useless and specious. Qian An, Jim Moore and I showed some time ago that, using conventional travel time data, means as well as variances for work as well as shopping trips varied little no matter whether the traveler was "urban" or "suburban". In other words, most people and businesses have an interest arranging themselves spatially so as not to have to put up with irksome distances.

People and businesses in cities want two things: space and accessibility. We now say they want to network profitably. "Space" can proxy for a preferred amenities package. How can they get both? When large numbers of people and businesses consider the possibilities and the trade-offs available to them they make workable choices. The outcome is the cities we have.

There is enough movement of people and capital among cities that they must see themselves as competing. Uncompetitive packages of location and travel costs cannot survive for very long.

Robin Dunbar thought that a village of 150-250 would be as large a community that our brains could cope with -- in the interests of group survival.  Our "villages" are now much bigger.  The networks in our brains are networked with the networks in the brains of very many fellow citizens -- the ones with whom we interact physically and/or electronically.  That's modern accessibility; we can seemingly manage the blend of networks we want whether in the "city" or the "suburbs."

Friday, September 29, 2017

Not "in the air"

Russ Roberts interviewed Philip Auerswald on populism. Rapid change divides the population; some thrive while others are left behind and become resentful. The two discuss rural-urban divisions but focus on the big cities (they mean metropolitan areas) vs the rest. The success of these places as breeding grounds for new ideas (end enhanced productivity) is an old idea. We talk about "engines of growth."

Roberts and his guest evoke "density" as a proxy to explain how it is that new interactions and new ideas are spawned. They discuss "water cooler effects", coffee houses and places to meet for breakfast gatherings. Ray Oldenburg calls them "The Great Good Place". From Vienna's coffee houses to Starbucks -- and many more. The discussants also mention that big cities are places where good ideas are "in the air."

I prefer to talk about supply chains. The fundamental lesson of economics is that these are formed by profit seekers responding to market signals. There are supply chains for things and supply chains for ideas. All of us participate in many of these -- as buyers and/or as sellers. We choose locations as we trade off all of these roles.

The Coasian what-to-make-vs-what-to-buy choice (in light of transactions and monitoring costs) involves what to buy where.  Overcoming distance involves a key transaction cost. All supply chains have a spatial realization.  This is how we get the spatial patterns that characterize the cities we know.  Location choices in light of supply chain participation(s) over many interaction modes (including electronic) are constrained by many things, including land use controls and historical facts on the ground. The former involve policy choices.

Supply chains for things are based on technological requirements ("recipes") while supply chains for  ideas make sense in light of Joel Mokyr's idea that we are all keen to find useful knowledge.

Ideas, trust and social capital are made in cities. But not from or in "the air." They are formed (emerge) via the deliberations, choices, and actions, of motivated individuals.

I prefer this story to the much invoked idea of "agglomeration."  Agglomeration and "clusters" (also vague) occur via many densities and many spatial arrangements. The point is to understand how and why specific arrangements emerge.

Monday, September 11, 2017

Love and markets

Just a few days ago I posted this:
When natural disasters occur, supply and demand is a lifesaver. It is the way to reallocate resources to stricken areas (people). Price signals do their work when they are allowed to reflect new realities: when they ration on the demand side and elicit on the supply side.  But banning price hikes (anti-gouging laws) stymies both adjustments, making bad situations worse.
The standard debates that always follow pose the usual questions.  (1) Is altruism not enough?  (2) Why not enough altruism? (3) Do market responses crowd out altruism? (4) Would not altruism be better?

The inevitable politics of pander follow with price controls that offer fake answers to serious questions.

We hear much the same when it comes to markets for human organs.

One would think that Adam Smith settled this some years ago. "It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their own interest." He apparently had not. The same dance seemingly follows every calamity.

Non-zero-sumness is a wonderful thing. We find it in markets and we find it in altruism (love).  They are both good news. The bad news is that many people see the two phenomena as absolute substitutes; e.g. you cannot have one without the other.
Read more at:

Saturday, September 09, 2017

Amazon's RFP

Amazon wants a second headquarters. But where? Near or far? Reasons for nearby expansion involve scale economies but (as always) there can also be scale diseconomies -- including the group-think that can set in.

Amazon has invited cities to bid for the plum. Here is the RFP. Not that they have asked me but I would suggest a place with light-touch and flexible land use regulations.  The fact that tough regulations show up as slow construction and housing affordability problems is well known. Wendell Cox (and many others) have documented the link many times.

But there is more. Amazon understands supply chains. Whenever I cite value chains, I add that there are chains for things and chains for ideas. We are all involved in many of these and choose locations in light of many participations (as buyers as well as sellers).

Cities are the spatial realizations these choices: the spatial realizations of large numbers of supply chains.

