Tuesday, February 11, 2020

Because they can

I never took the Stanford Marshmallow test but presume that I am patient.  The current issue of The Economist notes that transportation in Los Angeles ought to involve more buses and less rail transit -- and also congestion pricing on the freeways. Finally.

Tom Rubin sent this:


Image preview

It is hard to fathom the bizarreness of the situation but the graphic helps. While $20-$25 billion have been spent on rail transit in LA county since the mid-1980s, transit use is down -- while the area's population is up by over 1 million (many of them low-income immigrants). It boggles and it would be hard to engineer a worse outcome but our social engineers are at work.

It's about anti-car greenness and all of the silliness that the romantics conjure -- while in bed with those on the receiving end of all the billions.  Drive down LA's Wilshire Blvd right now and observe subway work in progress. Bootleggers and Baptists having a party.

Beyond LA, politicians from both U.S. parties borrow and spend because they can. There are no bond market signals that the world is tiring of ever more U.S. debt. Pres Trump just sent Congress a budget proposal. The only contest will be over who gets the most pork.

Arnold Kling recently posted that there are 13 countries in the world with populations over 100 million. He mentions that all except the U.S. and Japan are "very authoritarian, incompetent, or both."
Both of these countries' treasuries are heavily in debt. What Americans can hope for is to remain the tallest pygmy.


Thursday, February 06, 2020

Be careful out there

Watching last night's State of the Union was not easy. With cameras on and the nation watching, preening and pandering were on full display.  That's our democracy (our politics). Some of the post-event talking heads, who were obliged to say something cited perennial stats about the low esteem/low approval that the public accords to "Congress."  But that's a silly view in light of the fact that these guys get re-elected at astoundingly high rates, mostly in the 90-percent range, always over 80-percent, year after year.

It's simple to reconcile the two points. People's view of Congress is almost irrelevant.  But people tend to like "their guy". Or he/she becomes their guy by "bringing home the bacon". After all, incumbents have to make it their business to know their constituents and also what buttons to push. It's a simple point. Consider the players, not the categories.

On a similar theme, a favorite political topic is "worsening" income inequality. But the bulk of the arguments made compare snapshots of different groups over time, not the progress of real people over time. Even better, what is inter- generational mobility? What are the odds that someone born at the bottom can move to the top? Where and when?

Data are great but a some judgment is always essential. Big Data alone cannot do the job.

ADDED

Here is a brief post about the anomaly of people who trust their government less but want it to do more.



Monday, January 27, 2020

The romance and the news

It's election season and we see sides of human nature that are not pretty. Seeking votes, candidates make promises they cannot keep. Voters chose to suspend disbelief. Many seek to be on a winning team.

Americans (and others) enjoy prosperity that is out of all proportion to the other-worldliness of their politics. Davies writes: "People alive today, even the poor, are the luckiest people in human history." This is in spite of what happens in their politics and government. The markets (and the culture that supports them) must be formidable. McCloskey spells it out.

We vote with our wallets, with our feet, with our voices, our ballots, etc. Problems of voting with ballots have been well studied via a considerable body of public choice analysis. Yet, this approach remains beyond "mainstream" economics because it undermines so many "market failure" analyses. How many scholarly papers have posited an implausible model of "perfect" markets, found that perfect ("nirvana economics") is unlikely and proposed a policy fix?

Public choice notes the limitations of voting. Intensities of preference are ignored. Rational ignorance is expected. Voter turnout is low. Interest groups have an advantage and often win. We get large deficits, large bureaucracies, large cronyism, etc. Buchanan famously told reporters that his contribution was all about "politics without romance." Yet, there remain many romantics who expect that voting aggregates and transmits preferences.

Briefly compare voting for President to shopping. You get one vote every four years. You transmit how many personal preferences? Vote or nor? Vote for D or for R? Contribute money or not? Contribute to D or to R? Contribute time or not? Contribute time to D or to R.  I see between one and six choice points.

But how many household shopping trips per week?  This site says about 1.6. How many items purchased per trip? Let's say 10. How many aspects of each purchase matter? Let's s say price and familiarity and quantity/size. Roughly, 2,500 decisions per household per year.  There are probably many more. We're pretty good when thinking fast so all this is easily manageable. Sellers know the story and are incentivized to make it simple and manageable and even appealing. Go to a state liquor store (if you state has them) and quickly see the contrast.

