Thursday, December 29, 2005

More on the failure of market failure

Fred Foldvary and Dan Klein recently published The Half-Life of Policy Rationales: How New Technology Affects Old Policy Issues, which shows how new technologies continue to undermine the standard market failure chestnuts.

Foldvary-Klein are right and it's an important argument. Connecting auto drivers to GPS-data not only helps them navigate but also reduces transactions costs to the point where proper pricing is easily done.

In "Navigating future road charges", BBC reports:

"Motorists are already beginning to embrace the idea of satellite-navigation units in their cars.

"This week the first test satellite in Europe's 3.4bn-euro ... Galileo satellite navigation system blasted off in a Soyuz rocket from Baikonur Cosmodrome in Kazakhstan.

"The final global network of 30 Galileo satellites is crucial to prviding high volumes of time- and location-based data needed for new services such as advanced sat-nav, mobile location data, natural disaster surveillance and air traffic control.

"Powerful applications are expected on the roads; the Galileo network would allow a vehicle's exact movements to be tracked, presenting new possibilities fo road-user charging and tolling ... The time signal produced by Galileo would also allow different chanrges for driving at different times of day."

Not only will economists have to stop including highways as inevitable market failures but politicians may actually have to confront the idea that there is one less excuse for them not managing the road system -- as well as one less rationale for building useless rail transit systems or expensive "Big Digs".

What's not to like?

From "Bye-Bye, Kyoto" (Forbes, January 9, 2006):

"... The Kyoto rules say that western Europe must get their emissions to a level 8% below those prevailing in 1990. But virtually all those countries -- the only significant exception is Germany -- are going in the wrong direction. The latest available data, covering emissions through 2003, tell us that in the years since the treaty was negotiated, carbon dioxide levels have increased by 7% in France, 11% in Italy and 29% in Spain. The increase for western Europe as a whole was 5.4%.

"After many years of European chatter about the monstrous evil perpetrated by George W. Bush in rejecting Kyoto, it is of possible interest that the increase in carbon emissions in the U.S. during those years was slightly lower (4.7%)."

I know very little of the science involved but have read enough to know that climate change is complex and that there are competing views. But I do know that all the doomsday forecasts ever made have been wrong.

And I know am wary of social engineering. And double that if it comes to us via the "international community".

Add insufferable green/left/European preening and fretting and what's not to like about the quote?

Wednesday, December 28, 2005

Lethal economic ignorance.

The (too) common notion that there are savings to be had from "cutting out the middleman" is grist for any principles of economics class. We highlight the pervasiveness of transactions costs and the value added from reducing them.

Yet, many cannot conceive of value added without a tangible visible product. It is also true that ignorance of economic principles can be lethal.

Thomas Sowell masterfully addresses both problems in his essay, "Are Jews Generic?" to be found in his recently published Black Rednecks and White Liberals.

Sowell is typically scholarly yet clear.

"In any given country, a particular minority may be hated for any number of reasons peculiar to that country or that group. However, in a worldwide perspective, the most hated kinds of minorities are often defined not by race, color, religion, or national origin. Often they are generically 'middleman minorities,' who can be of any racial of ethnic background, and in fact are of many. Many of the historic outbreaks of inter-ethnic mob violence on a massive scale have been against the Jews of Europe, the Chinese minorities in various Southeastern Asian countries, against the Armenians in the Ottoman Empire, the Ibos in Nigeria, and against other middleman minorities in other times and places."

Interestingly, he adds that the Nazis were typical but simply more technologically advanced than the others who went about victimizing middlemen. Sowell also re-tells Eric Hoffer's re-telling of E.A. Voigt's recounting of the Japanese mission that tried to study the Nazi movement in the early 1930s. A member of the mission is quoted saying: "It is magnificent. I wish we could have something like it in Japan, only we can't, because we haven't got any Jews."

Monday, December 26, 2005

The law of many prices

David Brooks writes that we are Bobos in Paradise, no longer satisfied with a "cuppa joe" but at home with the complex Starbucks menu.

David Harford, The Undercover Economist, notes that "Starbucks doesn't have a way to identfy lavish customers perfectly, so it invites them to hang themselves with a choice of luxurious ropes." In other words, it's all about price discrimination. (Harford is most entertaining when he calls attention to all the ways that sellers pull it off.)

Which author is correct? Both, of course. Brooks emphasizes demand and Harford addresses supply. Leave the land of the Law of One Price behind and discover the really interesting stuff about how a complex economy allocates (and continuously reallocates) resources that facilitate evolving lifestyle choices.

Sunday, December 25, 2005

"The Peacock Mind"

A holiday present to its readers from The Economist is "The proper study of mankind: A survey of human evolution" (Dec 24, 2005).

The survey covers many of the evolving ideas in anthropology, biology and evolutionary psychology.

I particularly liked this "... the human mind is like a peacock's tail, a luxuriant demonstration of its owner's geneitc fitness." And "[p]erhaps the founding father of economics is not really Adam Smith, who merely explained how to get rich, but Charles Darwin, who helped explain why."

Women are drawn to high-status successful males. These males (may)know that money will not make them happy but it does help them to procreate. Male striving, in turn, animates comparative advantage and economic growth.

The money buys (or does not buy) happiness discussion may be interesting but also beside the point when put alongside such heavy weights as sex and evolution.

Thursday, December 22, 2005

Spilling ink

At the end of each year, we get the inevitable lists of top-this-and-that (including Time magazine's weirder and weirder person-of-the year and people-who-mattered) and resolutions and forecasts, etc.

David Wessel in today's WSJ forecasts the following:

"Ben Bernanke's first interest-rate move as U.S. Federal Reserve chairman will be to cut rates ... A big bankruptcy will rattle the U.S. and shake political support for unfettered global trade ... Health care will emerge as a big issue in the 2006 congressional elections, forcing 2008 presidential candidates to promise action ... The gap between winners and losers in the U.S. will keep widening."

Here is what he says about the latter:

"The gap between winners and losers in the U.S. will keep widening.
In a 1998 book, a colleague and I predicted technology would propel faster economic growth and a growing supply of educated workers would narrow the gap between high- and low-paid workers over the ensuing 20 years. We were right on the first, and only temporarily (in the late 1990s) right on the second. Next year won't help our case.

"By nearly every measure -- the ratio of CEO wages to those of ordinary workers, the share of income going to the top fifth, differences between health and retirement benefits at the top and bottom -- inequality is growing. Why? Technology, globalization, the premium employers pay to hire the educated and workplaces where old-style loyalty is replaced by rewards for solo performance.

"The politicians in charge believe resisting these forces is counterproductive or wrong. But even Mr. Greenspan, a card-carrying conservative, sees a need to do more than we are. 'Equal opportunity requires equal access to knowledge,' he has said. 'We cannot expect everyone to be equally skilled. But we need to pursue equality of opportunity to ensure that our economic system works at maximum efficiency and is perceived as just.'

