Wednesday, April 23, 2014


Supply and demand is seemingly simple. Trouble is that many of the prices and wages that result strike many people as "wrong".  The "just price" discussion is ancient but has not gone away.

I watch the PBS NewsHour because I expect it is the adult rendition of TV News. The program has recently looked at the $15 minimum wage proposal in Seattle ("How much does it really cost to live in a city like Seattle?").  Wages should be linked to what people "deserve" or what they "need". Supporters also expect that more "justice" would follow from politicizing the whole thing.

The report also includes a researcher who cites "hundreds of studies" that show "no impact" when there are "moderate" wage hikes. Many people, even the adult PBS audience, cannot square supply and demand with their own subjective feelings about who and what should fetch how much.

Part of the problem is that so many cannot abide high levels of CEO compensation.  The WSJ's Holman Jenkins addresses this in "Mulally vs. Piketty ...The great inequality theorist offers a shallow analysis of CEO pay." He argues that Ford's stockholders got a pretty good deal with Alan Mulalley.

The very readable and  enjoyable The Second Machine Age by Brynjolfsson and McAfee includes an endorsement of a of higher marginal tax rates on high salaries. But why does the IRS code take up 73,954 pages? Does it take that much heft to get a "just" result? Or does it take that many pages to spell out all the special dealing that our lawmakers specialize in?

I suspect that greater justice would be via a postcard-size flat tax with a very high exemption. 

Sunday, April 20, 2014

A very good day

I am pretty sure that everyone favors "fairness." Most also frown on "inequality." Nothing beats being on the side of the angels. But there are serious (almost endless) problems of definition and measurement. The flies in the ointment are best avoided.

Almost all of the increasing inequality stories are flawed because they compare snapshots rather than real people -- who cannot be permanently pegged via one year of (measured and reported) income data. Thomas Sowell has been pointing out this simple (but inconvenient) fact for many years.

But today is a very good day because the simple fact has penetrated the pages of the NY Times ("From Rags to Riches ... The income gap isn't as static as we think.")
Rather than talking about the 1 percent and the 99 percent as if they were forever fixed, it would make much more sense to talk about the fact that Americans are likely to be exposed to both prosperity and poverty during their lives, and to shape our policies accordingly. As such, we have much more in common with one another than we dare to realize.
 Read the whole thing and keep it handy. You will be hearing about the the 1 percent and 99 percent a lot.

Saturday, April 19, 2014

The wrong capitalism

Crony capitalism is disdained by almost everyone but, according to Google trends, is an evermore popular usage. It seemingly describes the modern world nicely.  That's a great pity.  The political right as well as the political left disdain it (as in Tea Party and the Occupy people; the latter think it's the only kind of capitalism there is). Somehow they keep electing people who implement cronyism full throttle. This morning's LA Times front page includes "LA should be more selective with hotel tax breaks ..." You bet. Read the whole thing. I'm pretty sure the reporter is not posing as a satirist. The people he quotes know all about which area "needs" how many hotel rooms -- and they all agree whose pockets they "need" to pick so that this "need" does not go unmet. The word "shameful" never comes up.

Thursday, April 17, 2014

Modern brokering

Why do people pay big bucks for a "seat" on the NY Stock Exchange? One of the reasons is that there is money to be made in brokerage -- and it sure helps to be located where the trading action is.

Brokerage also reduces price spreads and facilitates more accurate asset price signals available to the rest of the world.

And arbitrageurs make some money -- and they pay some of that for their privileged location. That's access cost plus location rent which describes the use and the price of every site in every city on Earth.

Don Boudreaux writes about the NY tunnel that Michael Lewis (and many others) have recently discovered -- which serves about the same function (updated) as a "seat" on the NYSE.  Some people have paid a lot of money to be the quicker broker. Location rent all over again.