We have a much better chance of making our preferences known (and counted) in the market than in our democracy. Not everyone votes (for obvious reasons) but those who do, enjoy the romance. I get that. But I also see/read the news.


Wednesday, December 25, 2019

Big data and big plans


The year-end issue of The Economist includes a nice essay on planning. “Beware of the Borg” (title in print edition). Everyone plans; plans can be coordinated by markets or usurped by top-down grand plans. The latter often fail, ending in calamity and often much worse. We have heard about Venezuela, USSR, North Korea and many more. Top-down plans fail because utopians ignore the fact that knowledge is complex and dispersed. Promises are inevitably broken, people go hungry, and autocrats resort to terror and corruption to stay in power. 

In the real world, specialization and exchange prompt resource allocation and innovation, but only if rights are credible and secure.

Just as no one person can make a pencil, and yet pencils are everywhere, supply chains are everywhere. Supply chains are emergent. They are formed and maintained by savvy entrepreneurs. Add that there are supply chains for ideas and information. Commodity supply chains begin with supply chains for ideas. We all search for useful information all the time.

Just as entrepreneurs decide what to make vs what to buy, they also choose what to make and buy where. Sometimes the “where” question evokes various shades of nearby as part of the answer. The cities we get are actually a complex mesh of supply chains, including supply chains for ideas.

Transactions all across any chain are most likely where there is trust; trust is established when and where there is communication. Communication can be electronic or face-to-face. All of us pick the blend of communications channels that works best for us. In so doing, we pick a location that is best for the chosen blend.

Hayek (and many others) have argued that top-down planners cannot accomplish any of this. They could not replace the market’s discovery process and would always be badly informed. They are also (by definition) highly politicized which makes a bad situation worse.

All this is clear enough but utopian romances are hard to dislodge. Class struggle and the romance of righting historical grievances are always a problem and always fanned by opportunist politicians.
The Economist’s survey also links an old debate about markets and planning with a new one (a new utopian romance) about the potential of "big data" to change the old debate. David Gelernter argues that big data will not replace human imagination or ingenuity. The Economist also quotes Alex Tabarrok: "the problem of perfectly organizing an economy does not become easier with greater computing power precisely because greater computing power makes the economy more complex." Do read The Economist's whole essay.   

Tuesday, December 10, 2019

It takes a horrific hurricane

Where to start? We have too much crony capitalism. Many of our young people graduate unprepared for productive work. Productivity gaps translate into income and wealth gaps. Some of our poorest children are condemned to the worst schools.

Terry Moe and Russ Roberts report that these are all wound up as one big problem: the ways in which the education establishment has succeeded in choking off reform and innovation and experimentation. And many of the people who fret most about all these things are dug in on the anti-reform side.

Moe's research centers on the pre- and post-Katrina New Orleans schools. The school board resisted reforms and the outcomes were predictable -- and awful. Graduation rates were in he mid-20% range. But the Katrina devastation was so severe that not only buildings but the administrative infrastructure that ran the schools had to be replaced. In desperation, charter schools were allowed. Parents became involved. A freer atmosphere that allowed experimentation followed. Graduation rates doubled,

Moe and Roberts emphasize that none of this was planned. Good news and bad news. A small measure of openness brings welcome change. But it takes a mighty hurricane. What can we expect for the rest of the country? 

Sunday, October 27, 2019

So many confusions

In the current the New Yorker, Adam Gopnik writes "We Built This City: What we can learn from a long-reviled master of 'urban renewal" which is a long-winded review of Lizabeth Cohen's Saving America's Cities: Ed Logue and the Struggle to Renew Urban America in the Suburban Age. (which I have not read). Gopnik is seemingly perplexed and ends this way: "What aspects of Ed Logue's legacy do we really want to revive? Essentially it's the intentions not the edifices."

The review meanders between discussions of projects that Logue was involved with and very general discussions of cities. The discussions do not mesh because the problem of scale is not addressed.

More than anyone, Sandy Ikeda has pointed out that Jane Jacobs' criticisms of planners (like Logue) is that they did not pay adequate attention to the fact that cities are beyond the design capabilities of humans. "Intricate minglings of different uses in cities are not a form of chaos, On the contrary, they represent a complex and highly developed form of order." (Jacobs, 1961). Could Hayek have said it any better?