I hope we make it through the year. I also hope that all "gap-between- winners-and-losers" discussions take note of the following:

Labor migrations between adjacent rich and poor countries with long borders are very hard to limit. Data about wages at the low end for the U.S. are tricky because they include many immigrants who have improved their lot. Also, wages at the low and are depressed because of immigration, which is mostly by the unskilled.

If we are to discuss changes in the U.S. income distribution, then it is only reasonable to control for the latter effects. Otherwise we are just spilling ink.

Wednesday, December 21, 2005

The beat goes on

Lopsided left representation among U.S. college faculties is well known. Dan Klein and Charlotta Stern sum it up in "Narrow-Tent Democrats and Fringe Others: The Policy Views of Social Science Professors."

Their survey finds that academic economists are 3:1 left, political scientists almost 6:1, historians 8.5:1, political and legal philosphers 9:1 and anthropologists and sociologists 21:1.

They also find that both groups lean to statist views.

Paul Krugman had once explained this state of affairs with the suggestion that conservatives are too dumb to serve on decent faculties.

Many have commented on the subtle and the not-so-subtle screenings that are at play in many academic units. A variety of research specialities and topics are code for politically correct and this often gives applicants a leg up.

But what animates the process? Many people are happier to be surrounded by like-minded colleagues that reinforce their world view -- in spite of the diversity mantra. And many others, to their great discredit, probably believe that Krugman is right.

Sunday, December 18, 2005

Clarity on Kelo

I have long been a fan of The Freeman: Ideas on Liberty but the November 2005 issue is a keeper. Mostly devoted to the problems highlighted by the U.S. Supreme Court's Kelo decision, it brings together wonderful analyses by Richard A. Epstein, Donald J. Boudreaux, Andrew P. Morriss and others.

These writers remind us that even if eminent domain (and eminent domain abuse) is Constitutional, it is unnecessary as well as bad policy. Developers assemble parcels all the time without resorting to eminent domain, real urban redevelopment is more likely with property rights intact than not, and takings are generally distasteful if we care about liberty.

How refreshing.

Saturday, December 17, 2005

Devolution, property and development

Robert H. Nelson has long written about the benefits of private neighborhood associations and has espoused that state laws be changed so that inner city property owners can also gain the benefits that suburban owners of their neighborhoods enjoy. He elaborates all of this in his recent Private Neighborhoods and the Transformation of Local Government.

Writing in the December 12, 2005, Forbes, ("Privatizing the Inner City: Forget condemnation. Here's how to bring housing, Costco and Ikea to urban areas"). He shows that this is the best alternative to the awful prospects made possible by Kelo vs New London, Connecticut.

"... allow homeowners to privatize their neighborhoods and sell en masse directly to developers."

Trouble is that most advocates of the inner city have such a low opinion of its residents that they would work hard to block this devolution of power (and wealth) -- away from themselves.

There is also the small problem that none of the traditional approaches to inner city revitalization have had much effect.

Oh yes, that is because they have been "underfunded". Or perhaps they have been overfunded.

Friday, December 16, 2005

Pesky facts

It's official. The census reports that Americans at all levels became materially better off in the years 1981-2002. So says "Supplemental Measures of Material Well-Being: Basic Needs, Consumer Durables, Energy and Poverty, 1981-2002" (link at This will astound (and depress?) class warriors. But that will be momentary because they cannot debase their intellectual capital.

The report's Table 4, "Percent of Consumer Units Reporting Ownership of Selected Appliances and Vehicles by Expenditure Decile, 1992-2002" documents across-the-board improvements. The report also acknowledges that the numbers understate the improvements because they cannot capture signficant quality improvements.

But are they happy?

Wednesday, December 14, 2005

"Sound financial footing" ... my foot

The recently released Milken Institute report on the L.A. economy finds that the county's biggest employer is local government (462,960) which also tied for first place in job creation in the years 1980-2003, adding over 111,000 jobs

Local government employment, however, is surpassed by the county's informal sector which Milken researchers estimate now employs 679,000.

The L.A. Times' lead editorial re the Milken report fails to connect these dots.

High taxes and onerous regulations explain and support government employment and they drive businesses underground.

Times editorial writers rue instead the fact that off-the-books companies do not pay sales taxes.

But "[b]usinesses can be offered amnesty for past transgressions. Business education programs could offer both strategic advice and help in obtaining capital for those willing to comply. If such efforts were even half successful, public attitudes about the underground economy could shift, the city and the county would be on a sounder financial footing and Los Angeles would be a better city, even if lunch might be a dollar more."

A "sounder financial footing" and more taxes collected, perhaps to support even more government jobs. All that is missing from the reverie is an end to declining newspaper readership.

Monday, December 12, 2005

Trust busting is hard work

The Economists's Economic Focus column ("Matchmakers and trustbusters") comments on two recent articles (by Jean-Charles Rochet and Jean Tirole and by David Evans) that analyze two-sided markets. Many businesses depend on concurrent success in two markets. The article cites credit card companies (enough vendors and enough customers must use them) operating systems producers (users and software writers must both flock to them) singles bars (males and females must both show up). To make it all click, suppliers are prompted to discover pricing schemes that do the job. Fine as far as that goes.

But what will the trust-busters and other regulators say (and do)? Free drinks to the ladies? Looks like pricing below cost and grounds for prosecution.

It is again clear that trust-busting is a fool's errand. Absent legalized market closure, there will be competition and innovation and discovery, etc.

BTW, the same issue of The Economist includes "Bats and balls" re scientific work on the (lower) mammals that finds that the sizes or brains and testes are inversely related. Why do we care? Because the research was conducted by males -- and should be cited when we hear that science is just another arena in which males oppress females.

Friday, December 09, 2005

More on more money buys more happiness

There is more wonderful material on money and happiness in Dwight R. Lee's refreshing "Who Says Money Can't Buy Happiness?" in the Winter, 2006, Independent Review.

First, Lee reminds us that Adam Smith reminded us that ambitition moves us out of a zero-sum prisoners dilemma to animate comparative advantage and wealth and welfare. These, by the way, tend to make us less miserable.

Second, Lee reminds us that Voltaire reminded us that when we strive to accumulate via trade, we do much less pillaging.

He could have included WW II Germany and Japan, each of which made no bones of the fact that they were after resources -- and both of which belatedly discovered the path to wealth via trade. That lesson learned came at devastating cost them and many more of their victims.

Most people, it turns out, are not self-inflicting wounds by striving. And, Lee concludes, "[h]appiness can also be heightened and extended by taking a little time out from our struggles each day to appreciate how much we have achieved already and how blessed we are in comparison to most people who are alive today and almost all who came before us. Consider how much the pursuit of wealth has added to the length, comfort, health, beauty, and meaning of our lives and the lives of our loved ones. If that competition does not increase your happiness, then do not expect that higher taxes and more government spending on mass transit and recycling programs will do so."

