Saturday, February 06, 2016

Nudgers

Who controls the controllers? Who regulates the regulators? And, ever since "nudge" was discovered as a policy option, who nudges the nudgers?  These questions are seldom asked by social engineers. Of course not. Holman Jenkins, in today's WSJ, alludes to the people in charge of timing traffic signals. He writes, "Red-light cameras show us the flaw in the theory that government will 'nudge' us into doing the right thing." He cites "... the habit in many jurisdictions of setting yellow lights at or below the three-second minimum in order to ring up more tickets even at the cost of creating more accidents."  "Soft paternalism" is an idea that nudgers like but t-bone car crashes are not so soft.

Behavioral economics challenges the "rational man" assumption. But everyone knows (from early childhood on) that things are priced, for example, at $1.99 rather than $2.00 for the obvious reason that people are wired in ways that make the insignificant difference meaningful. And that goes to show that we are not 100% "rational". Yes, sellers may take us for fools but there are limits because they also want our return business.

But it does not work this way the public sector. Replacing regulators with nudgers does not "solve" the fundamental problem. "Softening" it does not solve the basic problem. 

Monday, February 01, 2016

Elections, war, peace and tech gadget addiction

Very few people in Iowa will soon caucus in that state's primaries. Political junkies feast, nevertheless. 

Voter participation in the U.S. is low. Public choice economists say they know why: most people have figured out that the odds that their vote can make a difference are very low. Theorists call their disinterest "rational ignorance". Outsized influence then accrues to interest groups. Those who cannot pass up team sports also remain involved -- for the thrills.

Buchanan's "Politics without romance" represents profound insights. Bryan Caplan goes further and suggests irrational ignorance.  Many of those who do vote (and/or participate somehow) embrace policies that will actually hurt them.  In a recent post on his blog, Caplan opines that most Americans' politics can be described in terms of their ADHD (Attention Deficit Hyperactivity Disorder) -- and that can be a good thing; they espouse awful policies but their ADHD causes them to not embrace these with any tenacity.  We are saved from the full consequences of the worst policy choices by a general lack of determination and follow-through.

Awful political choices have been with us through recorded history. Witness the many pointless and horrific wars. Steven Pinker sees these declining; our worst instincts are (very slowly) receding. That or mass ADHD, as we sink into in ever more tech gadget addiction.

Wednesday, January 27, 2016

LA transit (again)

Today's LA Times reports on transit in LA this way:  "Southland transit agencies report shrinking ridership as investments continue to grow." Spend-more-get-less" has been going on for years. What is new is that this has finally been "discovered" by the Times.

But "Metro plans to spend more than $12 billion over the next 10 years to build two new rail lines and three extensions, the largest capital investment of any transit agency in the country." This speaks for itself. The included graphic shows the high-water mark for transit use in LA since 1985 -- just before authorities began diverting funds to rail -- and when there were fewer people in the region -- and fewer low-income immigrants.

In 2010, Clifford Winston wrote:  "Although U.S. cities have spent close to $100 billion since 1970 building, and billions more operating, new urban rail transit lines, ... less than 5 percent of all commutes to work were taken on urban transit in 2004, down from 21 percent in 1960." (p. 61). That was then.

These mega-projects were supposed to be game-changers and "to entice people out of their cars." Hasn't happened.  People and planners are often not on the same page.

Might Uber (and similar outfits) be the game-changer? Perhaps. Just like cheap energy: not because of policy but in spite of it. City hall cronies in many places work hard to stifle the Ubers.

ADDED

There is an endless parade of these disasters. Here is one more. What do they all have in common?

Monday, January 25, 2016

Culture, language, cities

Napoleon, the Corsican, played heavily on French nationalism; Stalin the Georgian, ended up doing the same with Russian nationalism; Hitler, the Austrian, played on the dreams of German nationalism. Can we say that nationalism is pliable and manipulable? This is a theme of Benedict Anderson's Imagined Communities. Similar ground is covered by Joseph Henrich in his The Secret of Our Success.

I had previously cited the Yuval Harari book which makes the point that we humans dominate the planet because of our great success forming and working in teams. He cites our tendency to create the stories ("imagined orders") that form the basis for teams. Most of us become fans of various sports teams. Many others are attracted to the team aspect of politics. Still others revel in nationalism(s) or even strong regional alliances.

Nationalisms form around language groups. The ability to learn from each other is the key -- and common language makes that possible. But how did we get language? This fundamental ability is Henrich's favorite theme: Our cumulative (and continuing) culture-gene co-evolution. [This is quite complex and makes the book well worth reading.] The way best to use the language is infused with social norms: facial and other bodily expressions add a great deal; face-to-face meetings are still important. Add social norms and their reputational consequences.