We are indebted to clever designers for creating almost anything within reach. But their human capabilities only scale up so far. City planners (and many others, especially their architect colleagues) simply presume that their design skills can be scaled up and up. Alain Bertaud recently published Order without Design: How Markets Shape Cities. Precisely.

Bertaud notes (p. 7). "Some urban regulations are indispensable. I only advocate periodically auditing urban regulations to eliminate the ones that are irrelevant and malignant." Yes. The folks in City Hall can do nothing about climate change which is a global commons. But they can posture and grandstand. Trouble is that this is not an innocent error. Road diets can kill people.




Monday, October 07, 2019

Near and Far

We know that information is crucial, complex and dispersed. This is why there are ubiquitous information markets. We are all on a mission to seek out, not just data and not just information, but also key ideas. We start with hunches re what ideas matter to us and where to look find them. Just hunches. They are the place to start.

Many ideas are best transmitted person-to-person in conversations. This is complicated: tacit information that is not easily articulated, let alone encoded and emailed. Person-to-person interactions include the added benefit, aiding the development and cultivation of essential trust relationships.

These are fairly clear points, but they have been challenged by death-of-distance enthusiasts. The cities (metropolitan areas) are clearly spreading out -- and will continue to do so. I have mentioned before that none of this is paradoxical. The complex location problem addressed by businesses and people involves finding the right blend of interaction partners and interaction modes and distances. If you solve for the equilibrium that is best for you, you will find that you have contacts as well as correspondents near and far.

This morning's WSJ includes Andy Kessler's "An Investment Tip from Mr. ZIP"  He concludes this way:
The future is always fuzzy. Like horseshoes and hand grenades, you only have to be close. Get in the ZIP Code where the wind’s blowing, and watch things fly.
ZIPs can be fairly big. Kessler does not suggest Manhattan or Hong Kong or Tokyo crowding. But it is not death-of-distance either. It allows for agglomeration near as well as far. Both.

ADDED

City growth is at the edges. It's a very old trend but ignored by many living in a data-free world.

Wednesday, September 18, 2019

Progress and panderers

Progress is my favorite idea. Steven Pinker has (and many others have) documented how much better off we are than those who preceded us. I am happy to be alive now, rather than at any other time in history. Whoops! I have used the fraught word "happy".  John Gray tells us to get real. "Drug use is a tacit admission of a forbidden truth. For most people happiness is beyond reach. Fulfillment is found not in daily life but in escaping from it. Since happiness is unavailable, the mass of mankind seeks pleasure." (p. 141-2). And much of mankind (perhaps inevitably) ponders the road to happiness.

Many of us have our doubts about politics. The U.S founders got it right. Politics (government) is a necessary evil. So let's be careful and set boundaries. But almost 250 years later, the boundaries have been roughed up. Should Gray have included politics in pleasure-seeking? Many like to cheer for a team. Any team.

The politics we have is represented by a bunch oddballs (kind word) promising to give us things that they cannot give us.  Do any of them even consider the craziness of their own rhetoric?  We will never know. The old adage: there are two kinds of people, those that do not know and those that do not know that they do not know. Perhaps they have been playing the game for so long that they have lost track and half-believe their silly promises and rhetoric. They can always find cheerleaders. The NY Times (and other outlets) have lost most of their advertisers. The once paragons now pander to the pleasure-seekers.

ADDED

Examples are all around.

ADDED2

Great conversation. Listen to this. Then read the book.


Saturday, August 31, 2019

Inequality


The New Yorker (Sep 2, 2019) reviews yet more recent work on increasing inequality ("Widening Gyre").  There are many discussions like this one. What to keep in mind? It’s very complicated! Here is a simple checklist. Pick any one for your next chat with a political candidate. I stop at ten.

1. Inequality is not to be confused with poverty – although the zero-sum people seem to think so. Magically double all income and poverty will almost disappear but inequality will increase. Is this ever spelled out?

2. Almost all the data referenced in these discussions are snapshots, even if they are repeated snapshots. Real people move in and out of statistical categories. Only if we track actual people and see how many move up or move down – and over what time span – do we get a useful picture. Is this even hinted at?

3. Are the measurable data we have useful? Measure income? Wealth? Health? Longevity? Happiness? What to count? What can we count?

4. Is consumption inequality getting better or worse? And how would we know in light of the constant quality improvements of most of what we consume?