Thursday, December 08, 2005

Money buys happiness

Causation is tricky but we love it. It is no surprise that the ancient money-makes-you- (or does not make you) happy discussion is now taken up by economists and other social scientists. In fact, my colleague Dick Easterlin has done some of the most careful work in this area.

This morning's WSJ includes "Money Buys Happiness" by Arthur C. Brooks. He reports evidence that the richer are happier to the extent that they donate more (money and /or time) to good causes.

To be sure, paying more in taxes does not make them happier. Apparently they exclude this from the good causes category -- and it leaves them less to donate.

"Money Buys Happiness"
WSJ, December 8, 2005; Page A16

"During the holidays, we will give thanks for the important things in our lives. For most people, money is not one of these things -- at least this is what we would like others to think. We are after all constantly reminding each other that 'money doesn't buy happiness.'

"Economists aren't so sure. They note that people with a lot of money tend to express a higher subjective happiness than people with very little. According data from surveys by the National Opinion Research Center, for example, people in the top fifth of income earners are about 50% more likely to say they are 'very happy' than people in the bottom fifth, and only about half as likely to say they are 'not too happy.'

"There is, however, generally very little change in the average level of happiness in populations getting richer over the years. For instance, the percentage of the U.S. population saying it was 'very happy' in 1972 was exactly the same as it was in 2002: 30.3%. Social critics of 'consumerism' explain this by claiming that what makes rich people happy is not money per se, but rather the fact that they have more of it than others -- so if everybody gets richer, happiness remains unchanged. The critics go on to say that income differences lead to unwholesome feelings of superiority, so taxes can improve our moral fiber simply by bringing us closer to the same income level.

"Perhaps you're unconvinced. In fact there is another explanation for unchanging happiness levels over time which is rather less supportive of income redistribution. As incomes rise, so generally do levels of government revenues and spending, and there is evidence that these forces work against personal income on the overall level of happiness. For example, a $1,000 increase in per capita income is associated with a one-point decrease in the percentage of Americans saying they are 'not too happy.' At the same time, a $1,000 increase in government revenues per capita is associated with a two-point rise in the percentage of Americans saying they are not too happy. In other words, not only can money buy happiness, but it may be that the government can tax it away as well.

"But beyond earning, taxing and spending, there is an even clearer link between money and happiness: charity. The evidence is unambiguous that donating money (and time) is one of the best ways to buy happiness. People who donate to charity are 40% more likely to say they are 'very happy' than non-donors. Psychologists have even tested whether charity makes people happy using randomized, controlled experiments -- the same procedure used for testing pharmaceuticals, except that, instead of administering a drug to one group and a placebo to the other, researchers randomly assign one group to act charitably toward another. The results are clear: Givers of charity earn substantial mental and physical health rewards, even more than do the recipients of charity -- empirical evidence that it is indeed more blessed to give than to receive.

"The bottom line is that the old axiom about money and happiness, properly understood, is quite wrong. So if you are so fortunate, enjoy the blessings of your abundance this holiday season -- and be sure to buy yourself a little extra joy via your favorite charity."

Wednesday, December 07, 2005

American industrial policy

Socratic dialogue is valued because the punch-line is articulated by the one who would benefit the most. Often the student, or in a court of law, the opposing witness. This is why lawyers and teachers try to perfect this approach.

On rare occasions, writers or speakers articulate the lesson that they should grasp (or should have learned), quite spontaneously.

Robert Litan was a deputy attorney general in the Clinton administration and part of the anti-trust team that went after Microsoft. He is now with Brookings and a contributing editor at Inc., where he writes the following (Dec, 2005):

"There's More Than One Way to Bust a Trust ... The Feds failed to breach Microsoft's monopoly -- but Linux and Google just might succeed. ... Looking back today, what I find interesting is that the market may be sorting out what the legal system could not ..."

And what would the market be doing if anti-trust industrial policy had prevailed? There would surely be fewer Linux- or Google-type ascendencies.

Tuesday, December 06, 2005

Shopping high

It does not take great insight to note that most people love to shop. A pair of eyes will do.

And a visit to state liquor stores in those states that still have them or memories of the retail experience in eastern Europe from the bad old days highlight collectivists' cluelessness (and vulnerability) on this score.

In the U.S., terms of trade have shifted in consumers' favor to the extent that we acquire ever more but are increasingly frustrated by the ensuing space and storage problem because the price of real estate becomes the binding constraint. I recall a short story (by T.C. Boyle?) that includes a couple who drained their swimming pool to use it for storage.

As if there was ever a doubt, Tara Parker-Pope in today's WSJ reports that, "[a] growing body of brain research shows how shopping activates key areas of the brain, boosting our mood and making us feel better -- at least for a while. Peering into a decorated holiday window or finding a hard-to-find toy appears to tap into the brain's reward center, triggering the release of brain chemicals that give you a 'shopping high.'" She goes on to cite the neuroscience that is now available on the topic.

Is it any wonder that shopping centers and malls have given way to lifestyle centers? These are the places where most of our most pleasing communal and open spaces will come from. It's all quite obvious and now also rooted in neuroscience.

Friday, December 02, 2005

Smart Growth Not So Lite

The Smart Growth folks can be hard to pin down. Sometimes they plug tough top-down land use controls. Sometimes they claim that they simply want large-lot and similar requirements out of the way so that innovative designs that respond to markets can come to pass.

Paul Weyrich takes them at their word, that it's the latter, and endorses a conservative New Urbanism.

Trouble is that when one looks at the charter of the Congress of the New Urbanism, one cannot square the stated ambitions with the simple idea that government simply has to get out of the way so that developers can cater to markets.

Thursday, December 01, 2005

Transportation planning

This morning's LA Times includes the following two items that caught my eye.

"MTA to Expand Rapid-Bus Service ... A mediator approves the agency's plan to more than double the number of routes to 29 by 2008 ... The number of rapid-bus lines in Los Angeles County will more than double over the next three years, making it easier for commuters to rely on public transportation and to move quickly around the region .

"On Wednesday a court-appointed mediator endorsed a MTA plan to meet demands for better bus service by expanding its rapid-bus program ..."

And, "Council OKs $40 Million for Exposition Rail Line ... The City Council has approved $40 million for the MTA to help build the Exposition rail line from downtown to Culver City. The 9.5-mile light-rail line is expected to cost about $640 million. The transit agency eventually plans to extend the line to Santa Monica."

L.A. county now has five recently-completed fixed guideway lines in operation. They include a $4.7 billion subway that carries slightly over 115,000 riders each day, three light-rail lines that cost almost $1-billion each just to build and between them serve 125,000 riders per day, and a recently opened busway that cost upwards of $350-million to build and carries approximately 10,600 riders per day.

These are all pathetically low numbers. The county's population is 10-million and the average person takes about four trips per day

My students and I recently applied a standard cost-benefit template to the five projects mentioned and found that, all things considered -- including generous assumptions about auto trips diverted and externality costs avoided, these five lines have a net cost to society of $560 million per year.