We get to form "larger collective brains" (Henrich, p. 227). Stories as to how and why cities are "Our Greatest Invention", (E. Glaeser) are the obvious elaboration. These days, we communicate via many channels, including the occasional face-to-face meetings. Cities will spread out but there will always be agglomerations.

Wednesday, January 20, 2016

Not pretty

Electioneering seems to bring out the worst in the candidates -- and the voters. You often heard candidates promise to "fight for you."  That's ominous in so many ways.   Democracy has always had its detractors but just look at it when the size and scope of our government are bigger than ever.

The textbooks evoke the idea of "equity vs. efficiency" trade-offs. Google Scholar beings up 2,680 citations for the exact phrase ("equity-efficiency trade-off"). There may be other ways to say it and not all of the citations use the textbook definition, but a quick check suggests that most do.  Never mind that "equity" can mean many things.

But how plausible is the trade-off idea in a world of crony capitalism. Farm subsidies, for example, enrich rich farmers at the expense of taxpayers and misallocate resources at the same time. Less "equity" as well as less economic efficiency. This Mercatus report makes essentially the same point. Is there any reason to doubt that most of the laws and policies on the books do not give us less of "equity" as well as less economic efficiency?

As is often the case, the textbooks cannot let go of a seemingly simple idea -- no matter how implausible it is.  There are of course many other examples: "perfect competition" and "perfect knowledge", ubiquitous "market failure" and "monopoly power", high and dry "equilibrium" etc., etc., etc.

Here is a slightly dated reference to research by William Baumol that finds 80% of the benefits of innovation go to the public at-large while 20% go to the investors. Is this "fair" is it "equitable"?  I would say "yes" and many others (especially in an election year stump speech) would say "no."

Innovation? No thanks! Not exactly revealed preference but not pretty either.

Friday, January 15, 2016

Our elections

I have no idea what Donald Trump did (or learned) in his years at Wharton.  Neither, it seems, do the writers at that university's student newspaper. Read this.

There must have been an Econ 101 and they must have taught Lesson #1, that trade is all about the gains from trade. I did catch Trump's thoughts on trade with China as part of last night's debate. They are, of course, bizarre.  He is also uninformed about how currency exchange rates are formed and sees nothing but clever manipulators outfoxing our less clever manipulators. This as the Chinese economy tanks -- and sinks lower whenever hapless policy people test another intervention.

Trump leads in the polls so this may just be how our politics goes. The Hillary-Bernie economic pronouncements are no better. Democracy is not always pretty. In fact, it's often awful.

The three biggest voting blocs these days are people who do not vote at all, those who vote with a paper-thin level of interest and those who love being on a team. This is about what public choice economics predicts. The model also predicts the quality of politics (and policy) that results.


Who won in 2004? Not who you think.  The New York Times of Dec 26, 2004, (p. 16) reported the results of that year’s presidential election. Most people think that George W. Bush was the winner (over John Kerry and Ralph Nader). But the reported vote totals were these: Nader with 407,992; Kerry with 59,026,003; Bush with 62,027,582; eligible and not voting were 79,279,000. The “I don’t care” vote won by a huge margin. This is not an electoral college total but very suggestive.

Thursday, January 14, 2016

Pro-football, Playboy mansion, LA transit

Sometimes things just fall into place. The WSJ's Jason Gay notes the opportunity posed by two concurrent events, the plan of the St Louis Rams to return to Los Angeles and the vacancy at the Playboy mansion ("Say Hello to the Playboy Rams" ... Forget the L.A. Coliseum, Hugh Hefner's mansion is on the market so naturally the Rams should play there for a couple of years").

But not so fast. The LA MTA's light-rail Expo Line stops at the Coliseum's doorstep and will soon open its Phase 2, which will extend it all the way to Santa Monica. The current Expo Line (Phase 1) garners just short of 31,000 average weekday riders with just over 22,000 on Saturdays and just above 17,000 on Sundays -- not great for a $1 billion project but cost-effectiveness was never the MTA's strong suit. The agency reports that on completion, it will be a $2.5 billion project and serve 64,000 riders per day, better than doubling (2.3x) current performance. At that rate, Sundays would account for 40,000 riders.

But all that was before the announced move of the Rams back to the L.A. Coliseum -- at least for two years. For eight home-game Sundays, they could add extra trains and even have some full trains. Yes, but 40,000+ extra bodies just eight times a year is not much, an annual uptick, just over 1% for the year. Nevertheless, the Playboy mansion, now and forever, accounts for near zero transit service.

