Friday, July 30, 2004

Election Forecasts

A wise colleague once remarked that, "multiple regression is an admission of deafeat." Many social scientists are much more optimistic. Among these is Ray Fair, whose "Predictions, Presidential Elections and Other Things" is reviewed in today's WSJ, and who has been honing his presidential prediction models for some time.

Getting a favorable major national book review at this time of year is not bad. The review also highlights Fair's model for predicting the likelihood of extra-marital adventures.

While many forecasters' work can get lost in a sea of projections (e.g., quarterly GDP, CPI, etc.), Fair's work stands out because he goes where many fear to tread.

Right now, the Ray Fair prediction for the 2004 election is at odds with the value of election contracts available at the Iowa electronic market. Fair's model says Bush while the candidates' contracts are now dead even.

Looks like another buying opportunity.

Wednesday, July 28, 2004

Blogs and Elections

Much has been written on how the internet will affect commerce, politics and everything else. (This morning's WSJ reviews two new books on politics and the web.)

The political party conventions are now being covered by bloggers; ideas and opinions are being formed and shared faster than ever.  That's the bad news and the good news.

What difference will it make?  Will voter interest and turnout be affected?  If so, will the consequences tilt to either side?

Candidates' good hair and sunny disposition matter in the era of high opportunity costs, greater rational ignorance, low voter turnouts -- and paper-thin levels of interest by most non-interest group voters.  The proof is the amount of money going into political TV ads.

TiVo and web entertainment are new worries for traditional network TV.  Will web-politics similarly impact politics on TV?  One can only hope. 

Good ideas may, yet,  come to dominate good hair.    


Tuesday, July 27, 2004

Really Smart Growth

Planners and local government officials have the "industrial clusters" bug and the race is on to somehow create the next Silicon Valley.   University officials, likewise, have read all about the role of Stanford human capital in the development of The Valley and are on board too.

Michael Porter offers advice to many on how to speed things up. 

What gets lost in all of this is the fact that (surprise) no one actually planned The Valley -- and no one is likely to plan the next one. 

Pierre Desrochers and Frederic Sautet argue this point in their "Cluster-Based Economic Strategy, Facilitation Policy and the Market Process"  In fact, the authors, point out, "... the regional specialization strategy commonly associated with clusters makes regions more likely to experience economic downturns, prevents the spontaneous creation of inter-industry linkages and hampers the creation of new ideas and businesses."

The Really Smart Growth, then, is to completely ignore the fad. 

Sunday, July 25, 2004

Housing Bubbles

Google "housing bubble" and you are directed to 279,000 sites.  Time being limited, I did not look at all of them but it is safe to say that most discuss the national U.S. housing market.

There is no such thing as a single national weather reading for all the obvious reasons. 

Also, sunbelt employment and population growth have been outscoring frostbelt employment and population growth for years.  Why, then, so many discussions of "the housing bubble".  This is not the stock market.

In this morning's NY Times, Gretchen Morgenson cites recent economic research that predicts housing bubble trouble but notes, "To be sure, home values are still hot in many spots.  In the most recent 12 months, prices have jumped by more than 15 percent in Hawaii and Nevada, by 14 percent in California, by 11 percent in New Jersey and 10 percent in New York."  She contrasts this with recent declines in Vermont, Alaska, North Dakota, South Dakota, Iowa and Nebraska.  Within each state, there are probably variances as large as between states.

Another piece on "The Perils of Predicting Financial Bubbles" reminds us that Alan Greenspan called attention to "irrational exuberance" in 1996.  Anyone dumping their S&P 500 Index shares on that warning would still be angry -- unless they had made some very well timed buys and sells in the interim.  Robert Schiller is also cited:  "He explains that bubbles are created when the prices of assets are fueled by psychological rather than economic considerations."  As though there is a simple way to calculate NPVs and IRRs that separates the economic from the psychological aspects of the required net revenue forecasts.

Yes, investors (being just people) will make mistakes, including lousy forecasts.  But others will sense opportunities when these become apparent and quickly act to cash in -- and help to keep the rest of us on course. 

It is still safe to conclude  that most of us should avoid market timing. 

Saturday, July 24, 2004


Jonathan Clements at the WSJ publishes weekly personal finance information that often makes their most-downloaded list.  So it was this week when he called attention to various useful web calculators. 

The one that has energized a lot of people is  Fill out a few questions and learn your life expectancy.  Tweak the questions and see which lifestyle changes will give you even more.

It appears that everyone I know that took the quiz will be around for a long, long time. 

Forecasting is a fool's errand but we all do it.  Rethink carpe diem.  Rethink Social Security's viability.  Rethink investment plans.  Rethink everything.   