It takes a court order (and a lawsuit by the NCAAP and a group called the Bus Riders Union) to tell the MTA to add express bus service.

Tom Rubin reports that all of the MTAs routes could now be served by express buses -- had the money not been wasted on rail.

And what do local planners and politicians want to keep on doing? You guessed it.

Monday, November 28, 2005


We all want to look beyond stereotypes but, at the same time, privately (secretly) wonder about what truths they may contain. There are lawyer jokes but there are many lawyers who are among our finest spirits. The same can be said of economists and many others.

If economists tend not to be among the most popular figures on university campuses, does some of the credit go to any of their peculiarities? William B. Walstad and Sam Allgood present "Views of Teaching and Research and Other Disciplines" in the May 2005 Papers and Proceedings of the 170th meeting of the American Economics Assoc.

Based on a large survey of university faculty, the authors report:
"The survey evidence shows that many economics professors at research universities have a low regard for teaching and high regard for research ... " And, "... it is surprising that physical and biological scientists are not nearly as extreme in their views of the teaching and research trade-offs as are economics professors."

I hope that there is a study in the works somewhere that takes a crack at explaining some of the peculiarities of the economists.

Sunday, November 27, 2005

Substitutes in the eye of the perceiver

A few years ago (I am not sure when) Prof. Ed Mills wrote (I am not sure where) that the internet was the way we would share unambiguous messages but that ambiguous messages (he cited a seminar as an example) would best be exchanged the old fashioned way.

This seemed reasonable. Harry Richardson and I wrote (somewhere) that the market would sort all of this out. That was also reasonable.

In the Nov 28 Forbes, David Gelernter writes "Who Needs a College Campus ... A new free market in higher education will turn the academy on its head." (Sorry, link to the article not available.) He also notes that the "world's top universities will exist forever. They sell tradition and mystique, which are always in demand. But outside the top tier, more and more students will discover that electronic courses offer education with less fun, less atmosphere, less political nonsense -- and a lot more choice and less cost."

Then there is the world depicted by Tom Wolfe in I Am Charlotte Simmons. Wolfe has taken some heat from some who think his rendering of modern undergraduate life was over the top.

Distance-learning technology will only get better and Gelernter's vision will surely offer a combination of price and quality that appeals to a growing segment. But it is all about how good or how bad the substitute is perceived to be -- and by how many.

In the interim, increasing affluence will continue to expand the demand for a lengthened adolescence. Undergrad life, as it is marketed and packaged today, is the market's finely tuned response. My guess is that the resulting mix of hedonism and credentialing and learning will continue to beguile large numbers of families -- who will continue to pick up the large tab for what they deem is the vastly preferred substitute.

Wednesday, November 23, 2005

Peace and prosperity

We have almost gotten used to what follows in the wake oil price spikes: silly politics, weird conspiracy theories and the mystery of what happens at the other end -- in the likes of Russia, Venezuela and the middle-Eastern states that rake in petrodollars by the billions.

For the most part, real economic progress has not been detected in these countries. The Economist of Nov. 12 examined the question again ("Recycling Petrodollars") with a moderately upbeat piece that suggests this time, with more experience, wiser investments will take place. Perhaps not, however, because it appears that most of the windfall revenues will continue to be directed by government (politicized) agencies.

This is why Charles Wolf's suggestion re Iraqi oil in today's WSJ is so refreshing. In "Shareholders Don't Shoot Each Other", the author argues that, "Privatizing Iraq's oil assets, and vesting all citizens with shares can provide incentive for every Iraqi -- including Sunnis, the insurgency's core -- to view commerce as a better path than violence. Ownership would provide 28 million citizens with a prospective increase in per-capita income of about $5,800, substantially raising their present income."

Iraqis could privatize their government oil monopoly -- and become traders and investors --and take a shot at peace and prosperity -- and leave their neighbors behind.

Wolf does not mention that the Iraqis had better do so quickly before their politics matures -- and prevents this sort of enlightened approach.

Sunday, November 20, 2005


The smart set put down those they label "popularizers". Or mere popularizers. This is silly for several reasons. Many people can be clear and smart at the same time. Tom Sowell is a prominent example but the list is long. And in a world of comparative advantage, there are many niches to be populated. And the many popularizers laugh all the way to the bank. And many of them (almost by definition) greatly enrich our lives.

Two that I have recently encountered (whose works are known to many readers) are Bill Bryson and Nassim Nicholas Taleb.

For holiday nonfiction book givers, Bryson's A Short History of Nearly Everything and Taleb's Fooled by Randomness: The Hidden Role of Chance in Life and in the Markets are something(s) to consider.

Wednesday, November 16, 2005

Thinking big

On Monday, the WSJ ran the following:

"The Shame of the Cites: French Unrest Finds A Home in Projects ... France's public-housing projects, known as 'cites,' are an experiment in utopian urban planning gone badly wrong. Inspired by the famed modernist architect Le Corbusier ... a new generation of planners dreamed up communities that were supposed to be perfectly functional 'machines for living.' Hundreds of these projects sprang up across France. The structures were immense slabs of concrete up to 20 stories high and hundreds of yards long, each housing as many as 1,500 people. ..."

Today's WSJ reports on projects closer to home: "New Buildings Help People Fight Flab ... Designs Encourage Climbing Stairs and Lots of Walking; Cheeky Signs on the Elevator ... In July 2007 when students at Virginia Commonwealth University attend classes in a re-designed business-school building, they'll face a new hurdle: a staircase. Most of the 3,000 students now at the Richmond, Va., business school take elevators to reach classrooms. But in the new structure, the elevators will be especially slow-moving. They will also be tucked away at the rear, while the atrium will feature a prominent set of stairs ..."

Visit Berkeley, CA, or many other enlightened places and experience traffic-calming, a series of designs and impediments put in place to make driving onerous and, it is hoped, less frequent. Whereas transportation planning was once about improving access, this version targets the opposite.

There are, then, two problems. Not only is social engineering suspect, but it is also apparently irresistable to many designers. The challenge of building facilities that perform their intended functions is apparently not lofty enough.

Sunday, November 13, 2005

Really getting people out of their cars

"Get people out of their cars" has been the rallying cry for greens, Luddites and many planners and politicians.

The WSJ's Stephen Moore summed it up in his recent "War Against the Car", some of which is repeated here.

"A few years ago, I made a presentation to my second-grader's social studies class, asking the kids what was the worst invention in history. I was shocked when a number of them answered 'the car.' When I asked why, they replied that cars destroy the environment. Distressed by the Green indoctrination already visited upon seven-year-olds, I was at least reassured in knowing that once these youngsters got their drivers' licenses, their attitudes would change.

"It's one thing for second-graders to hold such childish notions, but quite another for presumably educated adults to argue that automobiles are economically and environmentally unsustainable "axles of evil." But with higher gas prices, as well as Malthusian-sounding warnings about catastrophic global warming and the planet running out of oil, the tirade has taken on a new plausibility. Maybe Al Gore had it right all along when he warned that the car and the combustible engine are 'a mortal threat . . . more deadly than any military enemy.'"

