Glass half-full

The NY Times Magazine featured "What Is It About 20-Somethings?" about two weeks ago. Getting started is never simple. But not mentioned in the article is the simple fact that adolescence (whatever one calls it) has been getting longer for many years. That comes with increasing prosperity.

But today's Letters include the predictable explanations that invoke new job insecurities, outsourcing, etc. Unemployment levels have been much too high for too long, but the WSJ's Numbers Guy cites BLS data which shows remarkable 20-year stability in the job tenure distribution.

Frightening analogies

Having a graphologist analyze my handwriting was not pleasant. Who likes to be that exposed?

I got a similar feeling reading The Economist's Schumpeter column about American universities (September 4). "Will America's universities go the way of its car companies?" Here is how it begins:

FIFTY years ago, in the glorious age of three-martini lunches and all-smoking offices, America’s car companies were universally admired. Everybody wanted to know the secrets of their success. How did they churn out dazzling new models every year? How did they manage so many people so successfully (General Motors was then the biggest private-sector employer in the world)? And how did they keep their customers so happy?

Today the world is equally in awe of American universities.

The ensuing description of U.S. universities makes the case for the analogy to old Detroit. All analogies have their problems and, whereas Detroit received most of its bail-outs in recent years, the federal role in propping up universities via research as well as student funding has been steadily growing for many years.

Nevertheless, the story as it is presented in the column reminded me of the visit with the graphologist.

Makes me cringe

In this morning's WSJ, columnist David Wessel wonders ("Parsing Ascendant GOP's Economic Prescriptions") what Republicans might actually do if/when they score victories this November. At the Heartland Institute,
Joseph Bast has a 10-item to-do list for economic recovery ("Attracting Businesses During the Great Recession").

Both discussions mention lower tax proposals. Wessel thinks that what Republicans have articulated so far is either too vague or too unlikely to be broadly popular. Bast (who is apparently not running for office) is not at all vague and does not address the question of politics and broad support. He likes lower taxes, less corporate welfare, less powerful labor unions, lower minimum wages, reduced worker compensation costs, affordable housing (but via not the Chris Dodd approach), fewer regulations, less lawsuit abuse and also "attract members of the creative class."

The latter is from the Richard Florida playbook and now makes an appearance on a libertarian's wish list. But if one is going to be skeptical of industrial policy-crony capitalism, how can one take seriously the idea that governments anywhere can pick winners when it comes to people? There are the same old realities: (i) how would they/could they know? and (ii) how could they/would they keep the whole project from being politicized?

I have spent many years involved with university admissions. It is no secret that this is a highly imperfect process. If there ever was a "fatal conceit", it is surely the idea that politicians can do an adequate job of singling out potentially creative people.

And the appellation "creative class" makes me cringe.

Recognition

It's great to be included on this list of 50 Top Civil Engineering Blogs.

Never a simple story

Human settlement densities get a lot of attention for two reasons. First, the data are usually easy to get; we know the areas and the populations of many places. Second, we rightly suspect that most people do their best work when they are near (but not too near) others who have worthy ideas and are doing good work.

Trouble is that most of the places for which we have data (countries, states, metro areas, even large cities) are too big. Human settlement densities vary considerably and averages are misleading.

Recently Sandy Ikeda and I considered densities for PUMAs (Public Use Micro-Sample Areas). Their average size is 100,000 and they approximate large neighborhoods.

Here are some of the fun facts:

For 2005 and for the top-25 PUMAs in terms of in-migrants with a Master's degree or higher, we found that these people migrated to parts of Manhattan as well as to areas such as Silicon Valley. These people were attracted to opportunities found in “low density” as well as in “high density” places. Four of these top 25 PUMAs were in Manhattan; four of the top 25 were in Silicon Valley; the other top-25 destinations were in West Los Angeles or suburban Washington DC, suburban Seattle, Austin or San Diego. The densest receiving area (in Manhattan) was thirty-eight times as dense as the most spread out (in Silicon Valley), yet each one succeeded in attracting many highly educated people. The areal sizes varied from below ten square km (Manhattan) to just over 300 square km(Washington DC suburbs) and one just over 250 square km (Silicon Valley).

There is no simple story even when the areas are relatively mall.

Neurotic? So what?

Dan Neil writes about the new all-electric Nissan Leaf in today's WSJ and gives it a thumbs-up. He mentions the 100-mile range and "range anxiety", but dismisses that as "neurotic."

Perhaps, but that is no reason to bet that range anxiety will not get in the way of sales. Behavioral economists and Dan Neil and the entire mental health field may shudder at the neuroses of the buying public, but to dismiss them lightly is another matter.

Speaking of looking back on one's forecasts, Megan McArdle has this very nice "I Wuz Wrong" post. In the Internet age, it's best to get out in front and admit to one's forecasting errors before the rest of the world does it for you.

