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).

Friday, April 14, 2017

Friendlier skies

It is a cliche to say that where transacting does not occur there will be conflict -- even violence. Everyone has now seen the United Airlines thugs doing their thing on a recent domestic flight. Economists (notably Julian Simon) have long suggested that silent auctions would be much better.  ("Please go to our website and ..." ) The usual suspects however want more and better regulations (oxymoron?) -- such as a ban on overbooking.

A better antidote (also from Econ 101) is more competition.  That can easily be accomplished. International airlines that have already landed at a U.S. airport are banned from picking up passengers and ferrying them to the next U.S. destination. The ban is pure crony capitalism and should be lifted. Most other countries have no such ban.

Part of the stand-up comedy by airline attendants is when they say "we know you have a choice ...". How about many more choices?


"Thugs" was the wrong descriptor. Uniformed law enforcement people find themselves in impossible cluster situations (such as the one described) all the time.


Timothy Taylor has a short discussion of Julian Simon's thoughts on using auctions to clear an overbooking problem.

Sunday, April 09, 2017

Cities and markets

The fundamental insight of economics is that choices based on market prices give us the best allocations of scarce resources.  It follows that prices that come to us from any other sources can be problematic. The fundamental insight of urban economics is that good and bad things can happen when people crowd into cities. It follows that cities will grow and prosper if and when the costs of crowding are somehow mitigated. Prof Don Shoup put both of these insights together some years ago and made the case for wiser pricing of parking.

The Economist of April 8 has come around. "Sacred Spaces: Never mind public transport, bicycle lanes or elegant architecture. What really determines how cities look and move is their parking rules" and "Aparkalypse now: The average car moves just 5% of the time. The improve transport and cities, focus on the other 95%."  Print and electronic headlines not the same but these guys do know how to write.

The third relevant insight is from Hayek. Prices set without the benefit of market discovery are likely to be wrong -- and problematic. What then are we to do with all of the Pigouvian ideas re somehow getting the prices right in cases of external costs?

One approach is to let land markets be. (Not planners' favorite idea.) Land markets can help to arrange land uses in ways that reduce the likelihood that potential negative externalities become realized externalities. The hard-of-hearing will bid for residential space near places like airports -- if we let them.  So here we have it again. Rely more on markets.

For cities, the market failure theme was thoroughly embraced while the potential for policy failure was thoroughly ignored.

Thursday, April 06, 2017


The End of History was nice while it lasted. There are only cycles (a truism) but we never know the their timing (another truism). Mercantilism, nationalism and xenophobia are apparently back. When it comes to trade, we may get less when more would be better. The same is true of immigration.

"Fairness" is always a daunting concept. But here is the easy part: the accident of birth is unambiguously unfair. This recent New Yorker story helps to make the point. The only serious antidote is immigration. But this is where the hard part, political troubles, comes in. Are there models of applicant vetting that have a chance of influencing the debate? I would say that finding these is job #1. Philanthropists may consider seeding efforts along these lines.

We also know that economic success depends on entrepreneurs. Here is one more study that documents the fact that we get more entrepreneurs when we get more immigrants. Always recall that these great people want badly to come here.

So the current retreat from win-win liberal ideas leaves us where? First, we look for occasional bright-side evidence on people's attitudes towards immigration -- wherever we may find it. Second, we recall that the pendulum will swing back. It always has. As always, we do not know when.

Monday, March 27, 2017

Cities too big?

The usually sharp Ross Douthat of the NY Times has recently been writing about "implausible" or "ridiculous" (his words) policy proposals. What to do in the early days of a Trump administration?

Yesterday's version was "Break Up the Liberal City ... Cities as conspiracies against the public good." Douthat wants to treat the cities "as trusts that concentrate wealth and power and conspire against the public good."

He seems to confuse the city (the place, the economic entity) with city government.  When you say "Los Angeles" (or any other), be clear if you mean the place or the government.  Too bad that many people use them interchangeably.

What do we know about the place? (1) There are many flavors and sizes of cities; (2) The big cities like New York are complex jig-saw puzzles with many interlocking pieces (people); they are not uniformly "liberal"; (3) The cities (actually metropolitan areas that include city hinterlands) that grow (attract capital and labor) do so because they offer a winning combination of attributes and opportunities; (4) Cities are where interactions occur; new ideas are spawned, which is how and why they make labor and capital productive; this is why they are "engines of growth"; (5) The "breaking up" part is typically overdone in anti-trust actions anyway; lawyers and judges cannot easily tell who is "too big"; do prices fall? is innovation proceeding? That is the only relevant test. Amazon and Google are not (yet) "too big".

What do we know about city governments? Yes, too large and, therefore too awful. The scale diseconomies are clear.  Did post-war public school consolidation into large districts do any good?

There was a time when many preached the benefits of regional government. Too many small cities!  That would remove what choice there is and entrench all the wrong people. Extend the power and reach of big city governments into the suburbs? I think that Douthat is suggesting the very opposite.

Saturday, March 25, 2017

New exit

Perhaps the most insightful work on political economy is Albert Hirschman's Exit, Voice, and Loyalty. Staying clear of anarchy, we are stuck with governments and politics. These present problems that complicate our lives and our well-being. Perusing each day's news (newspapers) makes the case.

In any market economy there are inevitably forces that push towards the wrong capitalism, crony capitalism. What can be done? Exit and voice are two possibilities. Neither is without cost but in modern American life, exit is the more plausible option. Exhibit A is the lower schools. In most cases, real improvement is hard to achieve and parents have decided that vying for places in charter schools or competing for vouchers (where that is an option) is the best use of their time. "Fighting city hall" is far less promising.

We look to tech to disrupt monopolies. Uber and Lyft are the favorite examples but I expect that many more will soon emerge.

This morning's WSJ includes a review of Seasteading: How Floating Nations Will Restore the Environment, Enrich the Poor, Cure the Sick and Liberate Humanity from Politicians (which I have not yet read). The essay by Shlomo Angel suggests that technological advances (getting food and energy from the sea) are coming our way. These could make the seasteading idea plausible for some.

The San Francisco Bay Area is attractive to large numbers of tech workers and entrepreneurs (and many others).  But the combination of high attractiveness and local NIMBYISM has elevanted housing costs into the crazy realm.  Development is now being pushed to various corners of the Bay Area. Can seasteading in the mild waters off the California coast be another option? Can some tech (or other) firms set up shop off shore? Recall that California and Bay Area politicians get fat from the "sun tax": they get to do dumb things as long as California remains so attractive to so many. 

Off shore settlement beyond the 12-mile limit but within ferrying distance of SF Bay (there are already 15,000 commuters who ferry across the Bay) may be a check on some of the taxing and regulating. It's still a long shot but perhaps a way to get the benefits of California without all the costs. Mark Twain was wrong about land. "They're not making it any more." He should have mentioned location. There may soon be good enough substitutes for some land (at some locations).