Tuesday, July 29, 2014

History lesson

You can never know enough history. I have lived most of my life in Los Angeles and most of my professional life has been at USC. But I still know too little about each. I got some help on both fronts reading Towers of Gold: How One Jewish Immigrant Named Isaias Hellman Created California.

On the USC campus, there are occasional markers commemorating the role of a Protestant, a Catholic and a Jew in helping to establish the University.  USC's website fills in some of the details. I had always presumed that this was just politically correct and sanitized history. Just how inclusive was 1870s Los Angeles?

More than I thought.  On Page 5 author Frances Dinkelspiel (Hellman's great-great-grandaughter) notes ..." from the start, Jews were accepted and integrated into society. They were elected to public office, built homes alongside their Christian neighbors, and became the established mercantile elite ... It was not until the 1890s that intransigent anti-semitism gripped California."

The story of boom and bust, of tolerance and intolerance is carried through the book. There is, of course,  much more. So much that this book has landed on my "to re-read" (when?) pile.

But this California history shows once again that in times of boom, people were too busy to fall into the hole of zero-sum hatreds. Its the old story. Prosperous people or people who take seriously the prospect of prosperity are nicer and more tolerant. It's a point documented many times by Benjamin Friedman in The Moral Consequences of Economic Growth.
Economic growth--meaning a rising standard of living for the clear majority of its citizens -- more often than not fosters greater opportunity, tolerance of diversity, social mobility, commitment to fairness and dedication to democracy ... Even societies that have already made great advances in these very dimensions, for example today's Western democracies make still further progress when their standards of living rise. But when living standards decline, most societies make little if any progress towards any of these these goals, and in many places plainly retrogress. (p. 4)
Very sad that economic growth is suspect or misunderstood by those who talk the most or the loudest about tolerance, diversity, fairness, etc.

Thursday, July 24, 2014


GDP (in some form such as per capita, real per capita, real per capita change, etc.) is the widely used proxy for an area's well-offness. But standard textbook discussions note all the reasons that it is a poor proxy.  There are even experiments with the alternatives such as Bhutan's  Gross National Happiness.

Economists have been doing "happiness" research for some years and report (gasp) that (i) more material wealth does not easily map to more happiness; (ii) happiness is elusive; (iii) happiness is hard to measure.  A good friend remarked, "don't economists take freshman philosophy"?

Joseph Epstein's Envy is a delightful antidote. In fact, it is better than the philosophy 101 I recall. Open to almost any page and enjoy. "... consider envy as less a sin than as very poor mental hygiene. It blocks out clarity, both about oneself and the people one envies, and it ends by giving one a poor opinion of oneself." (Location 781 on my Kindle download.)

Epstein thinks that envy is the worst of the seven deadly sins. He does not nominate those who stoke envy for political gain as engaging in a worse (and eighth) sin. But he comes close. "... the doctrine of Marxism is many things, but one among them is a plan of revenge for the envious. How else can one view Karl Marx's central idea, the perpetual class struggle ..." Location 470. Stoking envy, then, is the same as stoking fantasies of revenge.

Here is up-to-date revenge: "You didn't build that." So you don't really own it. We all do. So fork over.

Sunday, July 20, 2014

We do not know

What do we know about cities? To simplify shamelessly,

1. The canonical model of urban economics predicts that cities will spread out as communications and transportation costs fall.  This has been the experience -- from pedestrian to streetcar to automobile city.

2. But the model leaves out many things. Nate Baum-Snow writes about these and suggests that outward expansion will stop or even reverse. Average densities will rise.

3. But we are now networked as never before, suggesting that the forces cited in #1 will pick up steam.

So which will it be?