I'll have to give it more than one year, but if I'm still blogging in (say) three years, I will return to the range-anxiety story and fess up to whether "I wuz wrong" or not.

Almost lost to history

The Nazi death camps of Europe are, for the most part, preserved and visited. The same cannot be said for the gulag. The Aug. 30 New Yorker includes the haunting "On the prison highway: the gulag's silent remains" by Ian Frazier. It's stunningly eerie because the author had to work hard and hire a guide to discover and stumble over remote and snowed in prisoner-built roads to discover the out-of-the-way remains of just one of the gulag's slave labor camps. One can only wonder, and in no way really fathom, all of the misery undergone in that place -- one of so many that are also lost to obscurity. The piece is actually the conclusion of a series abstracted here.

The author notes, "What struck me and then still strikes me now was the place's overwhelming aura of absence. The deserted prison camp just sat there -- unexcused, untorn-down, unexplained ... The world more or less knows what it thinks of Hitler. Stalin, though, is still beyond us. As time passes, he seems to be sidling into history as one of those old-timey, soft-focus monsters -- like Ivan the Terrible, like Peter the Great ... Hitler killed millions, and we have a rough idea how many, but the millions of victims of Stalin are still difficult to count ..."

There is much more. Buy, find the magazine. Read and share the article.

"Law of unintended consequences"

It often takes a policy to fix the consequences of the last policy. In polite company, it's called "the law of unintended consequences". We know that employer-provided health insurance in the U.S. can be traced back to World War II price controls. Employers compete on many margins and controlling any one of them is never the end of the story. The health care cost curve that policy makers are now struggling to "bend" is the legacy.

Likewise with the new rules to police credit card penalty fees. Yesterday's WSJ led with "Credit-Card Rates Climb ... Levels Hit Nine-Year High as New Rules Limiting Penalty Fees Help Fuel Rise." The new rules, of course, are part of the new financial market "reforms" and "consumer protections" that politicians will take credit for through the coming election season.

Public transit in Santiago, Chile

Great podcast re pros and cos of public vs private transit in Santiago Chile, by Mike Munger and Russ Roberts

Buy them a health club membership

Freakonomics points us to yet another study that shows how the design of neighborhoods can contribute to weight loss. I am, of course, skeptical. Weight loss, I am told is not so easy.

But lets' accept these results (reported in the American Journal of Preventive Medicine) and ask "at what cost"? The case study involves the Lynx light-rail operating in Charlotte NC. In earlier posts I had written that these systems are likely to be cost-ineffective. The data that Paige Elise Kolesar and I recently assembled show that Lynx runs an annual operating deficit of almost $8 million. Account for capital costs (which transit agencies often ignore) and the annual deficit is almost $46 million. Add non-user benefits (as per Ian Parry and Ken Small's calculations; American Economic Review of June 2009) and the deficit goes down to $45 million per year.

Lynx only attracts about 2.26 million boardings per year. If these are round-trips and users board Lynx 300 times a year, we only have 3,750 weight loss beneficiaries. If society loses $45 million a year even after non-user benefits are taken into account, the estimated weight losses cost us $12,000 per beneficiary per year.

Cynics started doing the math many years ago and found that buying rail transit users a car would be far cheaper. But that would never fly with the smart set. So consider the 2010 update which suggests that buying them a bus pass plus health club membership is the way to go. The various "cash-strapped" governments would save money.

Not easy

In a historic reversal, in today's America the rich are thin and the poor are fat. But we now hear that it's not peculiarily American, but just the arc of prosperity; other affluent societies are heading in the same direction. Lionel Tiger in today's WSJ sums it up very aptly and with a dash of fun ("Please Sir, Can I Have a Bit Less?").

And eating habits had to become part of political platforms because everyone else's health is now the source of an externality. Think of it this way: today's LA Times includes "China tries in vain to keep bellies buttoned up ... Beijing has been on a manners kick for the last few years, but on the hottest summer days, there is no stopping men of all ages and shapes from rolling up their shirts and exposing their tummies."

Managing all of these externalities was never going to be easy.

Walk before you run

I just found this which owns up to the obvious:

Should economists and policy makers have identified the housing market bubble before it burst? The answer is most likely no, says the Federal Reserve Bank of Boston, because economic theory was not up to the challenge.

“Economic theory provides little guidance as to what should be the ‘correct’ level of asset prices — including housing prices,” the new paper published by the bank says. It was written by economists Kristopher Gerardi, Christopher Foote and Paul Willen.

I have not yet read the original paper, but have been dumbfounded by all the learned finger-wagging about something that (i) we can best define in hindsight; and (ii) we can bet on/bet against if we think we "know something".

