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.

Wednesday, June 05, 2019

Road diets

It's clear that most people like their cars. But it is also true that many people like to complain about cars and traffic. Some of the confusion comes from the fact that the auto-highway system is poorly managed.  Access and parking ought to be priced. But many planners see pricing as exotic and/or nefarious. Bob Poole's latest book is a great reference.  These are policy failures even though textbooks still call congestion a market failure.

The latest in a long list and variety of policy mis-steps in the transportation field involves "road diets."  There is nothing exotic or arcane here. Take lanes from normal traffic (in the interests of cyclists or just plain anti-auto animus) and first responders cannot get through. And people die. Nothing says policy failure more than needless death.

Look at the HBO Chernobyl history. Or look here. Needless death from politically inspired incompetence. Thirty (perhaps more) people died.  We will kill many more with our road diets.

ADDED

From the anti-auto hysterics. http://www.newgeography.com/content/006325-when-it-comes-road-diets-small-businesses-are-biggest-losers

Tuesday, May 21, 2019

Help for graduates


Climate change is hard. It is a global phenomenon and any effort to “do something” must involve seemingly near-impossible global political cooperation. Sacrifices made by already relatively Green U.S, citizens are, about virtue-signaling which is in much demand throughout the U.S. (and beyond) these days. Joseph Epstein explains.

Betting beats BS, they say. Trouble is that there are few instances where the two parties can agree to terms and then sign on to the deal. The famous “Doomsday” bet between Julian Simon and Paul Ehrlich (which Simon won and was ready to repeat) was an exception.  But outcomes like this matter very little. Virtue signaling is too important.

Nevertheless, a fine addition to debates like this is Pierre Desrocher and Joanna Szurmak’s Population Bombed! Exploding the Link Overpopulation and Climate Change. The book is informative, well sourced, and clearly written. In addition, the final chapters wonderfully probe the mind set of the pessimists. Pessimists-zero-summers-neo-Malthusians-“anointed” elites (thank you, Tom Sowell) are given their due in the chapter entitled “Blind, blinkered and bought?”
Much of this has been said before, but not (in my view) this well.

The NY Times Book Review often asks authors which one book they would have the President read. I understand he does not read much. But he and many others would benefit from the Desrocher-Szurmak book.  Better yet, of the many young people graduating this month, many very likely will not have heard these arguments. Help them.


Saturday, May 04, 2019

What is the Fed to do?


The U.S. economy is doing well -- and no one really knows why. Keynesian macro-economics (aggregate demand economics) is no help because there is no theory of mood and investment. How could there be one? The donnish Keynes simple wrote investment off as from "animal spirits".  Not much has changed. The Obama-Trump hand-off seemingly incited animal spirits. With no better theory, that's all we have.

With no useful models, we are left to just argue over Fed monetary policy.  Is there an employment-inflation trade-off? What would be the timing? No one knows. Without a theory of how and when we get new and improved labor productivity, there is no answer. 

Can we ever get a better (useful) macro-theory to guide the Fed? Will the pretense of knowledge ever subside? Probably not. Enter Scott Sumner and the introduction of (you guessed it) markets to guide monetary policy.

"You can think of markets as a sort of super committee with 7.3 billion potential members, instead of 12. Markets are privy to even more useful anecdotes and impressions than is a committee of 12, and markets have even more perspectives and underlying models. ... So why not have the Fed set a 4% NGDP target, level targeting, and offer to sell unlimited NGDP futures at 5% and buy unlimited NGDP futures at 3%? In that case, the rule would be that the Fed is forced to put its money where its mouth is, anytime their policy views sharply diverged from the market consensus on expected NGDP growth. As a practical matter, the huge mistake of late 2008 would have been impossible under my ‘guardrails’ approach because investors like me would have gone short NGDP futures at the 3% price, as it was very clear we were going to have sub-3% NGDP growth in 2009. (NGDP actually fell by roughly 3% from mid-2008 to mid-2009.) If the Fed didn't respond adequately, their losses would have been massive. ... In this vision of monetary policy we have the best of both worlds. The ‘wisdom of crowds’ that you get from decision-making by committee, as well as the rigorous constraints on monetary policy imposed by rules.” Scott Sumner, Why Not Both?



Wednesday, April 17, 2019

Where's the cronyism?

I enjoyed Tyler Cowen's BigBusiness: A Love Letter to an American Anti-Hero.  Indeed, I have not yet come across a negative review. There is a chapter on crony capitalism ("How Much Does Big Business Control the American Government"?)  Corporations are cited as spending about $3 billion a year lobbying the federal government but they spend $200 billion advertising (p. 171).

Sad to say, perhaps these corporations get the job done with more leverage and fewer dollars. That, of course refers to the "Bootleggers and Baptists" model developed by Bruce Yandle. Unmentioned in Cowen's chapter but perhaps the most powerful model in public choice. In politics, assembling winning coalitions matters most. In a world where many voters are rationally (and irrationally) ignorant, assembling such coalitions is quite doable and perhaps even inexpensive. Hence, "only" $3 billion.

But perhaps the worst cronyism involves the public schools. Politicians dare not cross the unions involved. Poor performance is routinely ascribed to "underfunding."  But two scholars who know of what they speak reported this a few years ago: "Nor is money the answer. The U.S. spends $12,000 per pupil in grades K-12, one of the highest in the world. Among U.S. states, increments in spending per pupil between 1990 ad 2010 show no correlation with changes in student performance." (P.E. Peterson and E.A. Hanushek, WSJ, Sep 12, 2013).

This morning's WSJ includes a story on charter schools in New York.
Most children at urban public schools aren’t learning what they should. So it’s encouraging to see New York Governor Andrew Cuomo ask fellow Democrats who run Albany to lift the cap on the number of charter schools allowed in New York. 
The state now caps the total number of charters statewide at 460. But in New York City, where the demand is greatest and where 235 charters are now teaching 123,000 students, the subcap has already been reached. New York public schools teach about 1.14 million students overall with a budget of some $25 billion. 
Why cap the number of good schools? The most recent state test results for grades 3-8 show that while the majority of New York students attending traditional public schools are not proficient in either math or English language arts (ELA), a majority of charter school students are. 
For New York City, the charter performance is even more impressive when broken down by race. At city charters, 57% of black students and 54% of Hispanic students pass ELA, compared with 52% of white students statewide. It’s the same in math, with 59% of black students and 57% of Hispanics at city charters passing, against 54% of white students statewide.

The Economist (April 13, 2019) notes "Governments should stop regarding private education as the enemy." Who are "governments" in this case? They are the shameless coalition of cronies who are doing great harm to some of our poorest children and families.