Sunday, August 20, 2017

Statists rule

The Economist includes a nice summary of Pigouvian taxes (or subsidies) as a straightforward remedy to the problem of uncompensated externalities. When market coordination is missing for any  reason, here is the (seemingly) simple policy fix.

But missing from the discussion (almost all such discussions) is the politics. Who administers the tax? How do they choose who and how much to tax, when and where.

Public choice economics points to a non-trivial answer:  crony capitalism and the threat of regulatory capture are always in play.

Today's NY Times Book Review includes a review of Nancy MacLean's Democracy in Chains: The Deep History of the Radical Right's Stealth Plan for America.  The print edition uses the lede, "Minority Rule: How the economist James McGill Buchanan laid out the game plan for the radical rights." This is turn-off laced with smear job. The electronic version switches to "How the Radical Right Played the Long Game and Won."

This is all bizarre and I have no plans to read the book. Don Boudreaux has been tirelessly exposing MacLean's errors and misconceptions at Cafe Hayek.

Are the problems of democracies and majorities really new and arcane for anyone?  We learn about the Bill of Rights at a very early age.  Limiting majoritarianism addresses a very old and well known problem and is not a part of some vast right wing conspiracy.

The Economist and a string of others are strangely resistant to public choice analysis, as the many discussions of the elixir of Pigouvian taxes indicates.

I do not get it. Are we to maintain a blind faith in the ability of elected officials to somehow divine the "public will"? And do so while maintaining a near-virginal innocence? And these are the people we see in the news all day?

How obsessed and blinkered a statist does one have to be to go on living and believing that way?

Tuesday, August 01, 2017

Anti-Econ 101

"Many of the recommendations for growth and prosperity found in just about any standard 'Econ 101' textbooks are the right place to start ..." (Brynjolfsson and McAfee, 2014, p, 206).

Econ 101 instructs that are always opportunity costs. David Henderson and John Cochrane make the point in "Climate Change Isn't the End of the World ... Even if world temperatures rise, the appropriate policy response is still an open question." Scarcity suggests opportunity costs which call for thinking, deliberation and hard choices. This perplexes the religious left. Here are Henderson and Cochrane:
" Global warming is not even the obvious top environmental threat. Dirty water, dirty air and insect-borne diseases are a far greater problem today for most people world-wide. Habitat loss and human predation are a far greater problem for most animals. Elephants won’t make it to see a warmer climate. Ask them how they would prefer to spend $1 trillion—subsidizing high-speed trains or a human-free park the size of Montana. ...

" ..we need to know what effect proposed policies have and at what cost. Scientific, quantifiable or even vaguely plausible cause-and-effect thinking are missing from much advocacy for policies to reduce carbon emissions. The Intergovernmental Panel on Climate Change’s 'scientific' recommendations, for example, include 'reduced gender inequality and marginalization in other forms,' 'provisioning of adequate housing,' 'cash transfers' and 'awareness raising & integrating into education.' Even if some of these are worthy goals, they are not scientifically valid, cost-benefit-tested policies to cool the planet."  
Elephants, high-speed trains and reduced gender inequality? Opportunity costs.

The LA Times reports that actual construction of the California high-speed train is well underway.  Look for the antithesis of opportunity costs, the misused sunk cost argument: having started the project, we cannot stop because of all that money already spent.

Why does any business ever close its doors? Why is any product line ever shut down? 

How many people use public transit in California? Very few. Here are some 2012 comparisons. New York city is #1 with 229.8 per year per capita. San Francisco is #2 with 131.5. Los Angeles is #15 with 54.9 and most of California is below that. The story has been told a thousand times. (Here is the up-to-date U.S. summary.)  There are too few transit users in California to merit more transit capacity of any kind. Climate change is being used to make bad ideas look not so bad.

Yes. Econ 101 is the anti-politics. Politics is the anti-Econ 101.

Friday, July 21, 2017

Not subtle

Bjorn Lomborg reminds us that "California is handling climate change all wrong."  Climate is a global commons and prisoners' dilemma problems are endemic. Go-it-alone California will bear significant costs while the benefits will be negligible.

But people who claim to be on the side of science (and the angels) disagree.  Here is a letter to the WSJ editor from Governor Jerry Brown defending the California approach. No mention of Lomborg's key point. Cap-and-trade may be a fine idea (as Brown claims) but he ignores the context.

Prisoner's dilemma is the flip side of gains from trade. The presumed subtlety of the gains-from-trade story is baffling. Most people cooperate; they trade an uncountable number of times and easily see that both parties acquiesce voluntarily -- for obvious reasons. The same people also have eyes and (must) notice that, around the world, those who are more involved in an exchange economy have better lives.  How many migrants in the world move away from an exchange economy to one where exchange is absent or difficult?