Thursday, July 22, 2004

35-Hour Stone Agers

Social engineering is very hard work.  This is why it never works.  Anyone with a whit of economic sense cringed when France went for the thirty-five hour workweek -- to increase (!) employment. 

It worked out as predicted and now the social engineers are backing off.

Many French workers and others could have been spared plenty of pain and misery if elites had spent just a little time entertaining a little economic common sense.

Paul H. Rubin looks to evolution to explain why economic common sense is so uncommon.  zero-sum thinking, so it seems, worked pretty well all through Pleistocene millenia and is, therefore, still deeply embedded within most of us.   Living in relatively small groups, Stone Agers had less reason to specialize and experience the joys of non-zero sum outcomes.

Brink Lindsey chronicles some of the pain that this history causes to this day -- in France as well as here, there, and everywhere.

Wednesday, July 21, 2004

The New Yorker's View of the World

When folks at the New Yorker write about "Social Mobility", they mean anything but.  "One of the stranger sights in the city this summer is the bicycle taxi ... Heady and vaguely Edith Whartonish as it is to be pulled around town in an open carriage, it is, at the same time disconcerting to have someone else's physical labor quite so plainly, quite so clearly and publicly, quite so accusingly, visible as the source of your forward movement."  I am just skimming through the highlights but the writer soon takes up "exploitation",  Robert Reich and John Edwards on "the widening gap between the wealthy few and everyone else," American workers' "docility", and "American life is more feudal  [than you-know-where]... a society run on the bargain of fear," and much more.

Why not stick with the cute title of the piece?   Most people choose jobs willingly and view first jobs as a first rung on an economic and social ladder.  Most are rightly optimistic about where the ladder leads. That simple insight could have replaced all of the essay's tortured silliness.

But then it wouldn't be the New Yorker's view of the world.

Tuesday, July 20, 2004

Good News

There is always a lot of "stuff" flying about re "globalization" and kindred topics.
In contrast, a recent issue of the Journal of Economic Literature includes several articles that summarize what we know.  Most of the news is much more positive than the gloom that we get from the left -- e.g., mainstream media, elites, etc.
Copeland and Taylor ("Trade Growth and the Environment") conclude that, "... there is a great deal of evidence supporting the view that rising incomes affect the environment in a positive way."  Winters, McCulloch and McKay ("Trade Liberalization and Poverty") conclude that , "... trade reform may be one of the most cost-effective policies available to governments."
Two of the world's biggest problems are subject to the invisible hand.  I always had a feeling that the guys who dress up as sea turtles had it all wrong. 

Sunday, July 18, 2004

Taking Some Money Out of Politics

Here are two items from the same section of the same edition of the LA Times that really do go together.
"Rail Project Will Not Go Before Voters ... O.C. transit officials say Center Line project from central Santa Ana to John Wayne Airport would have died if the electorate rejected it ... Miguel A. Pulido, a supporter of the rail line, led the opposition, arguing that a ballot measure would be an unwise gamble because voters would probably reject the project ... He suggested that voters who would not benefit from Center Line ... might not appreciate its value and vote against it."
And nearby:  "'Gov. Criticizes Legislators as 'Girlie-Men'  ... he urges voters to 'terminate' at the polls those lawmakers who refuse to approve his state budget plan."
Arnold Schwarzenegger has earned serious credibility when it comes to State ballot initiative and referendum measures.  Just a few days ago he threatened to back a measure that would reduce legislators to part-timers.
Now that's real campaign finance reform that would go some way to "taking the money out of politics."

Saturday, July 17, 2004

The Courts and Class Warfare

Much is made of U.S.-Europe contrasts.  One difference that matters is the importance of class warfare rhetoric and the politics of envy.  These have had a much smaller role in U.S. politics.  Many Americans are too busy aspiring to even vote.  Among those who do vote, envy and redistribution are seldom majority issues.
Not so in the U.S. courts (and probably law schools).  Outsized liability claims and tort proceedings that seek transfers from "deep pockets" are class warfare in action. 
Fred L. Smith, Jr., writing in the latest Forbes, calls attention to the fact that, "Activists want companies to list potential environmental liabilities on balance sheets.  This is full disclosure gone berserk.  ... I can envision, for instance, an oil company like Royal Dutch/Shell, as supplier of fuels that supposedly contribute to global warming, would have to report potential environmental liabilities ..."
Striking a blow for "the environment" and against "corporate America" has a better chance in our courts than at the ballot box.  Reason #995 to think seriously about tort reform.  Especially now, with a skilled tort lawyer on the November ballot .