The problem is that the critics have no clue on how to "get people out of their cars" because they cannot fathom the fact that most people prefer personal over group travel. The predictable result is that they have wasted billions of other people's money on transit systems, HOV lanes and land use schemes that have no positive effect. Bad theory leads to bad policy.

Looking forward is usually a better plan than looking backward. Reason's Ted Balaker has just published a study of telecommuting in US cities and shows that it does get people out of their cars -- at least moreso than transit.

And it does not rely on politicians, pork and transfers. And this is just the beginning.

And enlightened opinion wants the internet to be run by the United Nations.

Friday, November 11, 2005

Not bowling alone

Robert Putnam's Bowling Alone was almost a blockbuster (by academic standards) and the author made the cover of People mag and was courted by both of the Clinton's. To the left, there is something exhilarating about the pessimistic view of modern America.

But are we bowling alone? Cell phone use is everywhere; the most casual observer can see how obsessive we are about being and staying connected. The joke in California is that when one next takes the Department of Motor Vehicle's multiple choice license renewal exam, the answer to the question about who has the right of way is: The one speaking on his/her cell phone.

The 1990/2001 NPTS/NHTS trends on travel that I had mentioned earlier show that social and recreational person-trips (their category) were up 30% -- while worktrips increased 23% and population grew by 16%.

We are increasingly connected. And our interactions, physical and other, are complements.

Wednesday, November 09, 2005

Balanced and unbalanced

City and regional planners invoke the vague idea of "jobs-housing balance" as being a way that they can plan land uses and land use arrangements to reduce commuting.

It's a dumb idea on many levels. One being, "balance" at what scale (the zip code, the city, the region)? Another problem is that many of us are just too specialized in our occupational choices to be subject to this type of top-down planning. Also, many of us are busy weighing trade-offs against the long commute -- cheaper housing and better schools, being just two of many examples.

A recent report from Jason Bram at the NY Fed looks at New York metro area commuting patterns from 1980-2000. And guess what? Many people are now willing to travel longer distances to work.

Social engineering is, indeed, very hard work. And it appears to be getting harder all the time.

Sunday, November 06, 2005

Vote early, vote often

Is it possible for an economist to be thrilled at the sight of first-time voters, whether in Iraq of Cambodia or any of the other places where people can now vote, forming long lines to vote (even braving life and limb)? Rational ignorance is a powerful argument and declining voter turnout as affluence raises opportunity costs are well known and well documented.

In "Why Vote?", Freakonomists Stephen J. Dubner and Steven D. Levitt discuss how Swiss voter turnout actually decreased when mail-in voting made the act cheaper. There is self-interest at stake, write the authors, "but not necessarily the same self-interest as indicated by our actual ballot choice. For all the talk of how people 'vote their pocketbooks,' the Swiss study suggests that we may be driven to vote less by a financial incentive than a social one. It may be that the most valuable payoff of voting is simply being seen at the polling place by your friends and co-workers."

Saturday, November 05, 2005


The current issue of The Freeman includes John Semmens' "Wal-Mart is Good for the Economy". It seems that many people need reminding of the simple fact that, absent force, fraud or significant external costs, profitable enterprises are that way for good reasons -- they serve people best.

But success and progress also have powerful enemies -- even in what lazy observers still refer to the "laissez-faire" U.S.

Are there externalities? Sure. Everywhere. Are they significantly (net) positive or (net) negative? Only the conceivably negative are grist for popular discourse.

"Pecuniary externality" effects on wages or market prices are not a market failure.

Politicians may want to see every government program as a jobs program -- and they may want to see private enterprises in that light too but that is not economics.

Along these lines is the accusation that Wal-Mart's compensation packages push many employees to rely on public health programs. All things considered, employees and employers find each other and agree to terms in light of all of their available options.

Those who fret most about all of this are often the same people who routinely condemn the poorest to go to the worst (government) schools -- and thereby must bear much of the blame when poor people have few good options.

Friday, November 04, 2005

Nothing but bad news

Here is one blogger's report (Newmark's Door) of the good news on U.S. productivity growth.

The old media (today's LA Times, for example) has a very different take: "Third-quarter data beat expectations, but the fact that wages trail inflation may be making workers uneasy. ... U.S. workers in recent years have been pressed to produce more, although often for modest wage increases ... ."

In truth, these data are more impressive that the recent GDP results. Did the Bush tax cuts do more good than harm? It is beginning to look that way.

Some of the evidence is the convoluted economic reporting cited above.

Wednesday, November 02, 2005

Last seen violating the Law of Demand

If you use first-class U.S. mail, keep those 2-cent stamps handy because the 37-cent stamp will soon be history. The thirty-nine cent rate is coming your way.

Everyone knows that these rates go up as demand for snail-mail goes down because the Law of Demand is no match for a political jobs program (with labor unions and all).

The U.S. Statistical Abstract is all you need to compare the 23-year growth (1980-2003) record of the U.S. population (28%), U.S. per capita real GDP (58%) and and U.S. Postal Service expenses (well over 200% in nominal dollars but close to 200% in real terms). And being the USPS, they get special tax and permitting treatment, etc.

This is all regular-as-a-drumbeat news. But calling attention is all that we can do.

Monday, October 31, 2005


"Allocation and Dictatorship: Research in Stalin's Archives" by Paul Gregory and Mark Harrison (in the Sep, 2005 Journal of Economic Literature) is fascinating. Many conjectures put forth over the years by Mises, Hayek, Schelling, and many others, are corroborated.

Yes, planned economies perform so badly that tyranny and terror are required. Yes, tyrants are not only ruthless but also fearful -- and the impulses feed each other. Yes, the whole mess is brought on from attempts do the impossible, plan an economy (and its growth) top-down. Yes, massive corruption is a side-product of this enterprise. Yes, an underground ecomomy is inevitable in these circumstances. Yes, steady infighting and scapegoating and worse occur regularly among the insiders. Yes, there were not (could not have been?) even serious economic plans (lament the authors). And much more.

We are left once again to wonder how in the world so many Western intellecuals took the Soviet model seriously -- many even becoming its apologists.

And prominent Western economists are still investigating "market failure" -- to be corrected by whom?

Sunday, October 30, 2005

Smart bloopers

There are opinions held and opinions upheld. The zero-sum view of the world is an opinion held with uncanny consistency by those whom Tom Sowell so aptly calls "the anointed".

In the "smart growth" view, cities suffer because their suburbs thrive. Yet, Jordan Rappaport finds that strong trading partners are a good thing. His "The Shared Fortunes of Cities and Suburbs" lays out evidence.

Today's NY Times Magazine includes reader Letters in response to a recent story about Toll Brothers developers. The writer notes that,
"[t]hey gobble up land, they gobble up energy, and, oh yeah, they gobble up money, and it has made them very rich ... but what about offering consumers real choices?"

