Monday, May 25, 2015

Big questions and big answers

The big question for many historians and social scientists is still "how did we get so rich?" Economists have come full circle and have again started addressing the role of "society" and "culture".  But these too evolve and are not really exogenous.  What then is?  Jared Diamond says it is geography -- and its own slow (exogenous) shifts. Ian Morris in Foragers, Farmers and Fossil Fuels: How Human Values Evolve takes human hunger (the necessity for energy capture; the more calories per day, the better) and historic climate change (post-ice age warming) as the real exogenous forces. They made it possible for humans to shift their attention from foraging to farming to fossil fuel users. And as they did, their values changed. 

Morris' Table 4.1 (p. 134) is the summary: The four "universal" values listed on the left best serve the three activity types if they are accorded the status shown in the the body of the table.

                        Foragers         Farmers                    Fossil-Fuel Users
Inequality         Bad                 Good                         Bad

Inequality         Bad                 Good                        Middling

Inequality         Middling         Good                        Bad

Violence            Middling         Middling/bad        Bad

The book includes the reactions of four eminent respondents as well as Morris' rejoinders.

Thursday, May 21, 2015

Minimum wage

The LA Times has been popping corks over the LA City Council's vote to hike the minimum wage. This morning's lead editorial, however, exhorts the Council to also mandate more and better jobs. Why not?

Matt Kahn sees the LA wage hike as an opportunity for a natural experiment. James Pethokoukis notes its a gamble, at best.  But Joel Kotkin points out that the experiment has been running for some time and the findings are not pretty: regulations, mandates and taxes kill growth and jobs -- and worsen inequality along the way. Alex Tabarrok offers a useful visual to (perhaps) chasten the Law of Demand deniers. Don Boudreaux has been hammering this group for some time. Bryan Caplan and Mark Perry cite slow phase-ins as a gadget to mask unemployment downsides of mandated wage hikes.

Central planning is hard work; the "helping people" part is extraordinarily difficult.


Megan McCardle

Sunday, May 17, 2015

Not easy or simple

Central planning is hard work. This is why they usually get it wrong. This morning's NY Times includes "Brown's Arid California, Thanks Partly to Father ... Pat Brown Used Water For a Booming State. His Son's Era Is Far Different." Southern California "needed" lots of water and the elder Brown pushed through the costly California State Water Project to channel water from the north to the south. The south grew and now "needs" even more water. The younger Brown has responded with his own rationing-by-edict plan. No one said it would be simple.

Departing from its policy of never mentioning "price" and "water" in the same piece, the same NY Times also includes "How to Get People to Pitch In ... We cooperate because it makes us look good." Yes, to some extent, you can shame people into being ostentatious conservationists. Interesting, but I doubt that this alone will get the job done. Widespread conservation is surest if it responds to incentives. Incentives must respond to conditions. That would also be "cooperation."

The op-ed continues, "The 'Pigouvian' approach to encouraging cooperation ... Make water more expensive ... But Californians are stubbornly unresponsive to higher water prices. Estimates suggest that a 10 percent increase in price would result in reductions in water use of 2 to 4 percent."

Yes, pricing is also hard work. Trial-and-error discovery of the right price is widespread, essential, challenging and ongoing. We encounter proclamations of "sale" and the like a thousand times. These sellers are looking to discover a better price, not from econometric estimations but from hands-on experiments.  Water planners would have to do the same.  Not easy or simple.

Friday, May 15, 2015

Our infrastructure and theirs

Taxpayers are often asked to spend ever more, even as they get less in terms of services. Los Angeles' political leaders cannot manage to make sidewalks safely walkable and it takes an ADA lawsuit to compel them. This LA Times summary tells the story. Note that the story hints at new taxes to meet the lawsuit requirements -- because the old money had "dried up." I guess, left out in the noonday sun, money will do that. Today's WSJ highlights the same phenomenon with respect to the Amtrak derailment tragedy.

I recently spent about two weeks cruising Germany's amazing autobahn. The riddle is how they manage to keep surfaces so smooth while back in Los Angeles the potholes jar cars as well as drivers. This is not a cheeky comment; our road surfaces are perilously bad in many places. OECD reports that as a percent of GDP, the U.S. and Germany spend about the same. Germans, apparently get more bang-for-buck than Americans do.

Is too much of our spending politicized? Do our leaders see infrastructure spending as mainly a jobs program? As the Amtrak story unfolds, we will see more evidence on this.


Amtrak's budget

Sunday, May 10, 2015

Charter city rules

Paul Romer has long argued the case for "charter cities". There is a growing (and unmet) demand for urban living, especially in poor countries. How can "start-up cities" help?  If they are able to offer and enforce rules that respect private enterprise and property, they are likely to attract labor and capital -- and to thrive.

It is important that these rules allow the operation of flexible land markets. Cities can be "engines of growth" as long as labor and capital are able to seek and find propitious locations. What does this mean? We are used to simplistic definitions of location, e.g, journey-to-work, distance from CBD, etc. But these will not do. People and business interact with many others. And they interact in complex ways. including via physical and electronic access. Physical access can by via a variety of transportation modes.