Friday, July 16, 2004

Money Not Well Spent

Ken Orski's Innovation Briefs have been the best source of informed news and commentary on the state of federal transportation programs for many years  Ken's latest reporting has been about the status of the six-year Surface Transportation reauthorization bill now in House-Senate conference.
There is, of course, more politics than transportation involved. Competing versions of the bill, ranging from $256 billion to $375 billion have been considered at one time or another.  This is big-time pork.  WSJ editorials have cited as many as 3,000 earmarks for pet projects that involve special favors for individual Congress members.   More earmarks than members.
There is little reason, of course, for a federal role in any of this -- other than to provide  the politicians with a cash flow.  It is not surprising that we keep spending more and getting less.  Sound familiar? 
Altshuler and Luberoff report that in the years 1980-2000, U.S. urban vehicle miles traveled grew by 95% while available urban highways increased by 37% .
It is not that taxpayers have been stingy.  Comparing the two years, annual expenditures on highways (all levels of government) are up 77% in constant dollars.
Wendell Cox reports that in the 20-year time span, $565.2 billion of highway user fees have been collected by the feds but almost 15% went to transit.  And how did transit do in those 20 years?   Commuting by transit kept falling, down to 4.7% in 2000, from 6.4% in 1980.  In fact, transit commuting even dropped in absolute numbers.  Down to 6.07 million annual boardings  in 2000, from 6.18 million annual boardings in 1980.
Transit advocates keep saying that they want a "balanced" transportation system.  So do we all.  But what we get is a highly politicized and pathetically wasteful system.

Thursday, July 15, 2004


The most recent Independent Review includes two articles about macro-economic policy that can keep one awake all night.  Imagine that.
Mark Thornton, in "Who Predicted the Bubble?  Who Predicted the Crash"  looks for pre-2000 economic commentary and finds that it was mainly the Austrians, who worried about easy credit and boom-bust consequences who got it right.  Thornton notes the irony that it is the Austrians who most aver the forecasting game.
"Did Greenspan Deserve Support for Another Term?" by Joseph T. Salerno argues that The Maestro has been wrong all along -- and disingenuous enough to successfully cover his tracks most of the time -- enough to keep getting re appointed.
Salerno's story is worse than any FRB nightmare that a Milton Friedman could ever have had.  And Friedman famously wrote in a recent WSJ op-ed that the Fed was now finally getting it right.
Proof that Milton is not an Austrian.  Not that he ever claimed to be one -- but one could hope.

Tuesday, July 13, 2004

Limits to Growth

Limits to growth thinking is usually a bad idea but popular in many circles. Population control was a natural for China 20 years ago because it takes a communist economy to give credence to the Malthusian view of the world.

Economic and political failures can be disregarded if demographics are highlighted instead. "Too many mouths to feed," is a convenient way to change the subject.

The Chinese one-child rule is responsible for what James Q. Wilson, reviewing Bare Branches by Valerie M. Hudson and Andrea M. den Boer, reports as 41 million Chinese men without women. I have not read the book under review but I have read the account of the same problem in Paul Rubin's Darwinian Politics. Rubin warns of the threat of social calamities -- and increasingly authoritarian rule as a presumed reaction.

Chinese prosperity would, under other circumstances, produce political liberalization. The fly in the ointment is central planning's awful sex-imbalance legacy.

The social engineering impulse is usually a bad idea and usually has awful consequences. The two books cited seem to suggest that the worst is yet to come.

Monday, July 12, 2004

Games To Be Gamed

If there is a game to be gamed, it is very likely that some will come along to game it.

So it was with California's (anything-but) deregulation and Enron traders -- and so it is with real estate development, especially in California.

Jerry Taylor recounts the California electricity story in Friday's WSJ: "California's restructured electricity market was, in fact, the furthest thing from a capitalist jungle imaginable. The government forced electric utilities to sell of their power plants and discouraged them from buying electricity outside of a complicated state-managed spot market. Furthermore, the electric utilities were forced to open their power lines to anyone who wanted to use them -- like Enron -- under tightly regulated terms and conditions. The day-to-day management of the grid was likewise taken from the utilities and given to state regulators. While wholesale electricity prices were deregulated, retail prices remained tightly controlled ... It shouldn't come as a surprise to learn that companies like Enron figured out how to game the system ..."

Right on schedule, this morning's news includes: "Kerry, Edwards Seek to Make Campaign Issue of Enron Case."

