Monday, August 22, 2016

"Youthful safety and adult immaturity"

There are few if any unmixed blessings. Almost everyone likes and uses the internet. But there are obvious downsides. Ross Douthat takes up that theme in Sunday's NY Times, "The Virtues of Reality ... Online realms can make us safer, but stunted." Virtual sex and computer game violence mean that young people have been less likely to get in trouble. But neither are many of the young ready to get out, join the workforce and sample non-virtual reality. Many stay with parents, stay home,  and make do with not much of what we can call a life. 
"... I want to advance a technology-driven hypothesis: This mix of youthful safety and adult immaturity may be a feature of life in a society increasingly shaped by the internet’s virtual realities.
Douthat moves the discussion away from the standard (boring) talking-heads litany of political errors and political opportunities. And the young people least equipped are most likely to use internet addictions to avoid getting a real life. "The poor spend more time online than the rich ..." There was a time, of course, when class warriors embraced the "digital divide" concern. They were apparently wrong.

Read Douthat's whole piece on this. When I get the Sunday Times, I look at his column first.

Friday, August 19, 2016

What would they do all day?

There are many pithy ways economists use to make important points ("no free lunch", "compared to what?" etc.). Among the most useful is Thomas Sowell's "and then what?".

Today's WSJ cites a short piece from Esquire on some of the consequences of marijuana legalization. The "War on Drugs" has been a disaster on many fronts and legalization is the way to go. But partial legalization also has consequences. These were harder to anticipate. Here is the story:

... The heroin epidemic was caused by the legalization of marijuana.
We wanted legal weed, and for the most part, we got it. Four states have legalized it outright, others have decriminalized it, and in many jurisdictions police refuse to enforce the laws that are on the books, creating a de facto street legalization.

Good news, right?

Not for the Sinaloa Cartel, which by the time Colorado passed Amendment 64 in 2012 had become the dominant cartel in Mexico. Weed was a major profit center for them, but suddenly they couldn’t compete against a superior American product that also had drastically lower transportation and security costs.
In a single year, the cartel suffered a 40 percent drop in marijuana sales, representing billions of dollars. Mexican marijuana became an almost worthless product. . . . Once-vast fields in Durango now lie fallow.
More good news, right?

Yeah, no. Guzmán and his boys are businessmen. They’re not going to take a forty-point hit and not do something about it. They had to make up those profits somewhere.

Looking at the American drug market as it existed, Guzmán and his partners saw an opportunity. An increasing number of Americans were addicted to prescription opioids such as Oxycontin.

And their addiction was expensive. One capsule of Oxy might sell on the street for thirty dollars, and an addict might need ten hits a day.

Well, s—, they thought. We have some of the best poppy fields in the world. Opium, morphine, Oxy, heroin—they’re basically the same drug, so . . .

The Sinaloa Cartel decided to undercut the pharmaceutical companies. They increased the production of Mexican heroin by almost 70 percent, and also raised the purity level, bringing in Colombian cooks to create “cinnamon” heroin as strong as the East Asian product. They had been selling a product that was about 46 percent pure, now they improved it to 90 percent.

Their third move was classic market economics—they dropped the price. A kilo of heroin went for as much as $200,000 in New York City a few years ago, cost $80,000 in 2013, and now has dropped to around $50,000. More of a better product for less money: You can’t beat it.

At the same time, American drug and law-enforcement officials, concerned about the dramatic surge in overdose deaths from pharmaceutical opioids (165,000 from 1999 to 2014), cracked down on both legal and illegal distribution, opening the door for Mexican heroin, which sold for five to ten bucks a dose. ...
Partial legalization is the problem. People's capacity to discover (and supply) substitutes is vast. To avoid messes like the one described, go back to principles. Prohibit nothing that has the potential to only harm the individual exercizing his or her free choice.

Freedom is inherently attractive and also so practical. But the freedom idea also places a lot off-limits to the state. What would politicians do all day?