But Burton Malkiel and Arthur Levitt ("We Are All High-Frequency Traders Now") comment on the inevitable new front-running ("scalping"). This refers to large buy or sell orders that are detected before they can be executed. They write:
The answer is not to set a speed limit to slow down to the pace set by those unwilling or unable to compete. Instead, solutions should be directed toward fixing problems inherent in the system such as front-running. 
Identifying "insider" trading has always been perplexing and difficult. "Solutions" are hard to come by. Defining and identifying wrongdoing has never been simple. It will be at least as challenging here.  There is no such thing as an "even playing field." If there are clear rules of the game that are broken, we hope that impartial enforcers are on the case.

Sunday, April 13, 2014

Laugh or cry?

Much has been written about the life and work of Steve Jobs. I enjoyed PBS' Jobs bio, One Last Thing.  Towards the end, one commentator mentions that while Thomas Edison can be credited with three technological revolutions (electric power, motion pictures, recorded music), Steve Jobs can claim four (personal computers, recorded music, animated motion pictures, and smart telephones). Three vs. four. Comparisons and rankings of this sort are difficult but entertaining and tantalizing.

Inequality is the "defining" issue (in some eyes) of our times but much of it is driven by the rewards bestowed on new ideas and the work of entrepreneurs. Aside from hagiographies such as the one I cited and near-riots by consumers when a new gadget goes on sale, this is seldom mentioned. I once heard (cannot recall the source but the idea seems plausible) that about 80% of the fruits of innovation go to consumers at-large while 20% goes to the inventor.  Is that "fair"?  Would I accept that division of spoils from behind a "veil of ignorance?" I surely would.  This is how we get economic growth -- which is the very best we can do for the poor and less well off.

But these simple thoughts are ignored in the feel-good sanctimoniousness of the inequality debate.  Ross Douthat in this morning's NY Times ("Diversity and Dishonesty") calls attention to the suggestions of Sandra Y.L. Korn of Harvard U.
... I would like to propose a more rigorous standard: one of “academic justice.” When an academic community observes research promoting or justifying oppression, it should ensure that this research does not continue.
Why the hell not? Discourse and ideas diversity is pretty corny these days.

Wednesday, April 09, 2014

Tricky "common sense"

Many of us cognition non-specialists used to think in terms of vague "left brain" vs. "right brain" functions.  Daniel Kahneman's  Thinking Fast and Slow provided a much needed corrective; many of us are a now little bit smarter about how our very complex brains function. I had previously only considered lazy vs. non-lazy thinking. 

The fast and the slow thinking approaches each have their usefulness and it is up to each of us to be wise about how we deploy our various capabilities. Humans working with computers (and gadgets) face the problem of how to allocate responsibilities. The same challenge applies to sorting out the work for our "fast" and "slow" brain modes.

Duncan Watts, in Everything is Obvious: How Common Sense Fails Us, calls attention to the challenge. We face incredible complexities everywhere and must be alert to how easy it is to fool ourselves.  Things are "obvious" when we are simply stuck in "lazy" mode. That mode is always available; our job is to apply some thought before we decide to simply let it fly.


Division of labor has always been a moving target.  Have you met your robot? Target now picking up speed.

Saturday, April 05, 2014


The importance of responsive markets is a seeming no-brainer.  I have noted impressive co-location in U.S. cities that limits the lengths of commuting as well as non-work trips. The Economist of April 5 includes "Metroland spreads out ... The cost of strict planning laws is measured in longer commutes."  How can it not?  It is the old story that planners (anywhere) have no way of assembling all of the information they need in their quest to make cities function better.  F.A. Hayek and many others have endlessly called our attention to this fundamental fact. It works for cities too.

Thursday, April 03, 2014

"Those who cannot remember the past ..."

Natural gas is much in the news because it is the weapon of choice by Russia as well as (perhaps) the West in the new Cold War. V. Putin uses threats to shut the pipelines that connect Russian supplies with much of Europe.

But the West is not yet sure whether to respond -- via signals and/or actions -- that they plan to expand world supplies, push down the world price, and give Russian elites something to think about.

