Saturday, May 19, 2018

Tallest pygmy


As I was coming home this morning, I noticed a nice young man unload three Bird rentable scooters in front of my building. (There are many other such brands around the U.S.)

How did the company know where and when and how many of them to leave?  It is economists' favorite story. Supply chains are long and complex and in good part impersonal. They also involve entrepreneurs and managers who continuously strive to learn and update probabilities -- and adjust (trial and error) their choices accordingly. Repeated an uncountable number of times, this explains our prosperity.

Will Bird (and the others like it) survive?  I have no idea.  I am not an owner (by choice) and follow them with interest, occasionally cheering them on.

I have mentioned conventional, politically- rather than market-provided transit, many times.  How does it survive?  That has nothing to do with what consumers choose but has everything to do with what politically connected providers and their enablers choose.

In spite of our prosperity, we manage to survive in spite of all this awfulness. We generate ever larger public deficits because we can, because the world still buys and holds U.S. debt. You just have to remain the world's tallest pygmy.

Saturday, May 12, 2018

The only way

Historical grievances are (unfortunately) nearly universal. They can lead to lasting conflict, much of it involving war and genocide.  What makes it all much worse is the practically irresistible temptation for politicians to fan the flames. Grudges are hard to leave behind. Widespread U.S. identity politics is only the latest version.

Obama supporters had hoped for a "post-racial" administration but quite the opposite happened. Here is a panel discussing whether PC elected Trump.  This morning's WSJ includes an editorial about protests at George Mason.  Are Trump supporters sending thank-yous to the protesters?

Here is the story of a race-predicting algorithm used by the Obama administration to identify bias in auto-lending by looking at surnames and addresses. Systematic bias is a problem to be addressed. But base the allegations on such algorithms? Slippery slopes? Is no one embarrassed? Scared? I am wary of allusions to Nazis but the problem of identifying Jews was (still is) resolved by looking for "Jewish-sounding" names.

Political crusades can lead to awful outcomes.  Once upon a time, James Madison and friends saw the threat and wisely concluded that less government meant less politics.  And that this was the only way to go.

ADDED

I am greatly enjoying Jonah Goldberg's Suicide of the West: How the Rebirth of Tribalism, Populism, Nationalism, and Identity Politics is Destroying American Democracy.  We are moving backwards, back to tribalism, via our identity politics. The author reminds us of all we are giving up.

Sunday, April 22, 2018

Near and far

California's high-speed rail has nothing to go for it except the typical alliances of baptists and bootleggers that pretty much define large-scale infrastructure project boosterism in the U.S.  So it will go forward.

Large-capacity point-to-point modes (air or land) face a last-mile problem.  How to funnel the crowds to and from each point to and from many origins and destinations? As cities spread out (as they always have and always will), the problem becomes more serious. Where the numbers of passengers involved is large, there are various remedies, including the growing array of private on-demand cab services. Markets and tech are formidable,

Where the numbers are much smaller, as they will be with rail, there are only the default public (also baptists and bootleggers) conveyances. Just as the post office survives long after it has been outclassed by modern alternatives, these will be maintained via the usual political patronage. Here is an update of the post office story. Think about it: why do we still have an old-time postal service?

The spreading out of cities means that there are origins and destinations near and far. This is why the sprawl story is so wrong. This is also why average travel times and distances are so stable (see Alex Anas, 2014)

Even networking and agglomeration occur over a range of distances. We all converse and interact with interested parties near and far. We share ideas (and research) electronically and we also get on airplanes to attend meetings here, there and almost everywhere.


Saturday, April 07, 2018

Yin and yang

You could call cooperation and competition the ying and the yang of economics. Donald Trump and other protectionists only see competition whereas the fundamental lesson of economics is cooperation. Buyers and sellers cooperate; both want a deal. Sellers compete with other sellers, not with buyers.

Protectionists, including Fox's Lou Dobbs and many others, confuse the trade balance with a profit-loss statement.  "Nothing, however can be more absurd than this whole doctrine of the balance of trade" (Adam Smith).

The fact that buyers and sellers eagerly seek each other is not changed by the facts of their addresses, whether in the same nation or region or not. The fact that data are reported by geographic units ("trade gap"), mixed with the usual political grandstanding, gives many people the impression that the trade balance idea is useful.

So, as usual, everything is upended by politics. This where public choice economics helps. When sellers in country X fear the competition from sellers in country Y, and if they are politically potent (and economically impotent) they can win political points and elections. Small bands of buyers out-organize and out-vote much larger groups of consumers.