People and businesses manage a variety of networks -- and they choose sites and networks simultaneously. Flexible land markets are the only way to accommodate all this.

In fact, transactions costs evolve -- as networking options expand. Networking and location choices will change accordingly.

The current mode of land use planning is quite the opposite.  It s guided by top-down "visions" of how land use arrangements ought to look and evolve. Any such visions are clearly inappropriate.  The complexity to be managed is far beyond the ken of top-down planners.

Wednesday, May 06, 2015

Better policy

Here is the Governor of Maryland intoning that Baltimore's inner city (any inner city) "needs" more money. That, or more "unrest." Alex Tabarrok is one of many who blasts that one into the bleachers. But it does not matter. In 1989, diehards shrugged off the implosion of the East bloc by claiming that the "real" Marxism had not actually been tried. A dismal U.S. economic recovery is explained by the fact that "real" stimulus spending had not been tried. Fifty years into the "War on Poverty" and we get armies of Johnny one-notes saying guess what?  Failing public schools?  Guess what?

It's a pretty neat gambit. No failed policy can ever be acknowledged a failure. Policies tested via randomized trials linked to betting markets would be a step forward. If there could be randomized participation in a program involving schools, housing, you-name-it -- and with a betting market attached, we could get real and identifiable winners and loser.


Saturday, May 02, 2015


The WSJ recently described the costs involved in Smart phone manufacture and the "mark-up" to the retail price. This is where economists part company with accountants -- and useful for teaching purposes. Prices are discovered by sellers. This is on-going work. "Sale", "discount", "clearance" and so many others like it are just shorthand for "we made a mistake and must try again to find the market price." So the "mark-up" is endogenous and responsive to market conditions. This also means that it is impossible to judge mark-ups as "too big" or any such thing.

There is much misunderstanding of simple economic thinking in the world and one would hope that respected business press would get this one right.

Successful branding impacts demand and gives sellers a shot at mark-up and profit. But buyers have their reasons for preferring brands. Whether these are "good" or "bad" reasons is unknowable. Sellers do their best to understand all this - and often get it wrong. Will people like the current version of the Smartphone -- at the current price?  Many are anxiously waiting to see.

Thursday, April 30, 2015

Minimum wage

There are many descriptors for people able to hold contradictory thoughts without flinching. It can be seen as profound sophistication or as muddled thinking. President Obama famously blamed ATM machines for job losses and unemployment. The President is also a fan of raising the minimum wage.

The picture below is of a McDonald's robot order-taker-cashier. This one surely replaces entry-level workers. It's also a sure bet that as employing real humans becomes costlier, more such machines will be installed.

Recall that the much-celebrated Card-Krueger study that found wage hikes are harmless looked at fast-food outlets.

Monday, April 27, 2015


With the centenary of the Armenian genocide, many are mourning but others stick with denial. Of all the people with crimes to face up to, the Germans must be commended for the all the Holocaust memorials they have created.

The most moving one, in my view, is Gleis (track) 17 at Berlin 's Grunewald station. This is the place from which Berlin's Jews were sent to the death camps. The platform has been retired from use and an iron plaque has been placed for each transport to "the east", noting the date, destination and how many were sent away. The last dates were in February, 1945. The war had been lost but the murders went on (Kershaw).

Wednesday, April 22, 2015

Science over hysteria

Here is the summary of Prof Judith Curry's testimony to the Committee of Science, Space and Technology of the U.S House of Representatives on "The President's U.N. Climate Pledge."

Curry, to her great credit, is neither a true believer nor a "denier." She is a scientist and writes about what we know and what we don't know. This moves away from the land of "climate pledges" and a million other trendy postures and policies.

Scientists, as well as non-scientists, should know that human ingenuity has always triumphed over past doomsday forecasts. Scientists should never scuttle scepticism and should be wary of politicians making climate pledges. "Fatal conceit" is what the latter traffic in.

Read Curry' statement.

Tuesday, April 21, 2015

Right and wrong capitalism

Announce you are setting your company's minimum wage at $70,000, probably above the market rate for some of those covered, and people line up to opine.  This NY Times piece reports on some of the views. But this is not a case of a legally mandated minimum wage. So let the employer/owner (of Gravity Payments of Seattle in this case) go forward with his experiment. As far as I can tell, all of the commentators cited have no direct stake in the outcome.

The real stake we all have is in the survival of trial-and-error entrepreneurialism. These are real life experiments involving willing participants. My own impulse is not to buy a stake in Gravity Payments. But I can be wrong in my skepticism. If so, I pay the price as I sit on the sidelines.

With all of the talk of "secular stagnation" (what is it? what are its causes and possible cures?), many people lose sight of the big picture.  We will do well if and only if entrepreneurial trial-and-error capitalism survives. If it does not (the real crowding out we should think about), we will have lost the game.

Here is the wrong capitalism -- all around us. (H/T Newmark's Door).

Here is a book on the entrpreneurialism that I have just started to read.

