Saturday, March 28, 2015

Hockey sticks and feedbacks

History is hard. Louis Menand (writing in the current New Yorker) has some thoughts on how hard. This is how he begins: "Once, history was a game played with giant billiard balls: wars, revolutions, scientific inventions, the major awards shows. You knocked a combination of these together and you got our world. Then people realized that wars, revolutions, the Grammys, etc., are not explanations at all. They are themselves things that need to be explained. Something made them possible, too. Was it money? Ideas? Genes? Germs? Great men? Deepwater ports?" He continues. The whole thing is worth reading.

When we look for simple explanations, we easily fall for apparent cycles (the virtuous as well as the vicious).  My favorite is Surjit Bhalla's rendering of the positive feedbacks between economic freedom and prosperity.  In The Measure of Civilization: How Social Development Decides the Fate of Nations, Ian Morris compiles and presents economic and demographic data that go back several millennia.  He focuses on mankind's ever increasing success at capturing and utilizing energy. He also finds a positive feedback cycle: "Information technology and energy capture have been involved in a feedback loop" (p. 237).

Do these loops interact?  Probably.  We do know that climate scientists work with many connected feedback loops. Our challenge is to explain a very big deal, the very recent hockey stick of human prosperity. Positive feedback loops are handy as we try to explain our good fortune.

Wednesday, March 25, 2015

Mandatory voting

"The Unappetizing Effect of Minimum-Wage Hikes ...In San Francisco and Oakland, restaurants are already shutting down" is from today's WSJ.

What do we know? Economic growth is the most powerful anti-poverty device. And poverty reduction via economic growth may be accompanied by increasing inequality (March 16 post). What to do? The mainstream answer seems to be to seek direct redistribution instead -- and hope that it works. But theory and evidence strongly suggest this will be counter-productive. What to do?  Pretend otherwise and push for minimum wages hikes anyway. Sounds crazy but there it is. 

Populist themes are a plague that infects voters of both political parties. Public choice theory's rational ignorance hypothesis suggests that voter turnout and voter enthusiasm  is a function of having a parochial interest item on the ballot. Bryan Caplan's work is even more depressing:  most of those who do bother are not very well informed and see little reason to change. What is to be done? Write and speak out to those outside your Charles Murray "bubble" What is the worst that can be done? Make voting mandatory.

ADDED

George Will's splendid and logical argument may cause fainting spells in some places. "Inequality benefits everyone."

 

Tuesday, March 17, 2015

Conversation about cities

Here are Paul Romer and Russ Roberts discussing cities -- especially Romer's interest in charter cities.

Romer and Roberts also love New York city and give the impression that it is simply a matter of high density plus the subways to service it.  Romer mentions that most people like NYC and they also like good weather.  So could Long Beach, California, fill the bill and possibly offer both?  Allow high enough densities there, add good transit, and get a Manhattan but with a Mediterranean climate?  I doubt it.

On another point, I have often noted that cities are "engines of growth" because they are the places where new ideas are hatched and incubated.  Romer talks about developing country cities, where the real urban problems are likely to be, and makes the important point that the discussion should be about the adoption of existing ideas for the local context of catch-up growth.  This is a neat point and should be made every time ideas and cities are discussed.

Romer likes the New York plan of 1811 and cites it as a worthy example of laying out the street grid for large undeveloped areas many years before development arrived.  He prescribes this approach for Third World cities that are likely to experience lots of in-migration very soon.  Listen to the whole podcast.

Monday, March 16, 2015

Inequality!

It's very hard to turn around these days without stumbling on yet another discussion of increasing inequality.  It is surely an election year favorite.  Is there a politician who can resist the theme -- and adding his/her promise to do more to "help" the down-and-out?

Concerns over poverty are surely justified. But poverty and inequality are not the same thing -- and they are purposefully muddled by those with an agenda. There is a "teaching moment" in the following thought experiment: imagine that a doubling of all incomes could somehow be achieved; it would surely end poverty but it would also increase inequality. Should we do it (if we could)?  The thought experiment gives many true believers a headache.

Poverty and inequality are not the same.  Tyler Cowen and his commenters add the idea that measuring poverty is not simple -- and if we make the proper corrections the actual U.S. poverty rate is much lower than what we hear and read about.

The poverty=inequality misconception is fed by the suspicion that wealth is most likely ill-gotten and/or we live in a zero-sum world. If most people (most voters?) believe either one or the other these, we have a problem.  And the election is more than one and one-half years away -- not that we will have much relief after the votes are counted.

Saturday, March 14, 2015

Paradox?

Here is how The Economist explains Houston's well being:
Paradoxically, perhaps the city’s biggest strength is its sprawl. Unlike most other big cities in America, Houston has no zoning code, so it is quick to respond to demand for housing and office space. Last year authorities in the Houston metropolitan area, with a population of 6.2m, issued permits to build 64,000 homes. The entire state of California, with a population of 39m, issued just 83,000. Houston’s reliance on the car and air-conditioning is environmentally destructive and unattractive to well-off singletons. But for families on moderate incomes, it is a place to live well cheaply.
Why "paradoxically"?  Is politicized zoning a better way to match supply and demand?  Why "sprawl"? Cities that grew up in the late 20th century are auto-oriented. Letting people chose when and where to travel is more efficient than the alternatives?  Will there be pockets of congestion?  Inevitably as long as the owners of the roads and highways have no incentive to price the roads. "Market failure"?  Sounds more like a policy failure.