5. Do we care about equality of opportunity or equality of outcomes?

6. When we see wealth, do we automatically assume ill-gotten gains? If not, why are we fretting?

7. Are all the inequality discussions feeding off (and feeding) the unpleasant human propensity to envy?

8. Is fanning the flames of envy a political convenience for demagogues?

9. Is life unfair in terms of genetic endowment and the inequalities it bestows?

10, Is there some threshold of inequality where class antagonisms come into play to stress the political and social arrangements we need to flourish?

ADDED

Here are two very smart economists discussing many of these points. What do they agree on? Better training is a good idea. How do we do that? 

Thursday, August 15, 2019

It's the season


The very long U.S. election season is here.  What to keep on mind? Two things strike me as fundamental.

1. Knowledge is complex and dispersed. This means that innovation (and progress) depend on trial-and-error innovation in a competitive environment – one not encumbered by the heavy hand of you-know-who. This is especially important in a season when the candidates have policies, plans and programs for everything.

2. In fact, there will always be a political class (includes their many private sector cronies) working hard on cronyist plans and policies.

Millions of voters have sat through some version of an economic principles class. How many of them have encountered these two fundamental principles? Too few, I worry.

These two fundamental observations are facts of life and in conflict. That’s what makes it interesting. The economist Peter Boettke has elaborated and even imagined a derby involving “Three S’s”.  Smithian gains from trade, Schumpeterian competition, and, third S for stupid.

All three are always in play. And it’s election season.

Saturday, July 27, 2019

Thirteen thoughts on growth and cities


  n  Economists’ favorite question is still “How did we get so rich?” We learned how to coordinate production. We learned how to coordinate discovery. We learned how to form mutual loyalties – for social as well as economic reasons. Can we unscramble the social from economic? Does it matter?
  n  Supply chains for commodities are ubiquitous; they illustrate and deliver the gains from specialization and exchange. Most chains for things are accompanied by chains of information. Think of instruction manuals and accompanying videos and websites and/or live  instructors.  Buy an airplane and they send you to their own training school.
  n  Supply chains for information are everywhere; these nurture supply chains for ideas. The more information, the more ideas. We live in many goods chains as well as many information chains; we are also likely to live in many idea chains. Some of the latter involve face-to-face contact. Location choice and interaction mode choice are concurrent.
  n  The more new information, the more new ideas. We seek both. Information can hatch ideas and also help test ideas. Ideas and information feed each other just like theory and hypothesis testing feed each other.
  n  Neither information, nor ideas, are manna from heaven. Key facts and idea are deemed useful -- and are sought. The search may start with a hunch but can lead anywhere. Nevertheless, it is directed.
  n  All this says (once again) that technological change is endogenous; new knowledge and supply chains for ideas are emergent.
  n  Supply chains involve many nodes/locations; spatial patterns and interaction patterns emergent. Entrepreneurs must choose what to make vs what to buy. But that’s incomplete. Make vs. buy involve where to do all these; e.g., location choice.
  n  All this illustrates how prosperity and human settlement are two sides of the same coin. Propitious location choice (opportunities for propitious choice) denote prosperous cities – and prosperous economies.
  n  What can we, should we, do about location choice and cities? We should leave room for emergent orders. This is how we get a chance at greater prosperity.
  n  The continued outward growth of major cities is nearly universal. Local policy regimes seem to make little difference.
  n  Agglomeration opportunities are not restricted to the old centers. There are many sub-centers. Locators are drawn to favored places as they economize in light of their peculiar interest in specific commodities, ideas and information flows.
  n  Cities are a complex mesh of an uncountable number of supply chains. They are much more than simply labor markets. It is not about journey-to-work or journey-to-shop but much more.
  n  Instead most urban policy/city planning discussions dwell on top-down plans and “visions”.  They even call it “smart” growth.


Tuesday, July 09, 2019

Engines of growth -- and new ideas


Fly low over a major urban settlement and what do you see?  A mesh of an uncountable number of supply chains, including supply chains for things and for ideas.

Discussions of cities and how they work are of three kinds. Economists like the neoclassical model of spatial equilibrium; sites are evaluated by competitors and equilibrium site rents emerge. Designers (often utopians) like ambitious plans: their top-down design skills can be scaled-up significantly. Followers of Jane Jacobs disagree and celebrate the complex spatial arrangements that emerge bottom-up; knowledge is complex and dispersed.

