Friday, April 21, 2017

Let it be

The New Yorker's Adam Davidson writes about the "Sweet Smell of Success", in this case the cluster of firms involving cosmetics that project (or counter) odors, located in New Jersey (in and around I-95 "the stink highway").  Many other industries seek and find the clustering that serves them.

Economics is obviously spatial but this truism (still) gets surprisingly little attention from most economists. Economic growth (and how to get it) is all the rage. But cities are rightly called “engines of growth.” Advanced economies are urbanized because cities facilitate innovation and efficient production. Agglomeration economies and productive clusters of activities are often cited. There is a spatial dimension to explain how and why cities succeed. Densities matter but densities can also impose costs. Complex trade-offs are involved. Many densities emerge.
 
In market economies complex supply chains emerge. Each firm (each link in the chain) processes decisions regarding what to make vs what to buy. But this involves questions of producing where and also buying from where? Supply chain emergence has a spatial dimension and involves evaluations of the costs and benefits of locating at various sites. 

Innovation is key. But less studied but also essential are supply chains for ideas. Producers and consumers are keen on acquiring useful knowledge (Mokyr, 2002). From where? How? Location choice bears on this also. Most of us also seek to add value in the supply chains for ideas that we are involved with.

All of this is further complicated by the fact that while there is mode choice involved in the emergence of supply chains for things (deliveries by land, sea or air?). Information also comes at us in many ways. Face-to-face or electronic is an obvious contrast. Most of us utilize both. Again, the mix we choose and the site we choose are co-determined.

Many things and many ideas come and go via multiple modes to and from many places. Adamson cites Pontus Braunerhjelm of Sweden's Royal Institute, "it is all but impossible for government to create a cluster."  The complexity is beyond even (especially) the best and the brightest. But they all want the next Silicon Valley. 

Where is the original plan for Silicon Valley?  Emergence beats planning. The trick is to stand back as much as possible -- and let emergence happen where and how it may.

Friday, April 14, 2017

Friendlier skies

It is a cliche to say that where transacting does not occur there will be conflict -- even violence. Everyone has now seen the United Airlines thugs doing their thing on a recent domestic flight. Economists (notably Julian Simon) have long suggested that silent auctions would be much better.  ("Please go to our website and ..." ) The usual suspects however want more and better regulations (oxymoron?) -- such as a ban on overbooking.

A better antidote (also from Econ 101) is more competition.  That can easily be accomplished. International airlines that have already landed at a U.S. airport are banned from picking up passengers and ferrying them to the next U.S. destination. The ban is pure crony capitalism and should be lifted. Most other countries have no such ban.

Part of the stand-up comedy by airline attendants is when they say "we know you have a choice ...". How about many more choices?

CORRECTION

"Thugs" was the wrong descriptor. Uniformed law enforcement people find themselves in impossible cluster situations (such as the one described) all the time.

ADDED

Timothy Taylor has a short discussion of Julian Simon's thoughts on using auctions to clear an overbooking problem.

Sunday, April 09, 2017

Cities and markets

The fundamental insight of economics is that choices based on market prices give us the best allocations of scarce resources.  It follows that prices that come to us from any other sources can be problematic. The fundamental insight of urban economics is that good and bad things can happen when people crowd into cities. It follows that cities will grow and prosper if and when the costs of crowding are somehow mitigated. Prof Don Shoup put both of these insights together some years ago and made the case for wiser pricing of parking.

The Economist of April 8 has come around. "Sacred Spaces: Never mind public transport, bicycle lanes or elegant architecture. What really determines how cities look and move is their parking rules" and "Aparkalypse now: The average car moves just 5% of the time. The improve transport and cities, focus on the other 95%."  Print and electronic headlines not the same but these guys do know how to write.

The third relevant insight is from Hayek. Prices set without the benefit of market discovery are likely to be wrong -- and problematic. What then are we to do with all of the Pigouvian ideas re somehow getting the prices right in cases of external costs?

One approach is to let land markets be. (Not planners' favorite idea.) Land markets can help to arrange land uses in ways that reduce the likelihood that potential negative externalities become realized externalities. The hard-of-hearing will bid for residential space near places like airports -- if we let them.  So here we have it again. Rely more on markets.

For cities, the market failure theme was thoroughly embraced while the potential for policy failure was thoroughly ignored.