Wendell Cox has recently posted results from his work on redefining metropolitan sub-areas. Adapting an approach similar to one developed by David L.A. Gordon and associates at Kingston University in Ontario, (and using zip code data re urban characteristics), Cox moves us beyond the very inadequate use of "central city" vs. "suburbs". These have relied on municipal boundary definitions of the "central city" and defining  the rest of the metropolitan area as the "suburbs".  But municipal boundaries have no functional usefulness and vary considerably in terms of the extent of their "footprint."  There is also room for confusion because some people construe "central city" as the downtown. Note also that any binary classification falls way short.

Using the refined definitions of "urban core," Cox calculates recent U.S. urban core population trends this way:
1990-2000   -1.164%
2000-2010   -1.110%
1990-2010   -1.137%
We know that the last two decades have seen the revival of many major U.S. downtowns (explained in large part by less crime); the most recent decade includes the extraordinary increase of electronic networking. But the data show no change. Have the two effects cancelled each other?  We do not know.

In this conversation, Russ Roberts and Mike Munger discuss the impacts of Uber, AirBnB, Monkey Parking and similar advances. Listen especially to the last segment. Just as Amazon went from selling books to selling everything, Roberts and Munger say "we ain't seen nothing yet."  The three technologies (and others on the way) help us to make much better use of the capacity we have.  Add driverless cars, and why own a car? or a garage? or a parking lost?  The word "transformative" is used in the conversation.

The years 2000-2010 are very early in the game. What will iPhone City look like? We do not yet know. 

Friday, July 18, 2014

Pray for "gridlock"

I recently did some teaching in China. What did my students hear from me?  Among other things, there is Good Capitalism and Bad Capitalism (to borrow the title of a fine book on the subject).  The bad is crony capitalism. What did I learn from my students? China's big problem is corruption which is rooted in what we call crony capitalism. There are huge differences between the two countries (will China ever have a Silicon Valley?) but they share a common plague.

Some years ago, Virginia Postrel (The Future and Its Enemies) suggested that our traditional left-right distinctions in politics ("liberal" vs. "conservative") mean very little. She argued for the more interesting distinction is between those who are comfortable vs uncomfortable with change.  Rapid change is here to stay and she makes a good case.  She begins the book by citing areas of agreement between "left-wing" Ralph Nader and "right-wing" Pat Buchanan. Both preferred protectionism to free trade.

Today's WSJ includes a review of Nader's Unstoppable (which I have not read) by David Asman. Look at what the reviewer says:
Mr. Nader, the consumer crusader who ran for president to the left of Al Gore, is perhaps the last person one would expect to admire a libertarian critique of the corporate state. But in "Unstoppable" he respectfully describes the views of Ludwig Von Mises, Friedrich von Hayek, Milton Friedman, George Stigler and other free-market economists. He praises their distrust of politicians, lobbyists and businessmen who seek to put government power in the service of corporate profit.
Strange bedfellows again. Both of the major U.S. political parties have become dominant because each have achieved their own crony capitalist coalitions. Each has also created a formidable infrastructure that assures survival. What is to be done? Avoid "feel good" voting for attractive but unelectable candidates, split your votes between the parties, split any financial support, never vote for an incumbent, pray for "gridlock".

My hotel room television showed well over a hundred government network channels. One channel was all-English language. What did it play? Twenty-four hours continuous episodes of House of Cards. My students reported  that people love it.

Sunday, July 13, 2014


Neil Irwin (at Economix, July 11) tell us the latest from Uber and Lyft (still unable to link from you-know-where but source is easy to find). Two things bear repeating. First, one cannot recognize enough the simple fact that sellers learn about demand (elasticities) via trial-and-error pricing (as Uber is apparently doing) if we let them -- if prohibitions against "gouging" are relaxed. I have no idea whether the companies hire econometricians to estimate elasticities but I suspect that trial-and-error is better. This type of essential learning is full-time work. Second, while the old man-vs-machine question has given way to humans-vs-computing, we see that complementarity is more accurate. How do they integrate? Not,how do they compete? It is now hand-held apps plus automobiles. Along these lines, it is not a question about "the end of cities" (George Gilder, 1995, and many others) or not -- now that we are smart-phone-tethered-communicating-continuously-at-near-zero-marginal-cost. Rather how will cities change? The complements-rather-than-substitutes questions points to complements. Cities will not disappear (no signs of that since 1995) but they will continue to spread out -- as always and perhaps a little more and a little faster.