Tuesday, August 16, 2016

Urge to mandate updated and cleaned up

Ironies make us think. And there are plenty of them. We know that in U.S. politics, "liberal" is now the opposite of its original meaning. We also know that people who would have claimed that label as recently as 20 years ago now prefer to be called "progressives." People who see themselves as "liberal" in the old fashioned sense now prefer the label "libertarian".

But, on examination, the original progressives of the Progressive Era were not the congenial folks we learn about in high school. Fred Siegel covers this ground in his The Revolt Against the Masses: How Liberalism Has Undermined the Middle Class.  Thomas C. Leonard does much the same in his Illiberal Reformers: Race, Eugenics & American Economics in the Progressive Era. Most disturbing is the fact that, in the great desire to be be modern and scientific, the Progressives embraced eugenics. We now know how badly that ended.

Almost all of polite company these days favors raising the minimum wage in the service of "helping people." But the original Progressives were quite explicit about their motives. They also got their econ 101 right. Here is Leonard (on page 130): "Thus did many observers accuse inferiors of accepting low wages and undercutting the American workingman. Sometimes inferior workers were portrayed as explicit dupes of the capitalist. At other times they were portrayed as the capitalists' accomplices. Often they were made out to be both. In all events, the threat was the same: the low standards of inferior workers."

That sort of candor has been updated and cleaned up. It is now about "helping people." Trouble with that is it just ain't so. The Law of Demand, as they say, "takes no prisoners."

Don Boudreaux makes a similar point.

Thursday, August 11, 2016

"Have you no sense of decency?"

Here is the Malcolm Gladwell podcast re Toyota's "sudden acceleration" problem. Listen to all of Episode 8. Here is Gladwell's abstract:
In the summer and fall of 2009, hundreds of Toyota owners came forward with an alarming allegation: Their cars were suddenly and uncontrollably accelerating. Toyota was forced to recall 10 million vehicles, pay a fine of more than $1 billion, and settle countless lawsuits. The consensus was that there was something badly wrong with the world’s most popular cars. Except that there wasn’t.
Politician-lawyer-media frenzy are almost inevitable when a "big corporation" can be blamed. Most of the rest of us are happy that Toyota manufactures and sells great product -- and we prove it with our purchases of the company's product year after year.

Some years ago, I had occasion to work with then-East-bloc colleagues. It was best to tippy-toe around all sorts of issues and episodes that might embarrass them. When there was embarrassment, they would shrug and smile and simply say "that's politics." Move on. Nothing can be done.

I am happy to live in a better place. But "that's politics" also comes across in Gladwell's piece. Two cabinet secretaries are shown to be part of the extortion mob. And we now have an "historic" nominee for president who lies until the paint peals. But the toadies still cheer. "Have you no sense of decency?" was once a powerful statement. Directed at either major party candidate, it would be (sadly) laughable today.

Friday, August 05, 2016

Waste and debt

The mantra used to be that the antidote for bad cost-benefit studies is good (properly done) cost-benefit studies. But Bob Higgs remains skeptical. He invokes the "first do no harm" principle and notes how hard it is to meet that standard -- no matter what the estimated costs and benefits are.

But we now live in another world. Whether it is Clinton, Trump, Sanders or Obama, they are fond of discovering (and championing) free lunches (trade protectionism, free college, banning immigration, overtime for everyone, free child care, energy independence, etc., etc., etc.).

The locals in my part of the world are not to be undone. Friend Brad H. notes that the Los Angeles Economic Development Corporation has discovered the best deal yet: Raise the sales tax by one-half cent and "put billions back into the economy". How does that really work? There are no opportunity costs. In fact, costs are benefits. Spending is a benefit.
Light rail, subway and bus rapid transit construction projects that would be funded by the tax plan would result in $51.1 billion of economic output, while another $28.2 billion would be generated through freeway and highway projects during the first 50 years, according to LAEDC analysts.
But even high authority (in this case J.M. Keynes) said that "whenever you save five shillings, you put a man out of work for a day."  The spending sentiment still resonates. Spin it with talk of less traffic, less carbon, etc. and it's off to the races.