Thursday, April 06, 2017

Swings

The End of History was nice while it lasted. There are only cycles (a truism) but we never know the their timing (another truism). Mercantilism, nationalism and xenophobia are apparently back. When it comes to trade, we may get less when more would be better. The same is true of immigration.

"Fairness" is always a daunting concept. But here is the easy part: the accident of birth is unambiguously unfair. This recent New Yorker story helps to make the point. The only serious antidote is immigration. But this is where the hard part, political troubles, comes in. Are there models of applicant vetting that have a chance of influencing the debate? I would say that finding these is job #1. Philanthropists may consider seeding efforts along these lines.

We also know that economic success depends on entrepreneurs. Here is one more study that documents the fact that we get more entrepreneurs when we get more immigrants. Always recall that these great people want badly to come here.

So the current retreat from win-win liberal ideas leaves us where? First, we look for occasional bright-side evidence on people's attitudes towards immigration -- wherever we may find it. Second, we recall that the pendulum will swing back. It always has. As always, we do not know when.

Monday, March 27, 2017

Cities too big?

The usually sharp Ross Douthat of the NY Times has recently been writing about "implausible" or "ridiculous" (his words) policy proposals. What to do in the early days of a Trump administration?

Yesterday's version was "Break Up the Liberal City ... Cities as conspiracies against the public good." Douthat wants to treat the cities "as trusts that concentrate wealth and power and conspire against the public good."

He seems to confuse the city (the place, the economic entity) with city government.  When you say "Los Angeles" (or any other), be clear if you mean the place or the government.  Too bad that many people use them interchangeably.

What do we know about the place? (1) There are many flavors and sizes of cities; (2) The big cities like New York are complex jig-saw puzzles with many interlocking pieces (people); they are not uniformly "liberal"; (3) The cities (actually metropolitan areas that include city hinterlands) that grow (attract capital and labor) do so because they offer a winning combination of attributes and opportunities; (4) Cities are where interactions occur; new ideas are spawned, which is how and why they make labor and capital productive; this is why they are "engines of growth"; (5) The "breaking up" part is typically overdone in anti-trust actions anyway; lawyers and judges cannot easily tell who is "too big"; do prices fall? is innovation proceeding? That is the only relevant test. Amazon and Google are not (yet) "too big".

What do we know about city governments? Yes, too large and, therefore too awful. The scale diseconomies are clear.  Did post-war public school consolidation into large districts do any good?

There was a time when many preached the benefits of regional government. Too many small cities!  That would remove what choice there is and entrench all the wrong people. Extend the power and reach of big city governments into the suburbs? I think that Douthat is suggesting the very opposite.

Saturday, March 25, 2017

New exit

Perhaps the most insightful work on political economy is Albert Hirschman's Exit, Voice, and Loyalty. Staying clear of anarchy, we are stuck with governments and politics. These present problems that complicate our lives and our well-being. Perusing each day's news (newspapers) makes the case.

In any market economy there are inevitably forces that push towards the wrong capitalism, crony capitalism. What can be done? Exit and voice are two possibilities. Neither is without cost but in modern American life, exit is the more plausible option. Exhibit A is the lower schools. In most cases, real improvement is hard to achieve and parents have decided that vying for places in charter schools or competing for vouchers (where that is an option) is the best use of their time. "Fighting city hall" is far less promising.

We look to tech to disrupt monopolies. Uber and Lyft are the favorite examples but I expect that many more will soon emerge.

This morning's WSJ includes a review of Seasteading: How Floating Nations Will Restore the Environment, Enrich the Poor, Cure the Sick and Liberate Humanity from Politicians (which I have not yet read). The essay by Shlomo Angel suggests that technological advances (getting food and energy from the sea) are coming our way. These could make the seasteading idea plausible for some.

The San Francisco Bay Area is attractive to large numbers of tech workers and entrepreneurs (and many others).  But the combination of high attractiveness and local NIMBYISM has elevanted housing costs into the crazy realm.  Development is now being pushed to various corners of the Bay Area. Can seasteading in the mild waters off the California coast be another option? Can some tech (or other) firms set up shop off shore? Recall that California and Bay Area politicians get fat from the "sun tax": they get to do dumb things as long as California remains so attractive to so many. 

Off shore settlement beyond the 12-mile limit but within ferrying distance of SF Bay (there are already 15,000 commuters who ferry across the Bay) may be a check on some of the taxing and regulating. It's still a long shot but perhaps a way to get the benefits of California without all the costs. Mark Twain was wrong about land. "They're not making it any more." He should have mentioned location. There may soon be good enough substitutes for some land (at some locations).