Also, this morning, the lead WSJ story reports: "For Many Low-Income Workers, High gasoline Prices Take a Toll ... Commuters on Tight Budgets Pay Big Chunk of Earnings Driving to Far-Flung Jobs." The accompanying story quotes Brookings' Bruce Katz, lamenting that, "We've always known that sprawl has a cost." The anti-sprawl mantra, of course, includes the implausible idea that more top-down "regional land use planning" would somehow improve things.

The same WSJ story notes that, "A proposal for a light-rail system that would serve the far-flung areas of the Tampa region has languished on the drawing board for several years." Having seen how this plan actually puts rail transit through cow pastures, I can only hope that the plan continues to languish. The article does quote the University of South Florida's Steve Polzin as noting that sprawl's job dispersion might also offer relief to many commuters.

The punchline comes in an op-ed in this morning's LA Times by Cal Poly Pomona's emeritus history professor Ralph E. Shaffer, "A Legal Rip-Off at the Heart of Glendale." Connecting a few dots, Prof Shaffer notes that, "Those Enron tape recordings in which energy traders giggled about gouging California's electricity ratepayers was the height of audacity, but what's about to happen in Glendale, and has already happened in other cities throughout California, runs a close second." Shaffer is concerned about developer Rick Caruso "muscling in on Glendale," and seeking a significant redevelopment subsidy from the City.

Having invited politics into land use decisions that are best left to the market (even insisting that we install even more of it via regional land use planning), the high-minded complain when the game they set up is actually being gamed.

Whenever politicians set up games, some will come along to game them -- and the demagogues will be shocked (shocked!).

Saturday, July 10, 2004

Free Parking

UCLA's Don Shoup has been studying the effects of mispriced parking for some years. He even has a book on the topic coming out. Administer prices and there is hell to pay. So it is with parking and Don has the evidence, convincingly reminding us how far and deep the problems reach -- including substantial cruising for underpriced parking, needlessly adding to traffic volumes.

Now Los Angeles' City leaders have hit on crackpot idea #995. "L.A. Rolls Out Campaign for Hybrids ... Many say they support the plan to allow free parking -- even if they wouldn't want the cars.... "

No, not unintended self-parody; just business as usual in City Hall.

Friday, July 09, 2004

What Would They Say?

What would the classical composers say of the millions now enjoying their works on high-quality CDs and DVDs? What would the astronomers and physicists of antiquity through Galileo's and Newton's times and beyond say about the Cassini-Huygens spacecraft now orbiting Saturn -- and about my ability to follow it on my laptop from any "hot-zone" donut shop? One can only speculate on these and similar unanswerables.

What would the classical economists say about today's international trade? If they look at the evidence published by economists Christian Broda and David Weinstein in the May 2004 American Economic Review, they might be similarly impressed. Writing on "Variety Growth and World Welfare", the researchers present data on increases in the average number of suppliers per imported good -- by country and by commodity. For the U.S., the average number of suppliers per imported good grew by 36% between 1972 and 1997. The authors show that, "U.S. welfare is 3-percent higher due to the increase in imported varieties."

On the other side, there are serious academic writers who fret about "too many choices".

There are serious presidential candidates who seek votes by bashing trade.

There is also Pat Buchanan, protesting the WTO meeting in Seattle in 1999, along with the guys dressed up as turtles -- and now lamenting his odd bedfellows in this week's New Yorker.

The more things change ...

Wednesday, July 07, 2004

What They See Is What They Get

Well over a year ago, I recall seeing this in the NY Times (1/12/03): “The most telling polling result from the 2000 election was from a Time magazine survey that asked people if they are in the top 1% of earners. Nineteen percent of Americans say they are in the richest 1% and a further 20 percent expect to be someday.”

I was so warmed that I saved the clipping. It's always reassuring to see more evidence that more Americans aspire than envy.

Yet, we now have John Kerry and others presuming that John Edwards of "Two Americas" fame will be a ballot box asset.

Even the LA Times worries that, "The more frightening possibility ... is that Edwards does have core beliefs, and that they are reflected in his demagogic us-versus-them arias to juries during his career as a plaintiff's trial lawyer an his opposition to free trade among other issues."

The NY Times notes that, "It is likely that Mr. Edwards will be dispatched to critical industrial states .. . to talk about jobs. We hope he'll refrain from falling into protectionist rhetoric in the process. He has a habit of giving angry workers the impression that he's in favor of far more drastic action on jobs outsourcing than he has ever actually advocated." Huh?

Both papers appear not to want to believe that what they see is what they get.

Tuesday, July 06, 2004

Money Monopoly

Rich Karlgaard at Forbes has been writing about the Cheap Revolution for some time. Andy Kessler picks up the theme in his new book and today's WSJ op-ed page. We now know that not only are manufactured goods getting cheaper fast but so are outsourced services.