Many people are seemingly worried that China does not abide by WTO trade rules and out-mercantiles the U.S.  Again, some U.S. industries would be impacted. The WTO should police its own rules.  But short of that, China is moving towards greater state control (their crony capitalism); if the U.S. and others do not follow the same path, they will remain the more formidable. Many U.S. people and entities (not "the U.S.") will win.

Timothy Taylor makes a similar point.



Monday, April 02, 2018

Bi-partisan

The post-recession reckoning among economists (and others) is in full swing and will go on. Among my favorites is the very readable Behind the Model: A Constructive Critique of Economic Modeling by Peter Spiegler. My review is forthcoming in the Independent Review.

Beyond all this, I have often mentioned that economic theory of any kind is almost useless if it ignores public choice analysis -- as much of it still does.

Here is news from Washington DC's Metro:

“Uber and Lyft are part of the transit system here, and so they should help pay to fix Metro because they’re benefiting from Metro’s demise,” [D.C. Councilman Jack] Evans told The Washington Post after D.C. Mayor Muriel E. Bowser introduced new taxes on the ride-sharing companies based largely off his advice. (reports Timothy Meads)

This is not an unusual sentiment.  The public schools must be defended and maintained because they are a jobs program.  So it is with public transit, the post office and an uncountable number of public programs and agencies. This bizarre logic is natural to its proponents but under the radar for much of the electorate -- just as public choice analysis suggests.

What else does the theory predict?  These programs will survive even as the red ink (and awful rhetoric) accumulate. The California bullet train will be continue to be funded.  Trump's infrastructure plan will spawn more such projects -- with considerable bi-partisan support.

ADDED

Mike Munger and Russ Roberts discuss the various problems with textbook prescriptions for congestion taxes. They only lightly treat the problem of who will set the fees -- and what will they do with the revenues? That is the elephant-in-the-room highlighted by the Washington D.C. episode mentioned above.

Friday, March 16, 2018

All about demand

"If you build it, they will come" is one of the sillier ideas around. It ignores demand.  The Economist comments on how this idea fared, when tested, in the discussion of "food deserts."  People get awful choices when they prefer awful choices. Poor people are not deprived of healthy food because it is inevitably costly or because greedy capitalists are misanthropic.  Greedy capitalists want to make money -- and will find ways to bring to market whatever it is that willing customers want.  Once again, ideology causes commentators to blunder. Demand is the most important idea in economics. Simple and true.  Supply will follow.

What else do we know?  Implementing the dreams of policy makers (often appendages to crony capitalism) causes more problems than it solves. Politicians' heavy involvement in land use controls has messed up housing in large metropolitan areas.  This has delivered the housing "affordability" mess.  Progessives manage to hurt the poor most. The simple fact has been documented many times by serious research.  Here is the latest.

But when politicians try to fix the problems they have created, they often deepen the whole they have dug.  Finally getting out of the way when builders want to build at higher densities sounds good.  But the social engineers' "solution" does not.  The California legislature now wants higher densities permitted if developed near transit stations.  But most Californians are not interested in public transit.

Stating the obvious makes no difference.  The California "bullet train" continues to waste resources with no end in sight. The folks who preen their scientific with-itness when touting climate change go totally off the rails (sorry!) when they offer their "solutions."  Better to look at demand first.   

Saturday, March 03, 2018

Left and right confusion

One wishes that good economics makes good politics but every time politicians reach for protectionist policies, it becomes clear that this is not to be. Short term advantage matters most. The long term damage of economic meddling is nobody's business.

Capitalism means different things to different people. Baumol, Litan and Schramm attempt to explain Good Capitalism, Bad Capitalism. The one we seem to be stuck with is bad crony capitalism. The cronies in politics and in business are always in play and have to be constrained. How? The hope was that with enough education, the fundamental truth that we become prosperous via comparative advantage (clear from logic and history) would matter but these profound lessons have not sunk in. Don Boudreaux at Cafe Hayek hammers at the essentials almost daily.

At the Fox Business Channel, the other day Stuart Varney carefully explained to his colleagues that Trump was for "free, fair and smart" trade. The fact that it is meaningless rhetoric in the service of nothing but crony capitalism dawned on no one in the room. Pro-business and pro-market are not the same. But the confusion goes way beyond Trump and Varney. I fear that it is widely share on the left as well as the right.

Monday, February 19, 2018

"And then what?"

The wise Tom Sowell supposedly (I cannot find the link) summed up what we need to think about when we dream up policy proposals with the simple words: "and then what?"  This makes great sense in light of the many proposals that erupt after each of the awful mass shootings we have experienced.  Little kids being murdered and maimed by the feeble-minded repels and stuns.

People inevitably reach for simple solutions. "There oughta be a law." "Gun control." Even the wise Ross Douthat proposed new regulations for owning AR-15 rifles.