Monday, March 13, 2017

Good old days?

Whenever someone evokes "the good old days," I answer with two words: "medical science." The ailments that we have experienced (or will experience) are best treated by today's (or tomorrow's) medical science, not that of 10, 20, 30, 50 years ago.  The long run longevity improvement trends are clear.

The other trend I celebrate is the rise in interracial and interfaith marriage. It and the mixed heritage offspring are the best antidote to ancient tribalisms that are our heritage -- and often our plague.

I'll take this year over any other.

But the arc of human progress is not easy to fathom up close. Numerous declinist essays and arguments have been floated in recent years. Nicholas Eberstadt writes about "Our Miserable 21st Century: From work to income to health to social mobility, the year 2000 marked the beginning of what has become  a distressing era for the U.S." in the recent Commentary.

Tyler Cowen makes similar arguments in his widely reviewed and well received The Complacent Class. To be sure, Cowen tempers his pessimism. 

Re Ebertstadt, be careful suggesting a uniquely U.S. predicament. Has not most of Europe also experienced a productivity and economic growth slowdown? Do not both, the U.S. and Europe, have to cope with an aging population that works and invents less? Are not both afflicted with sclerotic politics and bureaucracy?  Have not both gone through a financial crisis brought on by a concocted housing boom? Is not catch-up growth (unlike China's) no longer an option for both?

Re Cowen, its more complicated.  He cites similar outcomes as Eberstadt but he devotes his argument to the idea that Americans have lost the adventurousness that characterizes their history.  Thus the title of the book. How and why did mass complacency happen? "Ultimately America decided it didn't want a redo of the turmoil of the 1960s and 1970s, and it did what was needed to stop that from happening" (p. 11). Cowen believes in cycles.  Economic models that include demographics will give you cycles but the models are not so useful when it comes to the specifics of durations and amplitudes.

One of the many recent U.S. trends that Cowen studies involves improved matching capabilities and opportunities (including "assortative mating" which has a been written about a lot). These are mixed blessings. The author elaborates in Chapter 3 of the book, "The Reemergence of Segregation".  "Reemergence" does no suggest Jim Crow forced segregation -- and the painful efforts to overcome it; it is not I-have-a-dream integration but it is not Jim Crow either. Consider a recent LA Times report about Leimert Park, a middle-class mainly black LA neighborhood. There is apparently a backlash against "too many" white families moving in. Not that many years ago, few would have thought that any integration would be protested by blacks. The fact that people, like many in Leimert Park, prefer voluntary segregation may be an unpleasant surprise for 1960s freedom riders. Improved matching opportunities makes sorting (and segregation) in many activities easier. Mixed blessings.

My other caveat re Cowen is over his treatment of upward mobility. He writes that it has been been "outsourced": most of it is now by the immigrants. "Any country with a lot of immigration will have much more upward mobility than its published numbers indicate" (p.150). Of course. The original status of immigrants is by definition absent form the data that mobility researchers rely on. But you can also put this in the good news column. Ambitious people (to the extent that they can get here) have the U.S. as a place to go and thrive.  We get external benefits -- and economic growth prospects. Much has been written about the entrepreneurial spirit of immigrants -- high tech as well as low tech. Cowen would like to see more upward mobility by the U.S.-born. While we wait for that, the more that can come here, the more upward mobility in the U.S. (however measured) and the world.

We cannot have open borders but we can work to discover how to do better vetting to reduce the Type I and Type II errors. Make that a priority. Let more people in and get more of that "outsourced" upward mobility.  This may seem like a stretch but so are Cowen's favorite fixes (p. 194-196).

Back to Eberstadt who makes much of the shock that many felt at the Trump win in November. Many blue-state residents were indeed comfortable inside their own bubble -- from which they could not grasp the world view of the left-behind. Eight years of Obama-Clinton elitist moralizing hardly assured these people. But (pace Middlebury College hoodlums) Charles Murray deserves all the credit here. He did great work in his Coming Apart -- and the "bubble test" he included. All this was written well before the Trump election. Murray showed that most of us spend too much time inside comfortable bubbles.  Murray wants us to get out more -- even beyond our comfort zone(s).

Diversity of thoughts and ideas, amicably and thoughtfully exchanged, are the ideals. All three of the cited writers want that.  Many more of us, including  "The resistance", ought to take up the banner.