Count the Econ 101 bloopers. For concise writers, an index such as bloopers per word may have to be applied.

Friday, October 28, 2005

Dictionary for Western elites

"Fair competiton" and "social justice" are staples of the rhetoric that passes for normal discourse among elite Americans. Today's WSJ alludes to the Dictionary of Economics, published in Lithuania, and designed to unhinge discussions of economic matters from the vocabulary that people carry with them from the era of Marxist double-talk and double-think.

Yet, the discussion cited below applies here as well. In a better world, the Dictionary would also become best-seller in the West.

Defining Capitalism Up (WSJ, Oct. 28)

"In his 1946 essay 'Politics and the English Language,' George Orwell famously lamented that our language 'becomes ugly and inaccurate because our thoughts are foolish, but the slovenliness of our language makes it easier for us to have foolish thoughts.' He was writing about his native tongue, but today a group of young free-marketeers in Central and Eastern Europe have discovered the same thing -- discussions of economics in their countries are being poisoned by a vocabulary inherited from their communist past.

"Ruta Vainiene, a young former central banker in Lithuania, has decided to do something about it. Last month, she published her plainly titled 'Dictionary of Economics.' The response, both in Lithuania and elsewhere in Europe, has been striking. Since its release, the Dictionary has been the No. 2 nonfiction best seller in her native country. And plans are now afoot to translate the book into local-language editions in a number of other countries. Think tanks around Europe are supporting the effort, having seen the necessity of cleaning up economic language and thought that, a decade and a half after the collapse of the Soviet empire, remains infected by history.

"'The dictionary was my response to the market need to educate journalists and students about economic jargon that seemed very frightening to them,' Ms. Vainiene said in a phone interview. 'It explains the concepts in simple words. But also' -- and this is crucial -- 'explains them correctly.'

"The book notes, for example, that 'social 'justice'' is always related to the unjust redistribution of wealth, and 'fair competition' is almost always related to unfair government intervention in the economy.' In other words, Ms. Vainiene is trying to educate but also to eradicate the misleading and contradictory doublespeak that infects much economic language, especially as it is used in Europe."

Monday, October 24, 2005

Sprawl scholar

One of our most perceptive writers on modern American cities is Robert Bruegmann, whose Sprawl: A Compact History is now in print.

Bob had sent me some of the chapters as he was writing them and I was happy to see his op-ed ("L.A., the king of sprawl? Not at all") in yesterday's LA Times. I particulary liked the following punch-line:

"Although anti-sprawl crusaders contend that low-density sprawl has led to longer commutes and more congestion, it is fairly obvious that the growing congestion in the Los Angeles region is a direct consequence not of low-density sprawl but of high and fast-increasing densities and the fact that the region has so few miles of freeway per capita compared to most other American urban areas.Of course, none of these objections to standard wisdom are likely to sway many highbrow critics of sprawl. Their desire to see L.A. as sprawl and therefore as not truly urban is based less on rational analysis than on subjective aesthetic judgments and class resentment.

"But there are major problems with their position. First, there is considerable room for doubt that sprawl is necessarily the major problem that many anti-sprawl crusaders believe it to be. But, in any case, Los Angeles is not a good model of sprawl. The urban area of New York or Boston, for example, each surrounded by a huge low-density penumbra, would make a better poster child for sprawl than the dispersed but relatively dense and compact Los Angeles."

Saturday, October 22, 2005

In the eyes of the beholder

L.A. politicians (and many others) award exclusive cable franchises to areas throughout the city. Yet they and their fellows at the L.A. Times now fret that a merger of cable providers might introduce a "near monopoly".

Is it the echo chamber? Is it ignorance? Is it a mind set that is blind to politically inspired monopolies but reserves that label for private suppliers? Is it econ 101 courses and textbooks with stale discussions of the topic? In any event, monopoly remains in the eyes of the beholder. "Cable Deal a 'Mixed Blessing' ... Time Warner has a reputation for good service. But some worry about a near monopoly."

Wednesday, October 19, 2005

The social responsibility of CEOs to choose their cars sensitively and without signaling corporate arrogance

The October 2005 Reason featured a wonderful discussion on "The Social Responsibility of Business". Milton Friedman, John Mackey and T.J. Rodgers each made very good points.

That was the fun stuff. Back to reality. Today's LA Times includes a piece that lists the cars recommended for CEOs.

"'People watch CEOs and are critical if they are arrogant and insensitive to others around them,' said Bill Holstein, editor in chief of Chief Executive, in explaining the choices of the October issue.

"Holstein teamed with folks from, an automotive website, to determine vehicles that are neither signs of arrogance or insensitivity."

Corporations are a great social innovation when it comes to accumulating and guiding capital. But pace Friedman and Rodgers, corporate image matters in ever more complex ways.

Monday, October 17, 2005

False consensus

For those who require proof, evidence for predominantly left-leaning university faculties keeps accumulating. The interesting part is the denial.

John Tierney's "Why Righties Can't Teach" sheds some light. He notes that, "[s]ocial scientists call it the false consensus effect: a group's conviction that its opinions are the norm. Liberals on campus have become so used to hearing their opinions reinforced that they have a hard time imagining there are intelligent people with different views, either on campus or in politics."
These, of course, are the diversity champions.

Some of us are fortunate because we somehow got in under the radar. My students grasp my various biases and most also accept the idea that there are few pure and unvarnished sources. Rather it is each individual's responsibility to compare arguments and process them.

This is the opportunity that we deny students when professors parrot party lines -- and when they succumb to the false consensus effect.

Thursday, October 13, 2005

Guns, germs and law

To those economists who greatly enjoyed Jared Diamond's Guns, Germs and Steel but were made a tad uneasy by the geographical determinism, Ross Levine's fine survey article, "Law, Endowments and Property Rights" (Journal of Economic Perspectives, Summer, 2005), hits the spot.

Levine reminds readers that there is accumulating evidence for a "law view" as well as an "endowments view" for robust property rights (and prosperity). He concludes that, "[t]he law and endowment views offer compelling theories of how legal heritage and natural resource endowments shape property rights today and how each view provides empirical support. I see no reason to reject either explanation." (p. 83)

Monday, October 10, 2005

Laissez faire?

Writing about "Remedies for New Orleans" in today's WSJ, Edmund Phelps reiterates his enthusiasm for labor subsidies.

"One kind of remedy would be to universalize the earned income tax credit so it addresses all low-wage men and women equally. The other kind of remedy, one I and others have proposed, is an employment subsidy to employers, giving them an incentive to hire more low-wage people and thus bid up their pay in the process. I need to stress that a subsidy here is a sort of matching grant, paid out for doing something -- it is not a hand-out, not is it like the so-called subsidy to farmers for not planting. (Mr. Bush's enterprise zones are effectively schemes to subsidize capital, which is the wrong lever, yet no one shrinks in horror at those subsidies.)