Friday, January 08, 2016

Get lovely

Leave it to our German friends to worry over "Das Adam Smith Problem".  How could one man author both, The Wealth of Nations and also The Theory of Moral Sentiments? Not a problem, says Russ Roberts in his very readable and enjoyable How Adam Smith Can Change Your Life. Smith always thought of himself as a moral philosopher, not an economist.

What do we know?  We humans dominate the planet like none other.  We dominate because we are good at forming teams. We have discovered non-zerosumness in a big way. We cooperate via impersonal exchange in markets. But there is more. Roberts notes that Smith thought that we also want be loved and, therefore, to be lovely (lovable).

"There are two ways to be loved, to satisfy the desire we all have to be noticed and to be somebody. The first path is to be rich, famous, powerful. The second path is to be wise and virtuous." (p. 112). We develop our morality via the latter.

As always, excepting those who resist (fear) modernity.

Love and markets are the two channels of non-zerosumness that we have discovered and made use of. Both have helped us to become cooperators and team players. Generally, we extend NZS via both channels ever more widely.

Around each of us, there are ever larger concentric circles of people with whom we cooperate. We cooperate with some of them via exchange (ever larger supply chains); we cooperate with others via (ever larger) links of loyalty and love. The two are linked because as we extend trust to ever larger circles, we reduce transactions costs and transact (and benefit) more.

Wednesday, January 06, 2016

Buld a better city

Writing in today's WSJ, eminent architect and planner Moshe Safdie worries about densities in Manhattan, "How to Build a Better City ... How crowded should or can cities get? What should be driving tower design?"  He begins this way:
The flurry of high-rise tower construction now under way in New York will bring about a quantum leap in density, one that will forever change our urban environment. The city is now home to seven of the 100 tallest buildings in the world. The current building campaign will produce five more. They are a reminder that towers have become the dominant building type in most major cities around the world, increasing congestion as they accumulate.
These developments raise fundamental questions: How crowded should or can cities get? What should be driving tower design, be it residential, commercial or mixed use? Are our current planning and zoning regulations adequate in guiding this growth, in mitigating the impact of density? Or do we need new tools for a new era of mega-scale construction? Finally, towers create fundamental questions about the nature and character of the public realm.
Neither the prevailing tower designs nor current planning practice world-wide are able to cope with the new reality
First some quibbles about facts.  Manhattan was far denser in years past. Wikipedia dates the high point over 100 years ago. We get into these debates because the data exist for spatial aggregates and we are obliged to use large-area averages.  I have noted many times that Los Angeles' urbanized area has (for some years) had a higher population density than New York's.

High rise towers do create externalities, some positive and some negative. These discussions always bump up against issues of scaling. World class designers like Safdie are great at coming up with designs for buildings and site plans for collections of buildings and spaces. But none among us can tackle (design) whole cities or whole Manhattans. The complexities are too vast. If there is to be a top-down plan for all of Manhattan, it must be a minimalist, one that leaves room for designers like Safdie to create great site plans.

Safdie cites an example: "Qinhuangsao, a Chinese city of three million people, has a local ordinance that requires that three hours of sunlight, as measured in the winter solstice, must each each apartment."  OK, but by all means allow development rights to be tradeable. If there is an overachiever developer who allows more sunlight, let him build somewhere else in the same city but with a reduced sunlight requirement.  He would bid (use up his rights or buy some) to do so if he had a powerful reason, including the economic benefits of higher density. There has to be a way that the widely dispersed bottom-up wisdom of large numbers of site developers can enter the big plan.

Sunday, January 03, 2016

Progressives and progess

Did Los Angeles (and other US cities) "lose" their streetcars because of a corporate consipracy? It's an old and tired view that some people cannot shed. Most of us drive cars (here and abroad) for the obvious reason that they serve us best. Consumer choice still guides resource allocation. We can be grateful.

Today's LA Times mentions the demise of LA's Red Cars once more. The author of the piece ends up agreeing with the obvious, but not after a detour that respectfully reviews the consipracy view.

My nomination for best nonfiction of 2016 (so far) is Fred Siegel's The Revolt Against The Masses. The Progessive view, on full display via today's Democratic party and Europe's Social Democats, has been evolving for about 100 years. Progressives have long  rejected or dismissed the idea of progress (D. McCloskey calls it The Great Fact). Siegel's thought is that progress is untenable for Progressives because they did not have a hand in the creating the material progreess we all enjoy. A disnmissive view is natural. The beauty of bottom-up resource allocation is beyond the pale.