Alex Anas notes that, "The data on the largest U.S. MSAs show that commute times increase only slightly with city size: the elasticity of the average commute time with respect to the number of workers was about 0.1 in 1990 and 2000." (2012, p. 145.)

This is not from inspired land use and transportation planning throughout urban America. The land markets we have, such as they are, are still able to pull the bacon out of the fire. It's a little like the strong dollar. Consider the competition and the context.

Wednesday, March 11, 2015

No distortion


We know the story of the original Disneyland (Anaheim in the 1950s) developed in a then rural area and soon enriching nearby landowners as the park boomed.  The corporation soon figured it out and when Disney World was developed near Orlando in the 1970s, they bought most of the nearby land (or options to buy) so that the benefits they create would accrue to them.
Today's WSJ includes "Apple gets sweet deal from mall developers ... As a traffic magnet, iPhone maker is able to negotiate lower terms for rent ..." What may have been mysterious to the Disneys in the 1950s is common knowledge today. Land markets can internalize externalities. This is especially the case where there is a single land owner (residual claimant).
Textbooks (and many others) routinely refer to externalities as case of "market failure." But there can also be incentives to internalize any externality. Why else bother to assemble all those parcels?
The WSJ's writer speaks of Apple's deal as "... distorting the market for mall rents ..."  No distortion at all.
 

Monday, March 09, 2015

Urban models and urban centers


Following Milton Friedman's suggestion that economic models be judged not by the plausibility of their assumptions, but by their ability to predict, Queen Elizabeth asked some of LSE's finest why they did not see the Great Recession coming. Ouch!

In "The growth of cities," Gilles Duranton an Diego Puga make use of urban economists' "monocentric" model of cities for the obvious reason that it is analytically tractable. Citing the Glaeser and Kahn (2001) finding that "In 1996 only about 25% employees in US metropolitan areas worked within five km of the CBD ..." (p. 5), Duranton and Puga go on to say that there is, nonetheless, "strong empirical support for the existence of declining gradients of land and housing prices, population density and intensity of construction as predicted by the monocentric model." There are of course many other assumptions (homogenous labor and capital stock!) that cause concern.

I often cite Bumsoo Lee's work on the location of jobs in U.S. metropolitan areas in this connection (the paper has my name on it but this part is Bumsoo's work).  They key table is reproduced below. 

There are always debates on how "sub-centers" "central business districts, CBD's" etc. should be defined and delineated. Bumsoo tested two approaches and came up with roughly similar results. Average "big-city" CBD employment was either 7.1% or 10.8% of the metropolitan total. Take your pick.

Stick to the largest MSAs for the moment. Bumsoo found that 15% of the jobs were in subcenters and 78% were "dispersed". Let's talk about measured gradients emanating from the CBD. The measured density (for example) at any location is the vertical addition (density on the vertical axis, distance from the center on the horizontal) of all of the (unseen less easily seen) gradients from all the centers that reach to that location. Ascribing all of the influence to the main center is a mistake.  In work that some of us did some years ago, we found strong influence through the LA region from a very flat gradient emanating from LAX.

But a bigger point has to do with the fact that the survival (and growth) of any and all centers has to do with the agglomeration opportunities they offer.  Agglomeration opportunities are apparently available at many places outside the traditional center.


Employment shares by location type in 2000
MSA Name
Employment
No. of
Employment
Share of employment (%)


Sub-
CBD
Sub-
Dis-
All
CBD
Sub-
Dis-
centers

centers
Dispersed
centers

centers
Perse



A
B
C




New York
9,418,124
33
937,055
1,057,297
7,423,772
21.2
9.9
11.2
78.8
Los Angeles
6,716,766
53
190,100
1,931,988
4,594,678
31.6
2.8
28.8
68.4
Chicago
4,248,475
17
297,755
504,732
3,445,988
18.9
7.0
11.9
81.1
Washington
3,815,240
16
283,341
449,488
3,082,411
19.2
7.4
11.8
80.8
San Francisco
3,512,570
22
205,553
849,021
2,457,996
30.0
5.9
24.2
70.0
Philadelphia
2,780,802
6
239,735
125,190
2,415,877
13.1
8.6
4.5
86.9
Boston
2,974,428
12
238,092
239,257
2,497,079
16.0
8.0
8.0
84.0
Detroit
2,508,594
22
129,845
557,776
1,820,973
27.4
5.2
22.2
72.6
Dallas
2,565,884
10
126,010
404,365
2,035,509
20.7
4.9
15.8
79.3
Houston
2,076,285
14
165,525
432,101
1,478,659
28.8
8.0
20.8
71.2
Atlanta
2,088,215
6
166,946
223,168
1,698,101
18.7
8.0
10.7
81.3
Miami
1,623,892
6
121,045
243,970
1,258,877
22.5
7.5
150.
77.5
Seattle
1,745,407
7
163,051
207,542
1,374,814
21.2
9.3
11.9
78.8
Phoenix
1,463,581
9
104,417
189,071
1,170,093
20.1
7.1
12.9
79.9
3 million and plus

17.0



22.1
7.1
15.0
77.9
1 to 3 million

2.6



17.8
10.8
7.0
82.2
half to 1 million

0.9



17.4
12.2
5.2
82.6
Source: Bumsoo Lee (2007)

ADDED

More on CBD employment.