For Amazon (any company) and the host city to do well, it must be a place where supply chains can be formed -- and re-formed as necessary.

An improved Amazon RFP might include a way to tell local officials that ham-fisted land use regulations are not beneficial or promising.

Time to reiterate that this is not a matter of being "pro-business" which is often synonym for an open door to crony capitalism.  Rather it is clearly pro-market.  Start calling the latter pro-people in this age of tweets and shortened attention spans.



Wednesday, August 30, 2017

Teaching Econ 101

In Adam Smith's day, it was moral philosophy.  But for many years, that has been replaced with what Deirdre McClosky calls Max U (or Samuelsonian or standard textbook) economics.  It has not been a good trade.

When natural disasters occur, supply and demand is a lifesaver. It is the way to reallocate resources to stricken areas (people). Price signals do their work when they are allowed to reflect new realities: when they ration on the demand side and elicit on the supply side.  But banning price hikes (anti-gouging laws) stymies both adjustments, making bad situations worse.

This is simple and clear.  But we teachers of Econ 101 have seemingly not done the job of imparting simple ideas like this. Look at the protectionist utterances of Wharton grad Donald Trump -- and many, many others. (I notice that ABC_TV news loves to report on products that are Made in America.)

In light of the Houston floods, the usual suspects are arguing for price controls ("anti-gouging laws) and thereby claiming the moral high ground.

Teachers of Max U note the fine points of efficiency when they should first deal with Question #1: in which settings are people most likely to have better lives?  The most noted thought experiment of our time may be John Rawls' "veil of ignorance": when considering political choices, do not think of where in the wealth distribution you are but where fate might deposit you.

Do you want to be inside or outside an exchange economy? If it's a hard choice, look at the real world and place yourself behind a veil of ignorance.

Perhaps if we taught this first and Max U second, there would be fewer grating rants about the immorality of markets.


And while we're at it. Here is how young people view socialism vs capitalism.

Sunday, August 20, 2017

Statists rule

The Economist includes a nice summary of Pigouvian taxes (or subsidies) as a straightforward remedy to the problem of uncompensated externalities. When market coordination is missing for any  reason, here is the (seemingly) simple policy fix.

But missing from the discussion (almost all such discussions) is the politics. Who administers the tax? How do they choose who and how much to tax, when and where.

Public choice economics points to a non-trivial answer:  crony capitalism and the threat of regulatory capture are always in play.

Today's NY Times Book Review includes a review of Nancy MacLean's Democracy in Chains: The Deep History of the Radical Right's Stealth Plan for America.  The print edition uses the lede, "Minority Rule: How the economist James McGill Buchanan laid out the game plan for the radical rights." This is turn-off laced with smear job. The electronic version switches to "How the Radical Right Played the Long Game and Won."

This is all bizarre and I have no plans to read the book. Don Boudreaux has been tirelessly exposing MacLean's errors and misconceptions at Cafe Hayek.

Are the problems of democracies and majorities really new and arcane for anyone?  We learn about the Bill of Rights at a very early age.  Limiting majoritarianism addresses a very old and well known problem and is not a part of some vast right wing conspiracy.

The Economist and a string of others are strangely resistant to public choice analysis, as the many discussions of the elixir of Pigouvian taxes indicates.

I do not get it. Are we to maintain a blind faith in the ability of elected officials to somehow divine the "public will"? And do so while maintaining a near-virginal innocence? And these are the people we see in the news all day?

How obsessed and blinkered a statist does one have to be to go on living and believing that way?

Tuesday, August 01, 2017

Anti-Econ 101

"Many of the recommendations for growth and prosperity found in just about any standard 'Econ 101' textbooks are the right place to start ..." (Brynjolfsson and McAfee, 2014, p, 206).

Econ 101 instructs that are always opportunity costs. David Henderson and John Cochrane make the point in "Climate Change Isn't the End of the World ... Even if world temperatures rise, the appropriate policy response is still an open question." Scarcity suggests opportunity costs which call for thinking, deliberation and hard choices. This perplexes the religious left. Here are Henderson and Cochrane:
" Global warming is not even the obvious top environmental threat. Dirty water, dirty air and insect-borne diseases are a far greater problem today for most people world-wide. Habitat loss and human predation are a far greater problem for most animals. Elephants won’t make it to see a warmer climate. Ask them how they would prefer to spend $1 trillion—subsidizing high-speed trains or a human-free park the size of Montana. ...

" ..we need to know what effect proposed policies have and at what cost. Scientific, quantifiable or even vaguely plausible cause-and-effect thinking are missing from much advocacy for policies to reduce carbon emissions. The Intergovernmental Panel on Climate Change’s 'scientific' recommendations, for example, include 'reduced gender inequality and marginalization in other forms,' 'provisioning of adequate housing,' 'cash transfers' and 'awareness raising & integrating into education.' Even if some of these are worthy goals, they are not scientifically valid, cost-benefit-tested policies to cool the planet."  
Elephants, high-speed trains and reduced gender inequality? Opportunity costs.