Monday, December 28, 2015

GDP misses

Leave it to economists to point to the dead-weight losses associated with giving gifts.  Here is the formal argument.  "Scrooge" catcalls usually follow. Then again, markets do help with those unwanted gifts.

What about the joy of giving? But best of all, here is Joyce Carol Oates on the joy of getting (perhaps overlooked in most economic models). This is from her excellent The Lost Landscape (2015, p. 312):

"Look, Daddy! This is for you -- my brother and I would plead with our father, who might be reading a newspaper, or involved in one or another household chore, and would barely glance at us.

"We'd thought our father so strange, not to care -- not to care about a present.

"For children, even for teenagers, nothing seems quite so exciting as a wrapped present. For days beforehand my brother and I would speculate on the contents of packages beneath our Christmas tree, ..."

Note the importance of the wrapping.  Torn open in seconds but nothing deadweight about it.

More stuff missing from the GDP tallies.

Tuesday, December 22, 2015

Lose-lose

It's that time of year when we hear the refrain that "the consumer" is not spending enough. Consumer spending is a big chunk of GDP and there are Keynesian multipliers, etc.  But there is also the mantra that Americans are not saving enough for their retirement.  How can both be true?

They cannot. Talk is cheap -- and both choices cannot be judged by third parties. Personal time preferences are all over the place, as are personal consumption-smoothing plans and strategies. Policies designed to tweak personal plans introduce a costly wedge -- whereby some individuals are prompted to game the tweaks, which makes everything worse.

Re the mother of all wedges, in this morning's WSJ, Jeremy Siegel documents "My Sorry Social Security Return." Read the article. He does the math. "So are affluent seniors making out like bandits? Not at all. The bandit is the federal government, which provides benefits that are millions of dollars short of what anyone whose earnings are at or above the tax cap easily could have accumulated on his own."

Forced savings are counter-productive as well as wasteful.  Strictly lose-lose.

Thursday, December 17, 2015

"Waste!"

"Waste" is one of those casually used and misleading words that economic thinking clarifies. My favorite is still Alchian and Allen's explanation from Exchange and Production. "Empty apartments per se are not waste. They are a method of production to economize on the high costs of predicting the future and also of the high cost of immediately producing whatever a person wants" (p. 155).

Fast forward to the present -- and technologies that drastically cut transactions costs and make sharing inexpensive and practical. Think Uber and AirBnB. In the Winter 2016 edition of The Independent Review, there is Michael Munger's "Tomorrow 3.0: The Sharing Economy." (Not yet online.) He writes about disruptive technologies.  "Almost everything we own will soon be a potential rental item, or we won't own it at all because we'll rent it from someone else" (p. 391) "In a short time ... many of us will have much less stuff" (p. 394).Think about that "extra" lawnmower in you and your neighbor's garages. How often are they used? How often is it a waste? In Alchian and Allen's day, it was not waste for the reasons that they explain. Search and information were much costlier and scarcer and then.

But, how times have changed! Fewer purchases! Less "waste"!

And we are much richer (thanks to markets and tech) than our GDP data suggest (than they can suggest). GDP still hangs on what we purchase. Listen to all the talk surrounding Janet Yellen's announcement yesterday.

Saturday, December 12, 2015

Growth poles

Today's WSJ includes "Burgeoning Cities Turn Into Digital Labs." (slightly different title in online version). It is about big cities and big data.  It is also Manhattan-centric -- as most U.S. media coverage of cities tends to be. Everyone knows that most of the U.S. (most U.S. cities) are very different.

The author mentions that "cities generally are more efficient than suburbs." What does that mean? In the U.S., suburban areas continue to outgrow, outdraw, the suburbs. Here is the latest from Wendell Cox. "More efficient" is also slippery unless carefully defined. Finally "city and "suburbs" -- no matter how defined -- are parts of an integrated metropolitan whole. They complement and depend on each other. Supply chains easily criss-cross imaginary boundaries.

It's about growth. Where do labor and capital go? Where do they see desirable opportunities and complementarities -- at acceptable prices? Where do the highly skilled/highly educated go?  Everyone knows, for example, that many go to Manhattan and many go to Silicon Valley.  There are many other such magnets in the U.S. but stick to the iconic two: population density varies by at least a factor of 10.

Manhattan is lovely but not at all representative. Ask yourself which one of them is more likely to be copied?  It's very hard to duplicate either one but we will not have another Manhattan; we will have many low density growth poles.