The great two-fer these days involves public projects that denote more waste and more debt. Debt is justified if and when the projects funded contribute to growth. But these are not the sorts of projects that politicians place on the ballot these days. Quite the opposite


The list of free-lunch fairy tales is long and growing. This one surely belongs: "The All-Time Regulation Record."  The slowest post-war economic recovery speaks for itself. 


The NY Times includes "A Low-Growth World ..." on this Sunday's front page.  No mention of the elephant-in-the-room-all-time-regulation-record. This goes on here and abroad and explains low growth here and abroad. Some years ago, Mancur Olson published The Rise and Decline of Nations: Economic Growth, Stagflation and Social Rigidities.  The "mystery" was solved by Olson some years ago.

Tuesday, August 02, 2016

Be careful

Here is the always wise Matt Ridley talking about experts and their forecasting skills (lack of). He cites the Philip Tetlock project.

We have a natural human interest in the future; we have to reconcile this with the fact that we have no clue (can have no clue) about the distant future. We are routinely asked to make large sacrifices to avoid the consequences of climate change in as many as 100 years in the future. There has never been a serious 100-year technology forecast. I doubt that there will ever be one. (I just made a safe forecast.)

It is an entirely different matter if private parties make bets with their own time and money. If they choose to putter around laboratories, pursuing wild ideas, good for them. It is a different matter when they hector others to do so with their time and money -- or via their influence on those with the power to tax.

One can never know enough history. It's also good to know a lot of economic history; my taste runs to Deirdre McCloskey's way of combining the two fields. But do these oceans of scholarship allow one to make forecasts? For the short run and in terms of broad patterns only. And even then, be careful.

If cities were to implement one-stop developer approval processes in place of the drawn out and expensive mess we now have, there would be more housing, greater affordability and also more mobility. These are all to the good. But my forecast lacks a "when" and a "where".

In the run-up to 2008, most economists were still celebrating the Great Moderation. Were any of them in the room when Queen Elizabeth asked the obvious question? Be careful.

Thursday, July 28, 2016

Two thoughts for this political season

First, I cannot imagine more enjoyable economic history than by Deirdre McCloskey. I just finished Bourgeois Equality: How Ideas, Not Capital or Institutions Enriched the World.  The old questions: How did we get so rich? Why for those in some places and not others? Why all the great improvements since 1800? She cites "the bourgeois deal" -- how commerce and "economic betterment" became respectable after about 1800, especially in the UK and Holland. It's not simply "good institutions" but the right culture. I cannot place who asked, "How do we get a better culture?" The brisk answer was "Get a better history."

Along the way, McCloskey cites Peter Boettke's thought that "the economy involves a continuing struggle among the Three Ss: Stupidity, Schumpeter and Smith." (p. 205). Smithian gains from trade and Schumpeterian inventiveness suggest that economic growth is the natural condition unless stupidity manages to choke it off. Pass more laws, enact more edicts and regulations.

Looking at what the major political parties are up to (I only tuned in for a few minutes to see cheering crowds in Philadelphia moved to tears of joy in response to idiotic banalities from the stage) it may be that stupidity is now in the saddle.  Bourgeois Equality suggests that the first two Ss had been ahead (by a nose?) since 1890. But post-1980?

Second, the WSJ offers this helpful electoral college scenarios cartogram gadget. Campaign managers will play these until the eve of the election. One not crazy scenario shows a Clinton majority by just one electoral vote. Both major party candidates are "high-negatives-with-more skeletons-in-the-closet". This means that as the skeletons tumble out, a very close outcome is certainly possible. This also means that a serious run by Libertarian Gary Johnson, whereby if he wins just one small state, could foreclose an electoral college majority -- and therefore the choice goes to the House of Representatives -- where it is possible that they may actually select someone who does not scare (terrify) people. As I keep saying, many ifs.