In any event, labor and capital are ever more mobile. Seasteading, as suggested by Patri Friedman, is the logical extension. If taxes and other impediments on the land become onerous enough, move operations to the high seas -- just beyond any national jurisdiction. The extra costs have been labeled the "sea tax" and they can be compared with the costs of operations at conventional sites.  Today's WSJ notes that a tipping point may have been reached "Asian Gas Demand Spawns Floating Superfactories ... Energy Companies Aim to Cut Costs With LNG Production Plants at Sea."

The original Cold War was won when the economic weakness of the side that denied economic freedom realized that the world was accelerating away from the East bloc. That realization may soon dawn on Putin and the Russian elites. "Those who cannot remember the past ..."

Saturday, March 29, 2014

Signs of hope and disappointments

Everyone wants to believe in the Mandela-inspired optimism for South Africa. Yesterday we visited Kliptown in Soweto. The poverty is heart-breaking but the people are seemingly friendly to visitors. The Kliptown Youth Program was a bright spot, engaging the very young in computer-based learning as well as song and dance.

One of our touring group asked about funding and the guide mentioned it is all private. The guide did not know why there was no government support.

This morning's South Africa Times reported "Politicians want free flights for 10 years after they retire." The Sunday Independent reported "The ANC's tops brass have all but absolved President Jacob Zuma of any wrongdoing in the 246 million Rand [$25 million] upgrade of his Nkandla residence ..." Otherwise, it's all about the Oscar Pistorius trial.

Saturday, March 22, 2014


If in the Capetown area take the Robben Island tour.  It is the place where Nelson Mandela and many other "political prisoners" wasted away good portions of their lives.  It is incredibly ugly, desolate and dismal.  The tourist can only get the faintest idea of the horrors of incarceration in this place.

The tour guide was an ex-inmate and his recollections complemented the sights and smells.  At the end of the tour, the guide echoed Mandela's famous call for reconciliation. To my surprise, he thanked us (the foreigners in his group) for the boycotts, sanctions and protests.  He mentioned that they helped to end apartheid and (paraphrasing) "made his dream come true."

Sanctions are in the news and the big question is whether they matter to V. Putin and his group. If there are gains from trade, there must be losses when trade (and economic ties) are severed. This is why there are blockades in wartime.

But sanctions and even blockades are porous.  It's a big world.  Blockades involve force; sanctions require lots of voluntary cooperation.  The pariah South African regime apparently prompted just enough voluntary cooperation for there to have been an effect.

From what one can gather from news bites from Washington, U.S.-E.U sanctions against Russia are selective and porous.  Will the crisis drive world oil and gas prices up or down? If up, does that not enrich the oligarchs? The Economist has a piece that explores this. Driving the price down might be a weapon. But pipeline and other fossil fuel investments are anathema to the Obama administration. Facing down Putin is nothing compared to facing down the environmentalists.

Conflict has nothing but losers. Who will be the biggest loser when all is said and done?  Among them will be the populations of Russia as well as Ukraine. Both are stuck with corrupt regimes and weak economies. It is hard to see whether any of these weaknesses are remediable.  

Wednesday, March 19, 2014

Incoherence and panderers

I was recently asked to referee a paper wherein the authors took great pains to prove that neighborhood accessibility improvements cause gentrification. I recall that Thomas Sowell once asked (I am paraphrasing) "Why do they write so much when they have so little to say?"

Back to that paper, better access means raised land values which screen out low bidders. Not very deep. The harder part is that the facts of life are not easily squared with casual notions of "fairness".

I thought of this when I saw the PBS NewsHour's "How private tech industry buses became a symbol of the economic divide in San Francisco."  Have a look. To the producers' credit, the report mentioned that high rents can be linked to the area's tight land use regulations.  One commenter also noted that most people, most cities, would rejoice having the benefits of the world's premier high-tech hub located nearby.