In this morning's WSJ, Jeremy Siegel and Jeremy Schwartz argue that we are now in a bond bubble. The arguments and the data are laid out and we can make whatever bets we like. Some of us will be right and some will be wrong.

In recent house-price bubble history, a confluence of events worked in concert to push up house prices; we want policy makers to do less to contribute to such episodes. Perhaps stick with a Taylor Rule. But that's not the same as asking them to do more and deflate bubbles when they think they see them.

Doing good can be hard work

Using geographic boundaries to aggregate information has always been caused problems. Economists have long noted that place-prosperity is a poor indicator of people-prosperity. Anti-poverty policies often target poor neighborhoods, but all neighborhoods are somewhat diverse and if and when a program actually elevates someone out of poverty, he or she is likely to leave the area. Geographic indicators will miss that success.

Insurance companies and banks usually get in trouble when they use "redlining" as a shortcut for identifying more vs less worthy applicants.

Today's LA Times includes this which illustrates the problem in another light. Here is the punch-line.

Some affluent areas qualify for tax breaks intended to benefit the poor ...
Businesses can save up to $37,400 for hiring in an economically disadvantaged area. But those areas are designated based on large census tracts that don't always reflect the intended demographic.

Among the advantages for those who live in multimillion dollar houses on the hillside in Los Feliz are celebrity neighbors, sweeping views of the downtown skyline, the Griffith Observatory in their backyard and designation by state tax authorities that they are economically disadvantaged.

That means tens of thousands of California businesses can claim tax breaks worth up to $37,400 each for hiring some of Los Feliz's rich residents, through a program that provides benefits to companies for hiring welfare recipients, ex-convicts, military veterans and the chronically unemployed.

This one makes the front pages because it is so bizarre. Who was it that said that missing and detailed local knowledge stymies even well-meaning political programs?

Not even close

Most urban planning faculties include one or more economists, as they should. It is even better when one of these professors applies one of the core ideas of economics (that getting the prices wrong can be catastrophic) to one of the core problems of cities (managing the auto-highway system). UCLA's planning faculty has had the good sense to hire Don Shoup and Shoup has had the good sense to realize that how we manage parking has been terribly wrong. The prices are all wrong and the regulations are all wrong. Among Don's many writings, his The High Cost of Free Parking is the classic summary of his insight.

In Today's NY Times, Tyler Cowen nicely summarizes the importance of Don's ideas.

The bad news is that the same newspaper includes back-to-reality coverage re traffic and how real world planners and politicians get it all wrong. "New Stress Added to the Heart of LA Gridlock" describes a $1.3 billion project to add another car-pool lane. The story mentions all of the extra delay that the construction project causes. No mention is made of the fact that projects like this do nothing to convert people to carpooling. No mention of the fact that building something expensive is much preferred to pricing something and in any dollar-for-dollar comparison of the costs and the benefits, the two approaches are not even close.

People like Don Shoup and Tyler Cowen just have to start working harder.

A better study?

This morning's LA Times includes "Wilshire Grand developer seeks public assistance on $1-billion project ... The LA City Council's Housing Community and Economic Development Committee has authorized a study to be conducted to evaluate the type of assistance the developer might get ... The study would be carried out by independent consultants hired by the City, and funded from $250,000 that the developers have agreed to pay ..."

I know, stuff like this happens every day. It would be nice if there were a betting opportunity on what the study finally recommends. But studies like this are part of a cottage industry and they are usually a bunch of dressed up assertions.

But why not include double-entry bookkeeping in the study? There will surely be employment multipliers as part of the magic, but what about the multiplicand? Every dollar that presumably turns over when the City forks over the $1 billion comes from somewhere. Every additional dollar that the multiplier conjures comes from somewhere. Studies that add up all the plusses are standard. But most of these have offsetting minuses somewhere else. If $250,000 will be spent on the study, then why not show the offsets too? I think I know the answer.

Sticking with the playbook

The political allure of industrial policy is clear. Picking "winners" can easily be confused with picking voters.

All this has been fused to the "need" for ever more deficit spending. And Federal Reserve printing presses have been joined to state and local government "needs".

The critics pin President Obama's falling approval numbers on "not focusing enough" on the economy, but what can they possibly mean? The Administration's playbook is pretty clear. The critics say he should do even more in the way of deficit spending -- picking ever more "winners". Thomas Sowell has aptly summed up the thinking of Obama's critics on the left: "Heads-I-win-tails-you-lose." The poor showing for all the spending is not that it's bad policy, but there has just not been enough of it.

The beauty of it is that you can apply this model to anything that has not worked out so well. Spanking the incorrigible kid not working? You did not spank enough! War on Drugs not working out so well? Ramp it up.

When there is just one playbook, what else can you do?