Thursday, July 10, 2014

Long way around is better

Joseph Epstein wrote a moving tribute to his friend Edward Shils "My Friend Edward" (in his Narcissus Leaves the Pool; unable to link using behind-the-Chinese-Wall connections). Epstein notes, "He [Shils] admired the economists of the University of Chicago, trained under Jacob Viner and Frank Knight; and he spent more than half a century in the company of Milton Friedman and George Stigler and found both to be men of superior intelligence. But he felt the Chicago economists, brilliant though they could be, were insufficiently impressed with the mysteries of life." (p. 309). But Arnold Kling writes "Neoclassical economics is obsessed with the concept of equilibrium, and in turn it pays little attention to innovation. I believe that one of the biggest lessons of economics is the value of trial-and-error learning through entrepreneurial activity." (askblog post, July 9). Now we're starting to get somewhere. Equilibrium is just a modeling convenience. But many smart people take it much too seriously. Google Scholar shows 2170 citations for "benevolent social planner." Many modelers rely on this unicorn to make their model work. In his undergrad text, Greg Mankiw properly uses the mythical BSP to demonstrate to students the idea that markets face a huge task. But this is way different from inventing a BSP to satisfy journal editors and referees that they are seeing a real model. Modeling trial-and-error may seem like the long way around.

Sunday, July 06, 2014

Cities and organs

It's a simple but profound point made by Hayek in The Fatal Conceit: there are two ways to get to non-zerosumness, markets and love; do not expect one to do the work of the other; each one has its place; confusing one for the other can be fatal. A simple example is opposition to markets in organs; opponents want all donations to be based on altruism, ignoring the simple fact that altruism alone is never enough; many would-be recipients are left to suffer and die. What about cities? Many who write (and talk) about cities eschew market mechanisms; they are loathe to price parking and access; they want land uses to be administered -- in response to some "vision" or fad (and the usual cronyism). We get politicized awfulness in many places. Congestion on the roads and expensive housing are two obvious outcomes. The complainers then demand even more of the restrictions and rules and plans that created the mess. In San Francisco, there is the current Plan Bay Area (unable to link at the moment; but look for "Judge rejects challenge to Bay Area land-use, transit plan" (SFGate, July 3) which is a case in point (f.d., I have been associated with the challenge). The proposed plan is more of the same: more restrictions, more whining about "affordability" (too few free lunches); more proposed mandates, etc. The current New Yorker, includes Nathan Heller's "California Screaming: The tech industry made the Bay Area rich. Why do so many residents hate it?" (gated). The report includes coverage of Bay Area activists and their rage at the techies. Protests and chants includes "Rents are too damn high, right?" The writer gets on board via a story about the Costanoan tribe's Coyote legend: he professes to nurture but he hoards! Bingo! Not enough nurturing by the area's tech wealthy. None of the protesters chanted and crowded the Bay Area plan hearings. It's not about markets stymied but too much hoarding and not enough nurturing by successful people -- who create a local industry that many around the world would kill to have nearby. But this is just one example. Cities (like economies) are vast and complex. Presuming that any good can come from avoiding or suppressing market mechanisms can be fatal. Think about our organ donor laws.

Wednesday, July 02, 2014

A very simple point

I have been resisting any impulse to pick up and get into my copy of Thomas Piketty's Capital.  One reason is that it has been reviewed more than any (new) book I know. Having digested many of these reviews, I fear that I have been compromised.