But we also learn the crushing truth that the authorities could have and should have kept a better eye on the murderer. And they fumbled badly. So which gene pool will supply the folks who will enforce any of the new proposals?  It's a serious question.

I am not trivializing but we have all seen various personnel that staff some of our public agencies. Even the FBI is now emerging as more politicized Keystone Cops than Elliott Ness. We are not getting to Denmark.

The Baltimore Metro is closing for one month for repairs. Los Angeles' Blue Line may soon do likewise.  These are not old facilities. "Crumbling" infrastructure is not from lack of funds.  Rather, it is from funds badly administered and spent.

None of this is good news. It suggests that we have deeper problems than agreeing on another new law or regulation. The sanctimony is thick after these shootings. But no one wants to address the fundamental problem of the personnel that we end up with staffing so many of our agencies and bureaucracies. Politicized hiring practices dominate.

ADDED

Craig Newmark send us here.





Saturday, February 03, 2018

Networks or supply chains for ideas?


Ferguson is a prominent historian who is readable.  Here he dramatizes well-known historical episodes (who allied to go to war, to build empires, large companies, etc.) by noting the networks and networking that were involved.

We all know that networks and networking are important.  We also know that all of us are keen to find sources of useful information (Mokyr). This is why I prefer to note supply chains for ideas to networking. Ferguson cites the spread of ideologies.  Ideas can be thought of as “in the air” and as they rain down on us. But purposeful action in seeking ideas is more interesting and more descriptive. Supply chains are everywhere. In fact supply chains for ideas accompany many supply chains for things. They can be intertwined. We often learn when we transact. 

In recent work, John Cho and I have looked at pairwise co-locations of industries in the greater Los Angeles area. Using census block groups we estimated 2,991 co-location coefficients.  For all of the industry pairs we also know sales and purchase coefficients from input-output tables.  Using the latter as explanatory variables in a regression, we see that they explain just 3% of observed co-location.  What explains the rest?  There is surely noise in the data but we surmise that much of the rest must be due to the draw of information exchange.

The textbooks teach that information is a “public” good and unlikely to be traded. But only some of this is true.  Because we are keen to find useful information and because so much useful information is tacit, requiring interacting, we choose locations that help us with access specific information. The strong and the weak links are in play.

We network for many reasons to secure goods and to secure ideas. We do all this over many media, electronic as well as face-to-face. Choosing the best location for us to get all of this done becomes important and tricky. It also suggests that “agglomeration” can be many things, near as well as far. Fitting our data to Ripley-k functions shows that non-chance odds of encountering a same-industry firm, increase beyond 5km (the side of a large but square downtown). Near and far.

We agglomerate not just in tight clusters but over many geographic ranges.  New York is a financial hub but one that extends beyond Wall Street. L.A. is an entertainment hub but one that extends well beyond Hollywood (and even the San Fernando Valley). San Francisco is a tech hub that extends far beyond Silicon Valley.  High rents in all of these places suggest supply and demand forces.  Restrictions on supply have been widely noted. Strong demand is what our story is about.

All of  this illustrates once again that spatial arrangements and networks (including the paths we wear over lawns that were never laid out for us) emerge.  Jane Jacobs famously noted all this many years ago. “Their intricate order – a manifestation of the freedom of countless numbers of people to make and carry out countless plans – is in many ways a wonder” (Jacobs, 1961)

Sunday, January 14, 2018

Good news, not bad

Over at Marginal Revolution, Alex Tabarrok notes that today's NY Times just misses the opportunity for another "teaching moment".  He refers us to their "Fine Lines ... Inside one of America's last pencil factories."  I am referring to Leonard Reed's I, Pencil, an essential teaching tool re specialization and exchange. No one person can easily make a pencil. But something as mundane as a pencil reaches us at very low cost because large numbers of strangers have come together as specialists, producing pencils for us at low cost.  It's a wonderful lesson in how market signals perform remarkable coordination at great benefit to us all. It thereby explains our material well being.

The same issue of the NY Times includes "Your child's preschool teachers may be the most important educators she'll ever have ... So why do they get paid so little.?" It's another supply and demand opportunity squandered. The essential "The Economic Way of Thinking" by Paul Heyne, Peter Boettke and David Prytchitko includes another simple and incisively useful example. I am looking at their question #9 at the end of Chapter 11 (11th edition).  Why do hairdressers earn more than day-care workers? Does our "society" care more about vanity than children? Pretty awful? Bad news? No. Demand and supply indicate that there are many people who enjoy working with young children. Apparently many more than want to muck around in other people's hair. Good news.