Bruce Yandle's Bootleggers and Baptists is the best explanation. I do not know whether Jerry Browns' place in all this is as the "Baptist" or as the politician who appreciates the phenomenon. I suppose one can be both. This is not subtle either.

Monday, July 17, 2017

It's bi-partisan

Timothy Taylor (citing Brian Taylor) offers a clear summary of the argument for congestion pricing on roads and highways. But spending and building is more fun than managing if you are in politics.  All the problems of democracy are in play: voters pay limited attention; lobbyists and special interests pay a lot of attention.

Competing "dog whistles" describes the discourse we have in the age of fast news and fast breaks. But there is one "dog whistle" that is special because it is bi-partisan. Everyone likes "infrastructure." Much of what we have is in poor shape. Almost everyone gets behind the idea of mega-spending to fix the problem.

But mega-spending American-style rarely does more good than harm. The Economist writes about "Notes from Underground". The WSJ describes Amtrak's "Summer of Hell."  It's very simple. Politicians are beholden to contractors and unions. More money will not fix this. It may make it worse.

Crony capitalism describes much of modern America. In this morning's WSJ, Elon Musk cites the "AI threat" and advocates a policy to regulate artificial intelligence. It's a terrible idea and I expect that Musk expects to be involved with the new regulatory agency. This would be the case no matter which party holds power. It's bi-partisan.

Wednesday, July 05, 2017

The good and the bad

We would love to believe that high culture makes people better.  But Nazi Germany (and many fellow travelers) deflated all that. High-brow elites caved in to the brutes. Among the highest brows of those days were the Berlin and Vienna Philharmonics. Look at Terry Teachout's "Orchestras and Nazis" which recounts the very sad story. It remains that how and why people turn good or bad is not simple.

Amos Elon's The Pity of It All elaborates all this. The author notes that Pre-Hitler, Europe's Jews assumed that Germany would be a safe place to be: German high culture would provide a haven.

On the brighter side, the NY Times book review of Toscanini: Musician of Conscience notes that the maestro made it a point to distance himself from Nazis and fascists.  The review also touches on Toscanini's amorous affairs. If you think of his adventures with many women as not so admirable, you again to face up to the complexity of human nature.

From the book review, here is Toscanini: "Every time I conduct the same piece I think about how stupid I was the last time I did it." If you are an aware person and reach the ripe old age of X years, you will wonder how innocent you were at X-5 years. Perhaps this awareness marks the good. 

Thursday, June 22, 2017


In a few words, Mike Munger sums up the new world of the sharing economy (H/T Café Hayek):

"Portable platforms (mostly smartphones) using software (often modular, self-contained apps) and connecting over the internet mean that transaction costs are plummeting. Uber doesn’t sell taxi rides; Airbnb doesn’t rent hotel rooms. These companies, and a thousand others, “sell” reductions in transaction costs. ...

... We’ll need a lot less stuff and a lot fewer parking spaces if we can take better advantage of what we already have. And cities will have a lot more space once we aren’t paying the costs of storing cars in parking lots and loads of equipment and clothing in self-storage facilities."

The WSJ (June 21) includes "The End of Car Ownership ... Ride sharing and self-driving vehicles are going to refine our relationship with cars ..."

Planners' holy grail for as far back as I can remember was to get people out of their cars. Mega-billions spent on public transit and HOV lanes had no effect (except all the red ink).  But the profit-seekers have now entered the picture to bail out all the smart people.

We hear a lot about "stagnation" and also "disruption".  Inevitably, there are both.  Are there trends? N-gram viewer says "no".  Each has held its own.

It comes back to things I often mention. If you had a choice, in which year would you choose to live? The latest one possible? Two words: "medical science".  When next you go for any treatment, you would never say, "please treat me the way you would have X years ago."

All of this in the very politicized U.S. health care system that's in the news all day. What would it be like if the disrupters were really allowed to operate? Perhaps the stagnation, to the extent that it is real, can be pinned on our politics.

Monday, June 19, 2017

Niches, not cities vs suburbs

Here David Warsh speculates on what the new chapter of the Amazon-Walmart rivalry means. Is it good for cities? Is it good for suburbs? Both? The urban vs suburban distinction is no longer useful. Both contain niches and a variety of situations and opportunities.