One review that I found exceptionally well done is by Jonah Goldberg in the recent Commentary. Here is a passage that I would have placed at the beginning (but do read the whole thing):
Nor are the poor and the middle class static. As a statistical artifice, there will always be a bottom 1 percent, just as there will always be a top 1 percent. But that doesn’t mean that if you are born in the bottom 1 percent, you will stay there. Some of Piketty’s fans seem confused about this, appearing to believe that economic inequality is synonymous with low economic mobility. There may indeed be a link between inequality and low economic mobility. After all, rich people by definition have advantages poor people do not. But there is no iron law that says any individual person must stay in his narrow economic bracket for life; the Morlocks can become Eloi. Indeed, there remains an enormous amount of churn in our economy; 61 percent of households will find themselves in the top quintile of income for at least two years, according to data compiled by economists Mark Rank and Thomas Hirschl. Just under 40 percent will reach the top 10 percent, and 5 percent will be one-percenters, at least for a while.

Piketty himself offers an extensive analysis of the Forbes list of the wealthiest people in the world in an attempt to prove that today’s richest people are much richer than they were in 1987 and that the “largest fortunes grew much more rapidly than average wealth.” He says the data show that wealth grew by an inflation-adjusted 7 percent, even higher than the normal 4-to-5 percent return implicit in r > g. In what seems a generous nod, Piketty even concedes that if you jigger the timespan—starting from, say, 1990 instead of 1987—the rate of return might drop a bit. But one problem remains: Piketty leaves out that the people on the list are almost all different people.3 The economist Stan Veuger, writing for U.S. News & World Report, looked at the same list and found that the top 10 individuals collectively earned about 0.5 percent on their capital during the period Piketty says “the rich” got richer. And, Vueger notes: “If it weren’t for Walmart, the wealthiest people in the world would actually have lost about half of their wealth in the last 25 years.”
The point has been made many times but remains an often ignored "inconvenient fact."  We are not living in feudal times but in a very dynamic age.  There is great flux.  There is mobility between strata.  Perhaps not enough but not insignificant either. Yet, there are studies and opinion pieces that compare a distribution snapshot in Year A with another distribution snapshot in Year B -- and infer that inequality has worsened. Unless we have a way to track individuals (panel data), this approach is meaningless.

It is also clear that the most mobile are those who cross the border into the U.S. They are necessarily missing from the much of the data and analysis.

Is wealth accumulation mainly via ill-gotten gains? Is this what incites the redistributionists? Inevitably, there is some of that and the place to start is to rein in the crony capitalists (be they in government or in business). But go back to the mobility stats.  The new rich are likely to be associated with successful start-ups and innovation. I do not begrudge them anything.

We cannot magically delete all of the "worsening inequality" studies that are not based on mobility data. Pikkety's Fig 1.1 shows the share on U.S. income going to the top decile in each census year 1910-2010. That decile changed membership many times over the last 100 years.

Sunday, June 29, 2014

Exceptionalism and legacy

For all we know, most people at some time think about their legacy. Will I be remembered? By whom? For how long? For what?  This thinking has to occupy political leaders, especially in the late innings. And what if you are the first mixed race leader of a major power? Speculation over Barak Obama's thinking on this question will only grow as he gets closer to leaving office.

Can legacy-mindedness co-exist with electoral and party politics? Churchill saw job #1 as defeating Hitler; he seemingly paid less attention to his re-election prospects. Lincoln focused on saving the Union and finally making it a non-slavery nation; he seemingly was less focused on his own survival.

President Obama may not be listening but I have an idea how he can enter the pantheon of former leaders who have left a legacy. But and it will cost his party politically.

Lead the charge for serious immigration reform. Get your party (many kicking and screaming) to follow you; get enough of the opposition (also kicking and screaming) to your side. We are talking about real legacy and real leadership and real change here.

We hear that inequality is the "defining issue" of our time. Let's recognize that the greatest inequalities are across international borders. Many millions are born in civil war-torn hell holes. Others find themselves in penitentiary societies. What can be done about the real injustices and inequalities?  Poor people abroad know the answer: find a way to get into the U.S. or another advanced Western nation. Pathetic stories of unsuccessful border crossings, drownings, kidnappings are everywhere -- lately focusing on young kids at the U.S. southern border.