"Federal subsidies of these two kinds may be justified on the same ground as federal infrastructure. The consequences when the working poor are consigned to a laissez-faire labor market -- impaired schools, drug use, crime -- impose external costs on the rest of society. A rights-based case for such a subsidy exists too. (There is no good case, though, for a handout, which undermines work and integration.)"

What is the great man thinking? First, do we know which "lever" gives us more bang for the buck? Second, what "laissez faire"? These days, governments in the U.S. compel the poorest to attend the worst schools. And drug policies are anything but laissez-faire and create crime-ridden underground industries.

As long as we espouse new policies while characterizing the status quo as anything resembling "laissez-faire", we are flying blind.

Saturday, October 08, 2005

Rent-seeking obscured by seeming progressivity

Consumers benefit when profit-seekers compete. Citizens, likewise, benefit when rent-seekers (and rent-extractors, e.g., their political leaders) compete. As labor and capital become ever more mobile, politicians find reasons to behave and reform.

Friday's WSJ calls attention to the spread of flat-tax reforms in eleven countries, most of them in eastern Europe ("The World Is Flat" -- WSJ subscription required).

In the October 17 Forbes, John C. Goodman contrasts his "Kinder, Gentler Flat Tax" with Steve Forbes' better known version ("Flat Tax Revolution: Using a Postcard to Abolish the IRS"). Goodman suggests a slightly more complex rate schedule which would include incentives for more rational health and retirement insurance choices among individuals.

Some sort of balance between endearing simplicity and social engineering will have to be found. That could be a useful discussion and a desirable outcome.

Anything would be better than the status quo. In the name of a superficial progressivity, bizarre complexity is maintained. Taking the whole tax-and-expenditure presence of the federal government (with or without the addition of the state and local role) into account, no one can argue that the net effect is progressive.

The status quo is suitably ambiguous so that massive rent-seeking can persist under the guise of progressive redistribution.

Thursday, October 06, 2005

The triumph of middlebrow

I know very little about Harriet Miers. There is an emerging consensus that she is not distinguished. What else do we know?

William Buckley supposedly once remarked that he would rather be governed by the people listed on the first few pages of the New York city phone directory than by the Harvard faculty. Who can argue with that?

The triumph of middlebrow probably explains most of the wealth and welfare that we now enjoy. Sure, genius matters substantially but highbrow and middlebrow complement and depend on each other. Each has a unique comparative advantage.

I cannot define charisma but I know it when I see it. We have all seen too many movies, plays, operas and read too many novels where charisma goes with leadership and excellence. That's why we call it theatre. In real life, the overlap between charisma and accomplishment is very slight. There is the added perturbation that many not-so-smart-or accomplished folk try (embarrassingly for all) to cultivate what they think is charisma -- including various Supreme Court appointees and others within their area code.

No self-respecting blogger has not opined on Ms. Miers. I wish her luck.

Wednesday, October 05, 2005

The rich get richer ...

We all know that the rich are getting richer because we read the NY Times and similar outlets.

Yet we also know that the relevant data are complex and that distributions are hard to characterize. We also know that it's hell to make intertemporal comparisons because these involve comparing categories rather than people -- who tend to move in and out of categories. And we also know that stock ownership and home ownership are more widespread than ever. And the Great Depression wiped out a few fortunes and outsized compensation packages are going to CEOs, rock stars and many others. And on and on.

Some help is available from Wojciech Kopczuk and Emmanuel Saez (NBER Working Paper, March 15, 2004) who write about "Top Wealth Shares in the U.S, 1916-2000: Evidence from Estate Returns".

They report: "Our series show that there has been a sharp reduction of wealth concentration over the 20th century: the top 1% wealth share was close to 40% in the early decades of the century but has fluctuated between 20% and 25% over the last three decades."

And, as noted in a recent post, there is substantial mobility in and out of the upper income and wealth strata.

The top 2% and the bottom 5% continue to make all the news. The more mundane remaining 97% will never be good editorial fodder.

Saturday, October 01, 2005

Sunk costs? What sunk costs?

From today's LA Times: "City OKs Subsidies for Downtown Hotel ... Council agrees to a $290-million package for planned project next to Convention Center ... Eight years in the making, the deal was approved unanimously, with backers saying it was critical to attracting enough business to the Convention Center to end a flow of red ink at the city-owned venue."

Oh, yes. That venue was also supposed to revitalize downtown L.A. and, in turn, also redeem dozens of previous bad decisions by City leaders.

Once again, walking away from a bad investment (and a bad idea) is entirely unnecessary when the option of spending other people's money is available -- while at the same time swapping same for electoral support. Silly me.

Friday, September 30, 2005

Private communities

Private communities with homeowners associations as local governments account for one of the most important migrations in the U.S. today (the others being [often concurrent moves] to the outer suburbs and to the sunbelt).

Yet, there are critics. Some claim that residents are getting a bad deal; the intrusiveness of HOA governance negates any benefits. Others worry about negative externalities. Robert Nelson deals with both criticisms in his latest book on the subject.

The hardest criticism to accept is the one that large numbers of people continue to move into arrangements that are actually harmful to them. In the Fall 2005 issue of Regulation Amanda Agan and Alex Tabarrok ("What Are Private Governments Worth?") report on their empirical work that estimates a $14,000 premium for for HOA governance, holding other effects constant.

Large-scale migrations are usually a signal worth taking seriously.

Thursday, September 29, 2005


Walter Williams ("Hurricane evacuation lessons") notes that when ordering motorists to evacuate, do not at the same time threaten gasoline sellers and motel owners with jail for "price-gouging".

Paul Burka ("Car Trouble" in today's WSJ, subscription required) adds: "Common sense needs to be restored to the evacuation process, so that people with the greatest risk of danger will make the decision to leave, and those with the least risk will stay off the roads."

Here are two (more) examples of how far politics has strayed from common sense. Let's face it, dumb policies kill people.

Monday, September 26, 2005

Let them discover substitutes

Will high gasoline prices come out of people's wallets or will they find ways to accommodate? Time and elasticities will tell.

Travel survey data from the 1990 NPTS and the 2001 NHTS shed some light. In the eleven years between the surveys, U.S. population grew by 15.8 percent but the number of drivers increased by 16.8 percent. Trips per capita per day grew by 11% and the fastest growing were the nonwork trips, increasing by 12.1%.

The state of traffic in the large cities, so often the subject of complaints, is amazingly good. We choose not to ration by price, we build transit (which is ever more underused) and we do not build nearly enough highways and roads. Yet, travel continues to grow, mainly in response to rising incomes.

In the absence of pricing, no one knows which trips are "less essential" and where the cutbacks will be. Suffice it to say that there is lots of room for accommodation.

One wit suggested that all those people who usually drive to the gym so that they can do their 40 minutes of cycling, could as easily bicycle to an arcade where they can drop some coins into a video game that simulates driving.