Here Russ Roberts and his colleagues discuss emergent orders. Mike Munger mentions that cities are emergent orders. Of course. The complexities and the stakes are too great to imagine any other way. Higher high-rise buildings are seen in major cities all the time. It's partly better building technologies (supply) and partly the benefits of location (demand and agglomeration). But it is not "a return to the cities". Think complexities and niches, not urban vs. suburban. The cliche is that cities change slowly. But many people now choose neighborhoods that do not fall on either side of an urban-suburban divide.

A Whole Foods or similar enterprise can serve any of them. Holman Jenkins writes "Amazon Will Free You From the Minivan ... With his Whole Foods purchase, Jeff Bezos takes aim at groceries -- and car ownership."

Stratechery argues that Amazon with its high-fixed-cost delivery infrastructure has actually bought a customer, Whole Foods and its shoppers.

It's hard to know when and where there are substitutes or complements. Order on-line or walk/bike to Whole Foods to see/touch/feel the melons but have them shipped home?

Tuesday, June 13, 2017

Watch out?

No $20 bills on sidewalks is pretty clear. Also clear is the logic of the efficient markets hypothesis (EMH):  in the race for profit, new information is quickly scooped up and acted on -- and "baked into" asset prices. (To be sure, EMH is also misunderstood by many who bizarrely expect any and all surprises to also be reflected in asset prices.) Also clear is evidence that many investors have accepted the logic of the efficient markets hypothesis and have moved their holdings from stock pickers to index funds.

Stock market prices are the original "big data" -- and an unavoidable temptation for study by finance experts. Slightly less expert are those who look for portentious episodes in daily life (business and other).  Joe Kennedy supposedly got out of the stock market just before the 1929 crash because his shoeshine guy tipped him to buy.

This morning's WSJ includes "Does Anyone Remember How to Make a Subprime Mortgage? ... Brokers willing to learn the lost art of making risky mortgages are in demand again."  Your mileage may vary -- and there are many mortgage markets in the U.S.  But mortgage originators have been able to sell the mortgages they make. And the U.S. government GSE's (Fannie and Freddie) and others who buy them have been known to get bail-outs when things do not work as planned (wished for).

The usual caveats apply.

Monday, June 05, 2017


With all the hand wringing over the Trump withdrawal from the Paris climate accord, it is refreshing and useful to get this short (just over 100 words) and clear statement from Cato.  The accord is at best simply a feel-good measure; at worst it is an awful waste.  More details at this conversation by Nick Gillespie with Bjorn Lomborg.  Perhaps the well worn Paris photo of over a hundred heads of state posing and posturing and smiling smug over their success in reaching the agreement says it best.

So it is ironic that there is so much breast-beating, now that the carpet has been pulled.

For some years, the best and brightest in urban planning have offered a simple solution to urban traffic.  Price parking.  Get one price right.  In fact, it is easier than it sounds because so many places have nearby commercial parking.  The market signals are abundant and easy to find.

But despite the clarity and simplicity, most parking remains under-priced.  And a thousand expensive and impotent "solutions" have been offered instead.  These include expensive parking requirements, expensive transit, expensive bike lanes, expensive HOV lanes, expensive vehicle mandates and subsidies, etc.

The people who cannot get one price right are eager to "fix" climate, health care, education, poverty, hunger, world peace, you name it.  Is there better word than irony?

Sunday, May 28, 2017

Beyond our bubbles

Arnold Kling's The Three Languages of Politics: Talking Across Political Divides may be the best ratio of good ideas to pages of text I have seen. It is a revision and update of his previous book on the same topic.

Most of our political disagreements can be traced to differing favorite narratives. Kling points to three tribes in modern American politics. Progressives emphasize an oppressor vs oppressed angle; Conservatives emphasize a conflict between barbaric vs civilized impulses; Libertarians emphasize a liberty vs coercion axis.  The author applies his model to a number of cases, the Nazi holocaust, tax reform, the Israel-Palestine conflict, etc. to make his case.  It works. Try it on any contentious topic of our day.

Kling favors the third axis but admits that all three must contain a grain or truth. He wants us to discard our favored bubbles and make an effort to understand the axis favored by those with whom we disagree. He prefers that we take the most charitable view we can of the positions of the other tribes. We should spend less effort marshaling motivational arguments; we are not lawyers trying to win a case in court.

A interesting addition to Kling's previous volume is the author's introduction of a fourth axis, "The Donald Trump Phenomenon" -- a populist vs elite axis. He alludes to David Brooks' Bobos and thinks that we are in a Bobo vs anti-Bobo moment.

Partisan divides are sharper than within memory and give Kling a lot of credit for throwing a light on the problem -- as well as some advice on getting outside our bubbles.