Paul Collier Exodus: How Migration is Changing Our World does a good job of convincing us that none of this is simple. Bryan Caplan at Econlog.com does a fine job making the moral argument, as do the people at openborders.info. Expanding the talent pool is the economic no-brainer.

None of this is simple. Borders will have to be "secured" in the sense that entry is orderly and monitored to screen the inevitable trouble-makers. But the immigration status quo makes no sense (and satisfies no one). We have the pretense of border control side-by-side with smuggling, violence and great suffering. The way forward involves leadership and risk-taking like we have not seen in some years. Perhaps the huge gap between the expectations of the Obama campaign and the performance of the Obama team suggests to them that there is also a huge opportunity to finally rise to the occasion.

American exceptionalism can mean that unprecedented generosity and tolerance gain from and, in turn, fortify economic strength.

Saturday, June 28, 2014

Last resort

Timothy Taylor rightly takes on stagnationist Larry Summers. Summers points to a slow U.S. economy and suggests more public sector infrastructure projects. This looks fine in the textbooks but what about the reality? What kind of projects do our leaders come up with?

Mary Anastasia O'Grady writes about "Maryland's Incredible Purple People Mover" in today's WSJ. Stuff like this really goes on in the real world. Pure pork projects are easy to find. Marginal Revolution points us to Washington Post coverage of the new Washington Convention Hotel.

Examples like this are everywhere and not at all new. They are not aberrations but they remain magnificently unnoticed by economists and politicians of the left when at their most serious.

If it's a Bootleggers and Baptists world, where does one place the stagnationist economists?  It's hard to be sure but the human capital of most economists is tied up in their intellectual capital -- which many have tied up in Keynesian models of aggregate demand. The sunk costs argument seemingly does not come into play when it comes to one's own intellectual positions.

If private investment is lagging (which it has been for some years), it is because of high levels of uncertainty and anxiety among risk takers.  What to do?  Fewer rather than more pork projects is a good place to start.

If infrastructure is in bad shape, anything that can be metered can be privatized. Metering is now better than ever. The projects that Summers seems to like would be the last resort.

Tuesday, June 24, 2014

Networks and densities

In 2012, The Freeman featured discussions of Seasteading. "What would it take to get you to move to a seastead?" I liked this response by Arthur Breitman:
A very large community with millions of people and a thriving economy. I am a radical libertarian, and yet, right now my best option is to live in New York City, one of the most highly taxed and regulated places in the U.S. The sheer value of the social networks in NYC makes up for the taxation. I would be much freer in a place like New Hampshire, and yet it is too provincial for me.
In California, we explain political dysfunctionality as a "sun tax" (not a tax on solar panels). In NYC it would be a "networking" tax. In an exit-voice-loyalty context, some places elicit plausible loyalties. Where there is any sort of immovable amenity, it will be exploited in this way by the local pols. Talk about "exploitation."

In a previous post, I cited Edmund Phelps' discussion of cities and the economic benefits of density.  In his JEL review of Phelps, Joel Mokyr also cites the density discussion: "By that logic. the densely populated and heavily urbanized Netherlands should have outperformed Scotland and France and should have dominated England (leaving aside the problems with reverse causation)." p. 193. They are seemingly talking about the population densities of whole countries. I have often criticized the use of metropolitan area-wide average densities as a poor proxy for networking opportunities; national population densities are a far worse proxy.

Networking is important and, yes, most people find advantageous ways to network in all sorts of cities. They have not yet chosen to network from isolated mountain tops. Even where they can get a satellite connection, they want to manage the many networks in their lives -- including the ones they access on foot, by car and via the nearest airport.

Friday, June 20, 2014

Walkable LA?

Tyler Cowen points us to a study which claims that LA is "on the cusp" of becoming a major walkable city.  Two points should be added.