Arnold Kling on voting Libertarian this year.

Friday, July 22, 2016

Who do you trust?

This week's NY Times coverage of Los Angeles ("The Capital of Car Culture Warms to Mass Transit") was 100% wrong. Wendell Cox and Tom Rubin provide the facts. LA's celebrated rail transit extensions have prompted net losses of transit ridership, the opposite of the Times lede. Elite opinion has a clear idea of how the world should work and this becomes, in their minds, a rendition of how the world does work.

But this is old news. Arnold Kling links to a remarkable essay by Walter Russel Mead here. Give it enough time, and the credibility of elites (not just mainstream media) sinks so low that Trumpism happens. Mead does not mention the candidate but rather the growing gap between "the professional class" and everyone else.

This is not just about income inequalities. It is about the antics of those who are doing well, including their opinions and pronouncements. Hillary Clinton is caught lying to the American people (over and over) and the FBI chief fancy-dances to paper it over. The attorney general just clams up. Bill Clinton escaped perjury charges because his lies to the American people were about sex and, therefore, a lesser perjury. H. Clinton's lies were more serious stuff but no big deal. Now she will save us from Trump.

I support the Johnson-Weld ticket, ably profiled by Ryan Lizza in the current New Yorker.


 More on Johnson-Weld.

Monday, July 18, 2016

Dumb idea sticking around

Wendell Cox reports that the latest data show that there are "Shorter commutes in American Suburbs and Exurbs". He means in terms of travel time, the only thing that matters. This has been known for some time but is apparently counter-intuitive to many. The old Costs of Sprawl notion still lives: spread out cities must mean longer trips -- and more uncompensated externalities. This must mean that central planning ("Smart Growth") is needed -- and will somehow make things better. Anything goes.

But think for a minute. Cities (metropolitan areas) compete for labor and capital. They must provide settings that are attractive. Locators (labor and capital) evaluate sites, contemplate many trade-offs (everyone considers commute times and access to a variety of destinations) and bid for space accordingly. Markets are always there and do not tolerate unsustainable (that word) waste.

Yes, markets also internalize many externalities. Location choice means that, among other things, locators look at local external costs and benefits.

As in all other areas (watch Cleveland this week), dumb ideas stick around. They do not stay around forever but often a very long time.

Friday, July 15, 2016

Sunk costs

I often used the Paul Heyne (now with Boettke and Prychitko) textbook for its many appealing features, one of which is end-of-chapter questions that are far superior to any I have seen in an introductory text. For their discussion of sunk costs, they ask whether casualties suffered in a war can be used to justify staying in the war. The point is that cultural norms may be up against economic thinking. The latter argues for comparing expected (future) costs with expected (future) benefits. But the culture may argue for honoring the sacrifices of the fallen by staying in the fight.

In an "overrated/underrated" discussion of sunk costs, Tyler Cowen cites the culture as a sunk cost not to be underrated. My favorite class discussion head scratcher involves couples tempted to separate but citing all they years they had "invested" in the relationship as getting in the way of a "rational" assessment of whether to stay together. What about all the years already sunk into an academic major connected to an unattractive career (life)? Is it somehow too late to switch?

Private companies shut down the losers. Even public-private ventures throw in the towel on unpromising projects. Airbus may finally cut back on production plans for the A380. Walking away from California high-speed rail will be much more difficult: once a few miles of track are laid, the sunk cost story will be the story. There are no stockholders; bondholders only exist in the promises of the High-Speed Rail Authority which is properly exposed here. (h/t Newmark's Door).

MC=MR static equilibria are standard classroom fare (wonder why do students fail to respond?). But the more plausible model involves dynamics that involve learning from mistakes and error correction. That model includes walking away from mistakes. How else could there be any progress?

Monday, July 11, 2016

Clustering with elbow room

Is it "death of distance" or is it agglomeration? It is both. False choices mislead. We keep getting clusters of complementary activities but the new clusters are at lower densities and more spread out.