Quality improvements are also accelerating and the "price level" and/or "output gap" calculations and analyses --and resulting monetary policies are more problematic as a result.

So, what do we know? Greenspan and Company misread conventional data and saw a deflation that was not there last year. Kessler and others now fear that they are as likely to misread conventional indicators now and in the near future.

If we are stuck with the public money monopoly, which indicators should they favor? Asset prices? Asset prices not skewed by the cheap revolution? Gold? Back to the future?

Monday, July 05, 2004

Airy Plans

A working paper from the St. Louis Fed (thanks, Wendell) reiterates the waste involved in "light-rail" urban transit. This is nothing new and echoes findings from a mountain of studies that have been accumulating for almost 40 years. In that time, hundreds of billions of dollars of public money has, nevertheless, been thrown at systems like this and transit use today is much lower than when the spending spree began.

Another thing that has not changed is the astonishing disconnect between plans and facts. This morning's LA Times reports on the LA region's latest plan: "'Compass' Points to New Direction for Growth ... Regional plan offers fewer suburbs, more high-density housing on transit lines ... The plan is named 'compass' because it is intended to direct Southern California's growth for the next 25 years ..."

Saturday, July 03, 2004

Government Money

Add money to a barter economy and transactions costs fall dramatically. Yet, money is inevitably a commodity and its own price becomes the subject of bets. But the price of money affects all other prices so swings in monetized relative prices become much more complex.

Relative prices are supposed to change flexibly. "Price levels" are not supposed to change. But how can we tell which is which?

CPI reports, for example, feebly differentiate between measured inflation and "core inflation" once volatile food an energy prices are subtracted.

In truth, central bankers simply do not know what is going on. The Economist reports on a paper by economist Stephen King that points out that there was no threat of a U.S. deflation last year. Rather, there was, "a reduction in overall prices caused by rapid technological change, improvements in terms of trade and other factors."

Central bankers, like all central planners, have two problems: politicization and limited information. Alan Greenspan and Paul Volker are rightly given credit for avoiding the politicization that their predecessors had sunk to, but have they "solved" their information problems? Not if Greenspan and the FRB fought off a non-existent deflation last year -- and are not likely to read the tea leaves any better soon.

Privatize social security, the schools, the mails, water delivery, the highways, the radio waves --- and money. The sectors beset with the "crises" that we hear so much about.

Friday, July 02, 2004

Preferences or Policies?

Critics of modern American cities and Americans' overwhelming choice of suburban lifestyles like to blame peculiar U.S. policies (interstate highways, favorable tax treatment of home ownership, large-lot zoning, etc.) because they cannot concede that they are challenging the free choices of free people.

This line of attack is buttressed by breathless reports from those coming back from the Grand Tour of European capitals with the sure knowledge they have witnessed superior European lifestyles -- and, by inference, policies that we should mimic.

A good test of the assertion is to study urbanization abroad, analyzing real data rather than gossip.

A small set of research papers along these lines have been accumulating over the years. Most suggest that preferences dominate policies.

Now, Wendell Cox shows us the nature of urbanization in all of the world's "high-income" regions (U.S., Canada, Western Europe, Japan, Australia and New Zealand, Hong Kong and Israel). Growth for the areas' 101 largest metro areas shows that 96% was in the suburbs. Moreover, variation across the regions was minor, ranging from 92% of urban growth in the suburbs in Japan to 114.2% in the suburbs in Western Europe (where core city growth was negative).

Celebrated policy differences apparently matter very little. Preferences overcome them and are remarkably similar everywhere.

Thursday, July 01, 2004

Flexible Land Markets

Between 1990 and 2001, highway miles in the U.S. grew by just 2% (Table 1076 of the 2003 Statistical Abstract).

In that time, U.S. population grew by 14%, passenger-miles via privately operated vehicles grew 33% and ton-miles via trucks grew 43%.

Give this mismatch of capacity and demand growth, traffic worsened. Over the 11-year span, worktrip travel times (privately operated vehicles) went up by 12% if you live in the suburbs and 20% if you lived in central cities (NPTS/NHTS data). Yet, suburban population grew by 55% while the central cities as a group lost population in the interval.

And the highways are mismanaged; access is mostly free and rationing is by crowding.

The glass is apparently half-full. Some have given credit to land market flexibility ("sprawl") that has allowed job sites and workers to co-locate in the suburbs.

Yet, as the sage said: "There's always something." As mentioned in yesterday's post, the "Smart Growth" game is now to apply more top-down planning so that flexibility can be replaced with management.

It's back to the Progressive Era in some quarters.