The LA Times reports that actual construction of the California high-speed train is well underway.  Look for the antithesis of opportunity costs, the misused sunk cost argument: having started the project, we cannot stop because of all that money already spent.

Why does any business ever close its doors? Why is any product line ever shut down? 

How many people use public transit in California? Very few. Here are some 2012 comparisons. New York city is #1 with 229.8 per year per capita. San Francisco is #2 with 131.5. Los Angeles is #15 with 54.9 and most of California is below that. The story has been told a thousand times. (Here is the up-to-date U.S. summary.)  There are too few transit users in California to merit more transit capacity of any kind. Climate change is being used to make bad ideas look not so bad.

Yes. Econ 101 is the anti-politics. Politics is the anti-Econ 101.

Friday, July 21, 2017

Not subtle

Bjorn Lomborg reminds us that "California is handling climate change all wrong."  Climate is a global commons and prisoners' dilemma problems are endemic. Go-it-alone California will bear significant costs while the benefits will be negligible.

But people who claim to be on the side of science (and the angels) disagree.  Here is a letter to the WSJ editor from Governor Jerry Brown defending the California approach. No mention of Lomborg's key point. Cap-and-trade may be a fine idea (as Brown claims) but he ignores the context.

Prisoner's dilemma is the flip side of gains from trade. The presumed subtlety of the gains-from-trade story is baffling. Most people cooperate; they trade an uncountable number of times and easily see that both parties acquiesce voluntarily -- for obvious reasons. The same people also have eyes and (must) notice that, around the world, those who are more involved in an exchange economy have better lives.  How many migrants in the world move away from an exchange economy to one where exchange is absent or difficult?

Bruce Yandle's Bootleggers and Baptists is the best explanation. I do not know whether Jerry Browns' place in all this is as the "Baptist" or as the politician who appreciates the phenomenon. I suppose one can be both. This is not subtle either.

Monday, July 17, 2017

It's bi-partisan

Timothy Taylor (citing Brian Taylor) offers a clear summary of the argument for congestion pricing on roads and highways. But spending and building is more fun than managing if you are in politics.  All the problems of democracy are in play: voters pay limited attention; lobbyists and special interests pay a lot of attention.

Competing "dog whistles" describes the discourse we have in the age of fast news and fast breaks. But there is one "dog whistle" that is special because it is bi-partisan. Everyone likes "infrastructure." Much of what we have is in poor shape. Almost everyone gets behind the idea of mega-spending to fix the problem.

But mega-spending American-style rarely does more good than harm. The Economist writes about "Notes from Underground". The WSJ describes Amtrak's "Summer of Hell."  It's very simple. Politicians are beholden to contractors and unions. More money will not fix this. It may make it worse.

Crony capitalism describes much of modern America. In this morning's WSJ, Elon Musk cites the "AI threat" and advocates a policy to regulate artificial intelligence. It's a terrible idea and I expect that Musk expects to be involved with the new regulatory agency. This would be the case no matter which party holds power. It's bi-partisan.

Wednesday, July 05, 2017

The good and the bad

We would love to believe that high culture makes people better.  But Nazi Germany (and many fellow travelers) deflated all that. High-brow elites caved in to the brutes. Among the highest brows of those days were the Berlin and Vienna Philharmonics. Look at Terry Teachout's "Orchestras and Nazis" which recounts the very sad story. It remains that how and why people turn good or bad is not simple.

Amos Elon's The Pity of It All elaborates all this. The author notes that Pre-Hitler, Europe's Jews assumed that Germany would be a safe place to be: German high culture would provide a haven.

On the brighter side, the NY Times book review of Toscanini: Musician of Conscience notes that the maestro made it a point to distance himself from Nazis and fascists.  The review also touches on Toscanini's amorous affairs. If you think of his adventures with many women as not so admirable, you again to face up to the complexity of human nature.

From the book review, here is Toscanini: "Every time I conduct the same piece I think about how stupid I was the last time I did it." If you are an aware person and reach the ripe old age of X years, you will wonder how innocent you were at X-5 years. Perhaps this awareness marks the good. 

Thursday, June 22, 2017


In a few words, Mike Munger sums up the new world of the sharing economy (H/T Café Hayek):

"Portable platforms (mostly smartphones) using software (often modular, self-contained apps) and connecting over the internet mean that transaction costs are plummeting. Uber doesn’t sell taxi rides; Airbnb doesn’t rent hotel rooms. These companies, and a thousand others, “sell” reductions in transaction costs. ...