Most urban planning is about growth controls, containment, limits to sprawl – all of which are based on an abiding faith in getting big things right, top-down.  The fact that most urbanization continues to be at the edges demonstrates that the old-time religion fails again and again. But it does impose costs, notably housing unaffordability for many. “Costs of sprawl” indeed.  These are the costs of anti-sprawl.

Agglomeration (often vaguely defined) explains why cities even exist. My favorite approach to agglomeration introduces the idea of supply chains for ideas. Think of it this way.  Ideas are not simply “in the air” and therefore public goods – and a challenge to economic modeling. Rather, we keenly seek useful ideas for our various projects (thank you, JoelMokyr).  Also, as we engage in normal (ubiquitous) supply chaining, we are likely to exchange ideas along the way.  At many of these junctures, ideas can be re-stated or refined, perhaps in new and interesting ways. As new ideas make new product, there is feedback to ideas. Ideas are purposefully exchanged and renewed. How else would we get enhanced productivity and growth?

Supply chains are all about specialization and gains from trade.  Supply chains can be very long and very complex. They are ubiquitous. We all participate in an uncountable number of supply chains – for things and for ideas – as demanders and as suppliers.  Whereas Coase taught that entrepreneurs and managers grapple with the make-or-buy challenge, add the obvious thought that what to make or buy where is embedded in these decisions.

Everyone is keen to find conveniently located trading partners -- where trades can involve things and/or ideas. We approach site choice with this in mind. Exchanging ideas may (or may not) involve nearness.  Tacit idea exchange and trust-building may require nearness. Many ideas, many things, many modes of communication: many choices to evaluate and trade off.
 
John Cho and I have shown (using plant location data for Los Angeles) that nearby (same census block group) location (“clustering”) is barely explained by input-output links. These (sales as well as purchases) only explain about 2% of the block-group association. That leaves supply chains for ideas.

Enhanced discovery, growth, and human betterment depend on how things are arranged in space. Let the sharp people discover these. There is no other way. This is how cities become "engines of growth."

ADDED

Listen to what Will says about cities.


Sunday, July 07, 2019

Be a persuader


David C. Rose explains Why Culture Matters Most. Small-group moral intuitions, small-group trust, are our heritage. But how to get large-group trust? How do we get and sustain the many individual acts that create and sustain large-group trust? Large-group trust is a commons and hard to sustain. Rose writes that today's multiculturalism embraces tribalism and is a step backward. Yet he remains optimistic. “Changing prevailing beliefs is hard but we have done it before.” (p. 168). He cites the civil rights movement and the environmental movement as recent spontaneous examples.

Civil rights, yes. Re environment, its complicated.  The LA Times reports L.A. is hemorrhaging bus riders — worsening traffic andhurting climate goals” (June 27, 2019).  The LA bus system has been declining for years because of the 40-year (and counting)  MTA drive to build high-cost-low patronage rail transit.  They want to “get people out of their cars”. But they are moving in the opposite direction. I keep citing Baptists and Boootleggers (thank you, Bruce Yandle). It’s one of those ideas (like economic growth) that once you start thinking about it, you cannot get it out of your head. 

So Mancur Olson was right. Cronyism is inevitable in the modern mixed economy – and it just gets worse over time.  In this conversation, George Will and JonahGoldberg conclude with, “be a persuader.” This is from two of the best. It will have to do.

Monday, June 24, 2019

Perhaps

There are many possible futures we hope are not in our future. Nuclear war, meteor colliding with Earth, infectious diseases that we cannot stop, many others.  The consoling thought is that (for all we know) the odds of a bad outcome are low. But here is a scary future that is by no means low-odds: is crony capitalism inevitable?

The widespread acceptance of "green" policies (accompanied by the constant bleating that climate armageddon is inevitable) is a case in point. Here is Matt Ridley. Does Bjorn Lomborg appear on school syllabi except in isolated cases?

As the wise Bruce Yandle showed us, when bootleggers and the baptists hold hands, we are in trouble. I just started reading George Will's new book. He gives up on today's Republican Party as being sensible on this (or other) issue(s).

What to do? A Constitutional convention is unlikely.  Executive of legislative action is, by definition, unlikely. That leaves the courts. This morning's WSJ editorial on the court suggests that a new seemingly originalist court is finding its legs.  Perhaps there is an antidote to ever more cronyism. Perhaps.

ADDED

Bjorn Lomborg interviewed by Russ Roberts.