Here are just two simple but profound lessons from very basic economics. It's not about "fake" news. It's about good news, much better than what the "wets" (thank you, Margaret Thatcher) dwell on.

Monday, January 01, 2018

Urban structure, not urban size

Tyler Cowen asks "Why don't cities grow without limit." He comments on (and links to) a Paul Krugman discussion of the same topic.

"City size" as the focus has problems.  What is the boundary of "the city"? And cities are about spatial arrangements. Spatial arrangements involve many trade-offs and are necessarily emergent. Emergent arrangements would bend and displace the (imaginary) marginal benefit and marginal cost functions. This goes on as the "cities" keep spreading out.

But emergent spatial arrangements are up against the durability of physical forms as well as the durability of politicized land use regulations.

All of this sounds like Jane Jacobs v Robert Moses all over again.  But times have changed insofar as people now link up in many ways. People in cities want space as well as access. That alone suggests a trade off. But they want access to many things. They also choose the mode of access to all these things (electronic v. traditional).  "Geography matters more than ever despite the digital revolution ..." And more potential trade-offs than ever.

Sunday, December 24, 2017

Every time

Today's NY Times includes "The Megacity, Untethered ... Urban giants are going global, but losing their connections with smaller neighbors."

What do we know?  (1) This is the age of AI, expanding platforms, and disruptions. New applications of blockchain technology will boost all of this. (2) Humans are alpha-everythings because they (we) communicate/cooperate better than any competitor. We easily dominate rivals who are much stronger and much faster. (3) Our wealth comes from our productivity.  Our productivity comes from new ideas. Our new ideas are new combinations of old ideas. The clearer the networks in our brains, the better we are at coming up with new combinations. (4) Being good communicators, we can do even better. Our brains are actually networked networks. What we do in cities is to cultivate and form networks. We network in many ways, in person as well as electronically. We are prompted to seek the best blend of networking options.  The blend is peculiar to each individual's mission and includes choice of location and travel. (5) This is how the physical forms in which we operate (including cities) evolve. But they are also a constraint. They are durable and they adapt slowly. The crony capitalism that gives us the rules and regulations of land use assure that the adaptations will be slow and costly.

But tech will beat regulators every time.  Regulators will slow tech every time.

ADDED

Evidence that the world is getting better (H/T Cafe Hayek) does not get nearly the attention it deserves. My blog post simply highlights how our cities are part of the story.

Wednesday, November 29, 2017

Inequality and cities

The trend to bigger government and bigger politics is clear. With that we get ever more discussions of inequality. Current tax reform discussions gravitate to who will get (or lose) what. Growth (a bigger pie instead of allocating pie slices) gets second place.

In a world of Death of Distance or The World is Flat, cities would have a minor part in the increasing inequality discussion. But neither of these have come to pass. The highly skilled are paying big bucks to be near similar people.  They surely engage in electronic interaction but feel strongly about complementing these with the possibility of personal interactions. Hence the value of proximity (even if not cheek-by-jowl) -- and very high rents in San Francisco (and environs), Los Angeles, New York, etc.

That's the demand side.  The supply size and the role of regulation have been commented on in various places. For one-stop shopping (reading)  http://www.newgeography.com/ has assembled much of the relevant research. See also Enrico Morretti's The New Geography of Jobs.

Many people now have the wherewithal to bid high for selected locations and, in the process, greatly enrich property owners in these places. We get housing wealth inequality compounding the inequality trend.

What can be done? Make it less difficult to build and develop. A minor irony involves the fact that those who fret most about housing "affordability" problems like the tough regulations the most. Their answer is more "affordable" housing provided via various programs. But programs make it worse -- and will never match what market forces could accomplish -- if allowed to.

Sunday, November 12, 2017

Driverless future: not everyone aboard

Randal O'Toole writes "It's the Last Stop on the Light-Rail Gravy Train ... Mayors want new lines that won't be ready for a decade. Commuters will be in driverless cars by then." Sounds ironic but only if one ignores Bootleggers and Baptists cronyism.

Jim Moore and Tom Rubin write about LA's MTA. Fewer riders but evermore spent on expensive fixes rail. This is the MTA's long-running and continuing story. In their alternate universe, red ink is not a sign of flagging demand but an indicator of "underfunding".

The mega-dollar waste is plain enough. But in an age of dazzling entrpreneurial breakthroughs, think of the opportunity cost. Dollars diverted from genius work hurts more than ever.

Today's New York Times Magazine has a special issue devoted to driverless cars. Just as Henry Ford's inventions changed the world, so will driverless cars. Futurism is hard but several writers take their shots. The imaginative Molly Young writes about "The Future of Sex in Cars."

ADDED

Wendell Cox adds information on the expanding alternate universe.