First, the report compares large metropolitan areas. These places have many distinct neighborhoods which are hard to shove into a single category. I have lived in walkable neighborhoods of LA for most of my life.

The reason that large metropolitan areas survive (continue to compete well for labor and capital) is that they offer a variety of opportunities. Yet, analysts are prone to affixing general labels to them -- which inevitably do a poor job of describing the complexity.

Second, large-area averages can mislead. Los Angeles (the urbanized area) has been the densest in the U.S. since before 1990 -- 6,999 persons per square mile in 2010 vs. New York's 5319.This is an overall average and not very useful.

On a related note, Census data show that the LA metropolitan (even larger than the census' urbanized area) is not anywhere near the top as far as walking or bicycling to work go. The champions of walking and bicycling often see these as important parts of their efforts toward reducing commuting by private auto.

Thursday, June 19, 2014


I decided to link to Megan McArdle's discussion of the "lost" Lois Lerner emails (H/T Craig Newamark) because:

1. The episode is creepy, jarring and depressing. The people who have the power to hound us should be kept to a higher standard. An even higher standard was advertised by the "We're the ones we've been waiting for" crowd.

2. There should never even be the appearance of IRS politicization.

3. McArdle tries to be charitable and sees incredible IRS incompetence -- as the politest possible explanation. Read her piece. 

4. The high-minded mainstream media have done a good job of not covering the story. I checked the LA Times website moments ago. In the last month, there were 106 published stories on Donald Sterling. There has been one re the missing emails -- and that has been their obligatory run of syndicated conservative columnist Jonah Goldberg ("Where's the Outrage?"). Indeed.

5. The advocates of a big federal government depend on tax collections and, therefore, depend on the public's (wary) cooperation with the tax collectors. Less trust means more evasion means more audits and enforcement challenges, etc.

6. Mistrust of the IRS is easily transferred to mistrust of other government institutions.

7. Selective media outrage further reduces their already diminished credibility. This is not the way Richard Nixon's dodging and weaving were covered. 40+ years ago.

8. As people learn not to trust political leaders and officials, will they also become less trusting of each other?

9. The role of the IRS is slated to grow in entirely new directions -- to administer healthcare, for example.Can that ever work with so much of the agency's dirty laundry revealed?

10. Those who live by the politics of envy will come up with ever more redistribution schemes -- many of these will involve and enlist a tainted IRS.

That's my top ten at this moment.

Monday, June 16, 2014

Which way?

Suggesting the end of history or progress or innovation or growth or anything is a huge stretch. But stagnation theses in economics are not new. This morning's WSJ puts the Robert Gordon (no relation)-Joel Mokyr debate over this topic on the front page "Has All the Important Stuff Already Been Invented?"

It's always hard to get beyond our predispositions to be either pessimist or optimist as we listen to both sides.  I have two simple points to make here. First, conventional data are not adequate and are ever less useful as we move forward. Consumer surplus is an ever larger component of our welfare and not measured via standard statistics or reporting.  The WSJ story includes the well known graphic that shows near-150 year constant U.S. real GDP per capita growth. What will happen to this trend? Conventional measures will understate it.

A related point has to do with amazing progress in improved longevity. In the article, Gordon scoffs at that, saying that more years but with an addled brain are not worth it. Have we come to the end of the road in our understanding of neurological conditions?

Yes, we are stuck with crony capitalism and its evil twin, rational ignorance. The real question is whether the market's natural growth impulses -- resulting from consumption-smoothing desires of savers and investors reconciled on capital markets -- will overcome the natural political impulses of the cronies (of both political parties). Will resources freed by automation be put to work by markets led by savvy entrepreneurs? Will the creative part of creative destruction remain vital?

Stagnation or non-stagnation are the consequences of actions by large numbers of people. Wittingly or unwittingly, their actions weigh in on either side of the question. I had posted previously that no less an authority than  Edmund Phelps is downbeat on this question. I disagree -- and I do watch the news.