Saturday, April 18, 2015

Superb history

We hear that young people don't know much about history. Perhaps their teachers should have them  read the works of Stephen Ambrose, whose Undaunted Courage: Meriwether Lewis, Thomas Jefferson and the Opening of the American West is what they used to call a page-turner. But it is also essential and well documented history.

Jefferson was a visionary (a word that usually makes me cringe). The Louisiana purchase was a good idea. So was the thought that there might be a water route to the Pacific via the Missouri and Columbia Rivers -- not found, to the great disappointment of all involved. So also was the choice of Meriwether Lewis to assemble the group of explorers and lead them through unknown territory and back. Jefferson was also wise to have Lewis move into the White House as part of his preparation so that the two men could share all that Jefferson knew of the relevant geography, navigation, natural life, etc. Lewis was instructed to bring back information as well as examples of plant and animal life. There was no thought to finding gold or silver. Ambrose calls all this emblematic of the "American enlightenment."

We see that trade and new trade routes were seen for their fundamental value and importance (unlike many commentators today). We learn that Indians who had never seen white men were ready and eager to trade. Aside from one episode, whites and Indians were able to avoid confrontation and violence. This in spite of their mutual strangeness and no common language.

Yes, Lewis and his men referred to the Indians as "savages".  Lewis and others of the expedition saw that it was natural to own black slaves. They were men of their time. But when major route choice decision time came, "[t]his was the first vote ever held in the Pacific Northwest. It was the first time in American history that a black slave had voted, the first time a woman had voted" (p. 316).

Lewis came to  a bad ending. He was a much better explorer than a politician. Jefferson's great failing was appointing him Governor of the Louisiana territory on his return from the expedition. Lewis and Clark failed to follow up and get their valuable journals published. That was left to others. "... [T]he journals he [Lewis] wrote are among his greatest achievements and constitute a priceless gift to the American people, all thanks, apparently, to lessons learned from Mr. Jefferson during his two years of intimate contact with the president in in his house" (p. 67). Read the book.

Wednesday, April 15, 2015

Big tent

Timothy Snyder's Bloodlands: Europe Between Hitler and Stalin is indispensable. The area was a tough neighborhood even before the two dictators arrived. Borderlands are that way. But modern industrialized killing made everything much worse. George Kaufman makes a similar point. He writes about Flashpoints and updates the story in order to address today's many conflicts in Europe. It's always a "new ballgame" and (Friedman notes) it's not.

Both authors make the point that Hitler and his band murdered millions in the name of race war; Stalin and his followers murdered millions in the name of class war. But Stalin and his heirs (Mao, Ho, Fidel, Che, Hugo, to name a few) still get a better press than the Hitlerites because race war has (rightly) become unfashionable (exclude the jihadists) while class war is still very popular. (What would politicians do without it?)

Writing in the current Independent Review, Andrei Znamenski ("From 'National Socialists' to 'Nazi': History, Politics and the English Language"), notes that Nazis did not refer to themselves as "Nazis." They liked to be called National Socialists. But the label "Nazi" is now preferred by most people in the West so as not to taint the label "socialist". There is supposedly honor in class war so we must be careful who to include in any "socialist" big tent.

Saturday, April 11, 2015

Specialists, not regulators

This morning's WSJ opines (as do many these days) re California water ("California's Farm-Water Scapegoat"). The piece begins this way:
Perhaps the only issue on which Bay Area liberals and conservatives down California’s coastline agree is that farmers use too much water and should be rationed. The fortunate in Silicon Valley and Marin County need a tutorial in Golden State water allocation.

According to the fable of the prodigal farmer spun by environmentalists, farmers are producing too many water-intensive crops and over-pumping groundwater. Big Agriculture is said to have negotiated dirt cheap water rates with the government that are subsidized by city dwellers and suburbanites. As a purportedly even greater injustice, Governor Jerry Brown’s new mandate to cut statewide water usage by 25% exempts farmers.

The reality is that farm water has already been rationed for more than two decades by the ascendant green politics, starting with the 1992 federal Central Valley Project Improvement Act. Federal protections for the delta smelt, salmon, steelhead and sturgeon (2008-2009) further restricted water pumping at the Sacramento-San Joaquin River Delta, so 76% of inflows, mainly from the Sierra Nevada mountains, spill into San Francisco Bay.
The piece goes on to describe some of the adaptations/distortions that result when allocations are mandated.

But there are two problems in the cited passages. First, water (everything) is always rationed -- by price, by fiat, by convention, etc. To complain of "rationing" is very odd, especially for WSJ writers. The same inaccurate rhetoric comes into the health care debates.  It is never rationing-vs-non-rationing. But, rather rationing how.

Second, the editorial sounds like the Ralph Nader theme that "my regulators would be better than your regulators." The authors of the editorial would regulate California water allocations so that farmers get more and wildlife less than in recent years. But no breed of regulator can possibly arrive at a sensible answer because the details of water allocation are too complex to be knowable by any body of well meaning (or not) officials. All investments and all plans involve risk-taking and are best left to the specialists, those who have a stake in the outcome.