Wednesday, March 08, 2017

Sausage factory rules

Conor Dougherty writes abut NYC street traffic in today's NY Times. "Self-Driving Cars Can't Cure Traffic but Economics Can."  There is congestion because there is no pricing. Take one rationing method off the table and another becomes the default. This has been the relevant economic insight for as many years as economists have looked at the problem. While textbooks speak of congestion as a "market failure," the failure to price is actually a failing of policy makers and politicians.  Transactions costs have been removed as an obstacle by modern technology and the arrival of easy, fast and cheap scanning and billing.  These have been implemented and tested in various parts of the world, in particular where there are bottlenecks such as at bridges and tunnels.  The remaining objection has been over the regressivity ("fairness") of pricing. But Uber's "surge pricing" has been seen as entirely sensible by most people.  Matinee pricing, early bird specials and similar time-of-day or season-of-the year demand-responsive pricing have been around for a long time. It's when prices emerge via the political sausage factory that the predictable positions are wheeled out.

Sausage factory rules also explain why the regressivity of taxing people (often via sales taxes) to pay for enormously expensive and often underused subways and similar transit is usually ignored.

Tuesday, February 21, 2017

Game-changers

Here is the L.A. Times noting that LA Metro ridership is still falling -- even though billions have been (mis)spent on extra capacity over the last 30+ years. By my count that's the second time this year that the Times has broached this tender topic. As a member in good standing of the LA "good government" (googoo) establishment, the paper had for many years chosen to tip-toe around the bad news.

Readers of this blog may know that some of us began flogging the dead horse in the mid-1970s. Go to the attached proceedings and read the contribution by the late UCLA Prof. George Hilton. He was among the first to write sensibly and clearly that LA is not NY -- and trying to make it so would be a phenomenal waste. But even LA Times coverage will be for naught. Billions more will be spent. Pouring good money after bad is what the great and the good in city hall do for a living.

We are in the the early years Uber/Lyft and all manner of ICT information sharing.  These are the game-changers. For the past two months, my wife and I have graduated from a two-car household to a one-car-plus-Uber-plus-walkable-neighborhood HH. The game-changers are here. Conventional transit was never a game-changer.

Monday, February 20, 2017

Why have economists in the room?

Good politics makes bad economics and vice versa. The Trump administration's ideas on trade prove it. In today's WSJ, we see that "Trump eyes change in counting U.S. exports that could make trade gap look bigger."

Adam Smith pointed out many years ago "Nothing can be more absurd than the balance of trade." This "balance" (current account deficit) is reported and fretted over regularly. But less noticed is the simple fact that the deficit is necessarily mirrored by an equal and opposite surplus on the capital account.

Currency exchange rates reflect the supply and demand for any and all currencies. Supply and demand for any nation's goods and services as well as supply and demand for any nation's capital goods determine supply and demand for any nation's currency.  At the end of the day, currency values price and prompt all of these trades. 

Put it another way: Americans get to consume more than they produce because the world wants to invest in American capital goods. This also means that American taxpayers (and politicians) can consume more than they produce. Sweet deal all around.

What are the lessons? The world wants to invest in the U.S. Good news. The "trade gap" proves it.

It would be even better if the federal government (politicians) did not reap the benefits. These "investment opportunities" though attractive abroad (for the most part) do little good.  Far better if foreigners used their U.S. dollars to make productive U.S. investments.

Gains form trade are fundamental and beneficial.  Double-entry booking is also fundamental and beneficial.  I understand the politics. But why have economists in the room if they simply parrot the politics?

Wednesday, February 15, 2017

Practicalities, reputations, gossip

Dan Klein has a forthcoming paper (Independent Review) on "The Joys of Yiddish and Economics." Dan looks at the Leo Rosten classic as well as the essentials of Smithian-Hayekian economics and finds various parallel insights. Smith-Hayek famously noted the information content of prices and the useful embellishments of reputations -- whenever we buy or sell.

The characters that Rosten described were practical men and women. Survival was job #1. They could not afford to neglect practicalities. As such gathering information was fundamental. Where and when they could get it at low cost was part of survival. The humor is usually from the joy of recognition.

Thanks to the web, we now live in a sea of information. But we still engage in gossip (in person and on social media) because trust is always being tested. We network electronically as well as the old fashioned way. We seek (and find) the blend of networking opportunities (face-to-face as well as electronic) that works best for us in light of our personal situations.