Sunday, May 21, 2017

Supply and demand for favors

In Today's NY Times, Robert Shiller writes "How Tales of  'Flippers' Led to a Housing Bubble ... Conventional data aside, narratives show a shifting mentality for quick profits."

In 2008, the explanation was a sudden epidemic of "greed". Now it is "shifting mentality."  So who needs economics? Who needs political economy?

Led by a politicized Fannie and Freddie, lending standards were relaxed in the late 1990s and early 2000s. Low-FICO scores were acceptable. Twenty percent down payments were put aside. Fan/Fred may have been conceived as a way to tap international capital markets to help Americans become home owners.  But why extend this benefit to the purchase and/or guarantee of 2nd and 3rd homes? Were politics involved? This ground has been covered many times.  See, for example, this paper by Calabria.

To be sure, there are always mood swings among buyers, sellers, bankers, etc.  And these interact with the political economy involved.  Let's not ignore supply and demand -- in this case, supply and demand for favors. What passes for housing policy and monetary policy in modern American involves a good dose of supply and demand for favors.

Monday, May 15, 2017

Urban land use

The WSJ includes an interesting piece about urban land use, "A Farm Grow in the City: Startups are leading the way to a future in which more food is grown closer to where people live."

Is it land? Is it capital?  Neither? Aggregation is a problem.

In Conceptualizing Capitalism, Geoffrey Hodgson describe economists' post-1960s scramble to elaborate the idea of capital. "Health capital", "religious capital", etc. He cites 23 variants (p. 191-192). The author wonders which ones are actually alienable -- and therefore analytically useful?

In a previous post, I cited Ake and David Andersson's approach to the problem. Here, I repeat the key passage from their discussion.

 “Land may consist of scarce natural resources such as gold or oil, and then it takes on all the characteristics of physical capital. Access to natural resources – including land formations that are valuable because of their beauty – is yet another physical capital attribute. But land is also valuable for the access is provides to other people, in which case land should be conceptualized as a bundle of social capital attributes. Thus, the traditional definition of capital corresponds to a bundle of physical capital attributes, ‘land’ is a bundle of physical and social capital attributes, and labor similarly consists of a bundle of human and social capital attributes.” (p. xx).

Two thoughts: (1) Modeling provides clarity of thought and requires clear definitions. But these can cause problems. The urban economists' textbook model of land use suggested concentric rings around the center -- with the outermost ring being agriculture. The new hybrid land-capital-agriculture land use vastly complicates the idea of a "ring". (2) Change accelerates and we will have to rely on market signals more than ever. Those top-down land use plans are going to be less useful than ever.

Saturday, May 06, 2017

Health politics U.S. style

Minimally politicized health care would be best. But it is an ideal that we are drifting ever further away from.  What would minimally politicized health care include?  Here are five pillars: (1) A light-touch FDA that tests for safety and lets efficacy be judged by doctors as they consider the complexities of the cases before them; (2) Light-touch insurance regulations that focus on the solvency of health insurers; let competing insurers disrupt and innovate; (3) A mandate that everyone open a health savings account; (4) A mandate that everyone purchase catastrophic care policies; (5) Subsidize the catastrophic insurance purchases of the poorest.

Can anyone assemble a winning political coalition for this approach?  Unlikely.

Obama-care mustered a winning coalition the day it was signed into law. But Democrats have lost four straight elections since then -- probably because the coalition fizzled after the real thing was up and running.

The replacement is not yet  known -- and will have to work its way through the sausage factory. The WSJ's Holman Jenkins writes "GOP Health-care Sausage is Good for You". But what could possibly emerge?

Health care politics is big in the U.S. -- and has been for a long time. As many have pointed out, World War II price controls spawned non-wage competition among employers, including employer-provided tax-sheltered health care. Add Medicare and Medicaid and today most medical procedures are paid for by third parties. This means ever less scrutiny and ever more politics. It also means unsustainable expectations.

On top of that, there are now too many health care "insiders" with "skin on the game" who have set up shop in Washington. After all of the disappointments and all the "sausage," what can enough of them possibly agree on?  Not the 5-part approach mentioned above. Unfortunately, it might be universal single-payer.

Will that solve anything? We are not Denmark. U.S.-style single-payer is likely be VA medical care for everyone.  Note that every incoming administration coming to Washington promises to "fix" VA medical care. None has yet been able to do so.

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.


Labor and capital (many kinds in each case) are each mobile. But degrees of mobility differ. They each land somewhere.  The places they leave from as well as the places they go to define the ambit and the range of their relationships.  Social relationships? Economic relationships? Surely both. Supply chains for things and supply chains for ideas each have geographic dimensions (opportunities, constraints).