But the rest was not pretty. Transit is a "good" thing but not when privately provided. Not when offered just to techie-types. People want "affordable" living in one of the planet's most desirable places. They want it as a matter of right, etc.

Incoherent yearnings are nothing new. What is troubling is a political leadership class that panders to them.  The Spring 2014 Independent Review (issue temporarily gated) includes a "Symposium on Successful Presidential Economic Policies." The collection includes Brandon Dupont's essay on Grover Cleveland's presidency, "'Henceforth, I Must Have No Friends' ..." The author cites Cleveland's famous veto of the "Texas Seed Bill":  "I can find no warrant for such an appropriation in the Constitution ..." Political leaders do not have to pander to the incoherent.

Saturday, March 15, 2014

Driverless cars and bumper cars

Most of the cool things that make our lives better have a downside.  Most people like the convenience of texting but some do it when they should not -- and walk or drive in horrible ways.  Examples of two-edged swords are easy to find.  But most of us do like painless dentistry.

"If a driverless car runs a red light, who's to blame?" I have no idea and I hope judges and lawmakers can work it all out. Fixing blame and liability are huge. The annual cost of auto mishaps is in the hundreds of billions of dollars.

What about the Peltzman effect?  Over a hundred studies are referenced in Google scholar.  My quick survey shows the weight of the evidence is that the effect is real: those who know their brakes are more reliable (or that their seatbelts will protect them) will take more risks. It is found in NASCAR competition as well as in the use of visors on the ice rink.

If the odds that other cars are  programmed to watch for (and automatically avoid) you go way up, what will you do?  Will you revert to your bumper-cars style?  Is there a tipping point?

At some point, if enough car owners in your town have installed lo-jack, there is no point in paying to have it installed. Thieves know how to play the odds and move on to another town (or trade). One can free ride. But with driverless cars, the bumper-car wannabees will surely avoid getting that new car because of the anticipated fun of being reckless but safe.

Tuesday, March 11, 2014

"New" money

Does taxation lead government spending? Or is it the other way? Or are they somehow synchronized? The question and the data are tantalizing. This study uses U.S. data to find mutual causation.

But what do politicians do when there are windfall revenues? Mostly it is not good. There is even a technical name, the natural resource curse.

Colorado pot legalization advocates are today cheering that the State has garnered an extra $3.5-million in the first month of legal pot sales in that state.

Regardless of what one thinks of legalization, think about what the "windfall" means.  This new pot spending is not new wealth. It is diverted from other spending.  If the diversion is away from gangsters, great. But we should not assume that all of the money being spent on legal pot is from that source. Some, for example, may have been at the expense of donations to worthy causes or spending at fine and upstanding businesses.

Will the new money going to Colorado State coffers necessarily go to "good causes"?  Will any of it pay for new pension promises or new highways, bridges, trains, airports to nowhere?  What do you think?

Thursday, March 06, 2014

Let the people choose

This has been mentioned many times but it is bizarre and bears repeating.  Many on the left profess to worry over inequality and the plight of the poor.  Yet, many like the "progressive" NYC mayor insist that some of the poorest send their kids to the worst schools.

The votes and support of the education establishment are the ticket to office and that is that. Del Blasio is not alone.  Most erstwhile civil rights champions are AWOL on school choice. Look at the video.  But there is also NY Gov Cuomo breaking ranks with many on his side. Del Blasio and Cuomo depend on essentially the same political coalition so it will be more than interesting to see what the consequences of their positions will be.

Schools will only improve if there is innovation.  There will only be innovation if there is choice and competition. The establishment of education technocrats think that they know a thing or two about educating but they have had their chance and they have failed.  Malfeasance and arrogance have very serious costs that are foisted on the poorest.   

Finally, here is also the simple but profound point about liberty and letting people choose. Parents, even low-income and minority parents, are people whose individual integrity ought to be respected, even by progressives. Parents know the score and they realize that better schools are their kids' only chance at a better life. It takes more than a boost in the minimum wage.


Peggy Noonan (gated) says is better/