It's really not so different from Rosten's characters and their situations.

Wednesday, February 08, 2017

The public (politicized) schools

Here is Eric Hanushek, arguably the most astute scholar on U.S. lower school performance (and what can be done about it), commenting on flat and dismal Pisa scores for U.S. students.  Note that he says U.S. scores have been "stagnant for the last decade". He also addresses and deflects the standard criticisms (excuses) for the status quo that are traditionally offered. Read the whole thing.

Below are data compiled by AEI's Mark Perry on what we pay for this tragedy.  All of this is poignant because the most contentious Trump cabinet appointment to date has been the confirmation of Betsy DeVos. It's telling that her critics charge that she is not from the education establishment. Revealing. They are unaware that they cite her most distinguishing qualification.


Vouchers would not destroy the public schools.  Rather, all schools would be incentivized to earn their public subsidies rather than receive them as an entitlement. There is nothing like competition and innovation. Both have been missing. This is why we have the sorry mess we are in.  Let 100 (actually many more) flowers bloom.

Here is the WSJ's Daniel Henninger explaining how and why those who live and breathe "social justice" are obliged to show their true colors on this issue.

ADDED From a Feb 10 Ed Glaeser WSJ book review: "My preferred course would be a single-minded devotion to skills—learned in charter schools and on the job and at the breakfast table and while sitting patiently in a house of worship ..."  From Edward Conrad's The Upside of Inequality: "Today U.S. growth demands properly trained talent ..." (p. 13). 

As always, how we we get from here to there?

Wednesday, February 01, 2017

Consequences

Globalization, immigration, and trade hit some Americans hard and many turned to Trumpian populism.

Here Russ Roberts interviews George Borjas to discuss Borjas' We Wanted Workers (which I have not yet read). Early in the conversation, Borjas explains "we wanted workers but we got people" is closer to the real experience and complicates the story way beyond the simple economic models.

The conversation is, as always, useful and enlightening, but the two economists hit what are in my view two dead ends. First, they wonder whether rather than limiting immigration, can native workers be better prepared to compete? Both men favor "better education." But how will that happen?  American kids have been posting lousy Pisa scores for as long as I can remember - no matter what is done or what is spent on the schools. And which Trump cabinet choice is in trouble at this moment? Betsy DeVos who promises to be the first Secretary of Education not in the pocket of the education establishment -- which is why she is in trouble. So much for the education fix.

Elsewhere in the conversation, Borjas and Roberts note that immigrant assimilation was once the choice of most immigrants as well as of most Americans. But no more. "Melting pot" is now a microaggression on some college campuses. Yes! Not a bad joke.

Tribalism around the world accounts for countless deaths and wars.  Coming to America as way out of tribalism was the great American achievement. It never meant that ethnic ties would be lost.

But identity politics and confusion now reign and we have lost something notable and precious.

Those still puzzling over the Trump win might reflect on political correctness jammed down our throats for years. The Ft Hood shootings were simply "workplace violence". Yup, and we're all stupid. And the geniuses who came up with this tactic knew what they were doing. Not really. What we do know is that they will be puzzling over (and writing about) the Trump (who I did not support) phenomenon for many years.

Arrogant cluelessness (just like elections) has consequences.

Thursday, January 26, 2017

No escaping Downs' Law

Take pricing off the table and the alternatives are not promising, much worse than tying just one hand behind your back. This is true for almost any public service.

Some years ago, Anthony Downs elaborated and popularized the idea with his "Law of Peak Hour Congestion."  Here is a nice summary. Without pricing, extra road capacity will simply attract traffic from other sources (other modes, other routes, other times of day, new trips, etc.). Congestion will not be "solved." The idea is simple -- and the lesson has been ignored a thousand times. Officials are loathe to price but love building things. This is "bi-partisan". Crony capitalism is non-denominational.

Elon Musk has now made another media splash by promising to "solve" LA's traffic problems (which have eluded all of the previous "solutions" for the same reasons) by promising new capacity via a tunnel under the Hollywood Hills. It's big, it's splashy and it's Elon Musk. What could go wrong?

Subways are thought to "work" in NYC for historic reasons. But even there, the costs (in light of U.S. construction practices) have escalated enough to make the whole idea questionable. Would a Musk super subway be any different. There is nothing there that addresses Downs' Law.