Today's WSJ includes "Startups Try to Spread Outside of Silicon Valley ... The biggest, best funded companies are still being built, for the most part, in the Bay Area."  This is not surprising. All of finance was never expected to be in Manhattan; all or entertainment was never expected to in in "Hollywood"; all of the auto industry would not be in around Detroit. But these places maintain(ed) leadership. Clustering will always be attractive but clustering with elbow room is better.

Here is the map of the many shapes, sizes and densities of the many Bay Area clusters.

Sunday, July 10, 2016

Another cost disease

Baumol's cost disease famously calls attention to the fact that when there are reasons to expect steady productivity divergence between sectors, the associated product prices will diverge and this will impact consumption patterns. The fine arts sector, for example, cannot expect productivity improvements to match those in manufacturing. Fine arts prices will rise in comparison to manufactured goods as will their relative importance in people's budgets.

The July 10 NY Times Magazine includes Marie Kondo's Stuff Of Nightmares ... and the ruthless war on clutter". Look at all the garage and yard sales, the rise of the self-storage industry -- as well as the relentless accumulations of stuff in our own homes and offices. A la Baumol, the relative costs of accumulating stuff and the space to house it are systematically diverging and there is no relief in sight.  Easy on-line shopping and delivery only make it worse (cheaper in terms of time). There is even now a National Association of Professional Organizers. The problem is that  city and state governments make it increasingly difficult to build.  Growing housing affordability is a result. But so is the growing problem of organizing and storing all of our stuff.

This is another first-world problem, one that we have inflicted on ourselves.

Friday, July 08, 2016

You have to be quick

"Studies show" that raising the minimum wage has no (or very few) unemployment consequences. This is an approximate version of the free-lunch mantra that some in the dirigiste community have adopted. So, have at it. This is, of course, just convenient rhetoric. There are an uncountable number of everyday substitutions in light of price differences. Their timing is always peculiar.

But anything-goes rhetoric is not a problem. Look at who the two major U.S. political parties are about to nominate for president. Anything goes.

Now it also appears that "A Robot-Run Burger Joint is Coming to San Francisco" (h/t Scott Alexander). "Substitutes always and everywhere" is a truism. The interesting question is how many see the substitute as a good one or a bad one. Demand is wonderfully subjective and market tests are all we have. Fortunately, there are market tests all around -- until and unless some make it their project to outlaw them. Then its a race between the innovators and the controllers (see Uber/Lyft, drones that deliver packages, etc.). Staying one step ahead of the controllers is how progress is accomplished

Wednesday, July 06, 2016

China food

Deng Xiaoping was probably China’s greatest 20th century leader. He turned a very large and very poor country into a very large country that is among the world’s richest (measured by GDP, not GDP per capita). Economic freedom expanded but political freedom not so much. How are the two linked? Is there a “night watchman state” standard for fast-growing large Asian countries that have no western liberal tradition? No one knows.

How to build on Deng’s magic? Land and agricultural policies, not so long ago, were so misguided that millions starved. That was then. But even today, China’s poorest are still in the countryside.  Food has to be imported.

Farmland cannot be owned; it can only be leased for up to 30 years. Here is some land policy history.
Crop plantings that require many years to mature, as well as farm sizes that reap scale economies, are foregone. A recent FT (gated) includes Lucy Hornby’s “Losing the plot … For decades, the country has wrestled with modernizing its agricultural industry, sometimes with tragic results. But as long as the sale of rural land remains illegal, how realistic is it to expect radical reforms?”  Policymakers are trying to import food and even buy land abroad to feed the population. Taking a page from Deng's playbook, more land policy liberalization would help to solve a bunch of problems.

I have no idea about the domestic politics of further reform.  In any political system, reform encounters resistance. How did Deng Xiaoping do it? He started small. First Shenzhen, then the rest of the country. That's the way to go here as well as there.