... We’ll need a lot less stuff and a lot fewer parking spaces if we can take better advantage of what we already have. And cities will have a lot more space once we aren’t paying the costs of storing cars in parking lots and loads of equipment and clothing in self-storage facilities."

The WSJ (June 21) includes "The End of Car Ownership ... Ride sharing and self-driving vehicles are going to refine our relationship with cars ..."

Planners' holy grail for as far back as I can remember was to get people out of their cars. Mega-billions spent on public transit and HOV lanes had no effect (except all the red ink).  But the profit-seekers have now entered the picture to bail out all the smart people.

We hear a lot about "stagnation" and also "disruption".  Inevitably, there are both.  Are there trends? N-gram viewer says "no".  Each has held its own.

It comes back to things I often mention. If you had a choice, in which year would you choose to live? The latest one possible? Two words: "medical science".  When next you go for any treatment, you would never say, "please treat me the way you would have X years ago."

All of this in the very politicized U.S. health care system that's in the news all day. What would it be like if the disrupters were really allowed to operate? Perhaps the stagnation, to the extent that it is real, can be pinned on our politics.

Monday, June 19, 2017

Niches, not cities vs suburbs

Here David Warsh speculates on what the new chapter of the Amazon-Walmart rivalry means. Is it good for cities? Is it good for suburbs? Both? The urban vs suburban distinction is no longer useful. Both contain niches and a variety of situations and opportunities.

Here Russ Roberts and his colleagues discuss emergent orders. Mike Munger mentions that cities are emergent orders. Of course. The complexities and the stakes are too great to imagine any other way. Higher high-rise buildings are seen in major cities all the time. It's partly better building technologies (supply) and partly the benefits of location (demand and agglomeration). But it is not "a return to the cities". Think complexities and niches, not urban vs. suburban. The cliche is that cities change slowly. But many people now choose neighborhoods that do not fall on either side of an urban-suburban divide.

A Whole Foods or similar enterprise can serve any of them. Holman Jenkins writes "Amazon Will Free You From the Minivan ... With his Whole Foods purchase, Jeff Bezos takes aim at groceries -- and car ownership."

Stratechery argues that Amazon with its high-fixed-cost delivery infrastructure has actually bought a customer, Whole Foods and its shoppers.

It's hard to know when and where there are substitutes or complements. Order on-line or walk/bike to Whole Foods to see/touch/feel the melons but have them shipped home?

Tuesday, June 13, 2017

Watch out?

No $20 bills on sidewalks is pretty clear. Also clear is the logic of the efficient markets hypothesis (EMH):  in the race for profit, new information is quickly scooped up and acted on -- and "baked into" asset prices. (To be sure, EMH is also misunderstood by many who bizarrely expect any and all surprises to also be reflected in asset prices.) Also clear is evidence that many investors have accepted the logic of the efficient markets hypothesis and have moved their holdings from stock pickers to index funds.

Stock market prices are the original "big data" -- and an unavoidable temptation for study by finance experts. Slightly less expert are those who look for portentious episodes in daily life (business and other).  Joe Kennedy supposedly got out of the stock market just before the 1929 crash because his shoeshine guy tipped him to buy.

This morning's WSJ includes "Does Anyone Remember How to Make a Subprime Mortgage? ... Brokers willing to learn the lost art of making risky mortgages are in demand again."  Your mileage may vary -- and there are many mortgage markets in the U.S.  But mortgage originators have been able to sell the mortgages they make. And the U.S. government GSE's (Fannie and Freddie) and others who buy them have been known to get bail-outs when things do not work as planned (wished for).

The usual caveats apply.

Monday, June 05, 2017


With all the hand wringing over the Trump withdrawal from the Paris climate accord, it is refreshing and useful to get this short (just over 100 words) and clear statement from Cato.  The accord is at best simply a feel-good measure; at worst it is an awful waste.  More details at this conversation by Nick Gillespie with Bjorn Lomborg.  Perhaps the well worn Paris photo of over a hundred heads of state posing and posturing and smiling smug over their success in reaching the agreement says it best.

So it is ironic that there is so much breast-beating, now that the carpet has been pulled.

For some years, the best and brightest in urban planning have offered a simple solution to urban traffic.  Price parking.  Get one price right.  In fact, it is easier than it sounds because so many places have nearby commercial parking.  The market signals are abundant and easy to find.

But despite the clarity and simplicity, most parking remains under-priced.  And a thousand expensive and impotent "solutions" have been offered instead.  These include expensive parking requirements, expensive transit, expensive bike lanes, expensive HOV lanes, expensive vehicle mandates and subsidies, etc.

The people who cannot get one price right are eager to "fix" climate, health care, education, poverty, hunger, world peace, you name it.  Is there better word than irony?