Sunday, September 25, 2005

NY echo chamber

Today in the NY Times, Nina Munk writes about the Forbes 400 ("Don't Blink. You'll Miss the 258th-Richest American."):

"Right from the start, the Forbes 400 reflected an American ideal: we were a nation of smart hard-working, resourceful, determined, innovative, daring self-starters. Above all, the Forbes 400 suggested mobility and unlimited oportunity. Every year, more of the old names fell off the list, only to be replaced by names you'd never hear of -- names of people who had been inspired to build something from nothing. Inherited welath, which once dominated the Forbes 400, has over the years come to account for less than 40% of the list. The number of Ivy League graduates has dropped, too. And New York City is no longer the epicenter of American wealth. ...

"A few days ago, I read through the newest Forbes 400 list of the richest people in America, hoping to find many names I'd never heard of. They're not there. ... It's hard to say when the Forbes 400 list started to stagnate, but 1999 may have been a turning point ...."

Actually, the accompanying chart shows that "Number with self-made fortunes" was 165 (of 400) in 1985 but 255 (of 400) in 2005.

Stagnation? Maybe not. Perhaps yet another episode of echo-chamber blinders.

Friday, September 23, 2005


"Smart growth" and "smart cities" are all the rage -- and encouraged and even subsidized by all sorts of federal, state and local policy initiatives. At the same time, the other half of government subsidizes and/or encourages development of flood prone sites and botches evacuation and other emergency plans.

As many have pointed out, the lessons to be drawn will be all over the place (stingy Republicans, corporate greed, global warming, etc.). The New Yorker (Sep. 19) put much of the blame on global warming -- and the Bush failure to sign on to the Kyoto Protocols.

U.S. DOT Federal Highway Statistics (2002) show that the Houston area has the most highway lane-miles per capita (9.54 vs 5.78 for the 25-metro area average) of America's large metro areas. If you have to evacuate by car, Houston is best.
But look at what happened.

This is not global warming. It is the stunning incompetence of officialdom. The same folks who want to manage global temperature change.

Wednesday, September 21, 2005

If pigs could fly

Ron Utt and others recently proposed that highway appropriations pork be diverted to Katrina relief and repairs. I blogged about the news from Montana last week that their state politicos had agreed to do just that. John McCain is on board -- and so is Nancy Pelosi!

This morning's WSJ editorial on the matter ("Cuts for Katrina") points us to the Porkbusters website ( It shows a very long roster of Congress people not yet heard from.

If significant sums are diverted, there is little assurance that they will be spent wisely. It may be zero-sum pork (new pork at the expense of old pork) but it may also be better. Who would have thought that giving back "earmarks" would even be on the table?

Saturday, September 17, 2005

Red (ink) Line

The Popperian question ("What evidence would it take for you to change your position?") would be wasted on some. Today's LA Times editorializes on the importance of more subways for Los Angeles ("Westside's second chance"; am not able to link for some reason). They are pursuing the same logic that they have been using for half a century: build it and they will come.

In the process, Times writers have treated their fellow citizens to a very expensive real live experiment. Billions of dollars have been spent on rail transit for L.A. and there is nothing positive to show for it. In fact, overall transit use is down, red ink is up, and blight along the Red Line's route is advancing. The Ambassador Hotel site is rat infested and the Miracle Mile's premier location (at Fairfax) now features a 99-cents store outlet.

There are opinions held and opinions upheld. But opinions held with no supporting evidence whatsoever (and when there are large sums of other people's money at stake) reveal a spectacularly blinkered ignorance.

Friday, September 16, 2005

Consumer sentiment

There are many good reasons that economists pay most attention to revealed preference. Stated preference results are usually all over the place.

You have to love it that today's markets wanted nothing to do with today's 13-year low consumer sentiment reading. In fact, they ran the other way. This is all nicely summarized at macroblog.

Thursday, September 15, 2005

Bourbon Street

New Orleans had been in long-term decline well before Katrina, losing more than a quarter of its population since 1960. The ills of the city had been well known.

Yesterday's LA Times reported "Speculators Rushing In as the Water Recedes". Sure, buy low, sell high. The long descent is over; the bottom has been sighted. And the feds will be sending boatloads of pork for some time. The President's speech confirmed it and it was wise to start the bidding even before the words came out of his mouth.

Several forces will be converging on the disaster area. They include decent charitable work, big government hand-outs (many of which will be wasted and/or stolen), heavy-handed government rules and programs, and entrepreneurial activity. While charitable work is wonderful, the heavy lifting will be spurred by the entrepreneurial sector.

Chicago, San Francisco and Atlanta are great American cities that were once practically razed. They survived and came back, better than ever. It may be sad but true that it took the likes of Katrina and its aftermath to turn New Orleans' decline around.

It has been sport these days to come up with cities that did not come back. High on such lists are Sodom and Gommorah. It is still unclear whether Bourbon Street makes the cut.

Wednesday, September 14, 2005

Too good to be true?

Ron Utt at Heritage began circulating the idea some days ago that it is possible to address two problems at once. Divert the thousands of pork projects in the recent highway appropriations bill to the post-Katrina tasks at hand. Too good to be true -- and in clear violation of the laws of public choice economics.

The news this morning, however, is that at least some people (Montanans in this case)are turning pork into aid. Who would have thought?

Here is the WSJ summary:

"A 'Moronic' Proposal"
September 14, 2005; Page A20

"Some public-spirited folks in Bozeman, Montana, have come up with a wonderful idea to help Uncle Sam offset some of the $62 billion federal cost of Hurricane Katrina relief. The Bozeman Daily Chronicle reports that Montanans from both sides of the political aisle have petitioned the city council to give the feds back a $4 million earmark to pay for a parking garage in the just-passed $286 billion highway bill. As one of these citizens, Jane Shaw, told us: 'We figure New Orleans needs the money right now a lot more than we need extra downtown parking space.'

"Which got us thinking: Why not cancel all of the special-project pork in the highway bill and dedicate the $25 billion in savings to emergency relief on the Gulf Coast? Is it asking too much for Richmond, Indiana, to give up $3 million for its hiking trail, or Newark, New Jersey, to put a hold on its $2 million bike path?

"And in the face of the worst natural disaster in U.S. history, couldn't Alaskans put a hold on the infamous $454 million earmark for the two "bridges to nowhere" that will serve a town of 50 people? That same half a billion dollars could rebuild thousands of homes for suffering New Orleans evacuees. One obstacle to this idea apparently will be Don Young, the House Transportation Committee Chairman who captured the funds for Alaska in the first place. A spokesman in his office told the Anchorage Daily News that the pork-for-relief swap was "moronic." Sounds like someone who wants Mr. Young to become "ranking Member" next Congress.

"In all there are more than 6,000 of these parochial projects -- or about 14 for every Congressional district -- funded in the highway bill. The pork reduction plan is particularly appropriate as a response to Katrina, because we have learned in recent days that one reason that money was not spent on fortifying the levees in New Orleans was that hundreds of millions of dollars were rerouted to glitzier earmarked projects throughout the state of Louisiana.

"We're hearing all sorts of bad ideas about how to offset the $62 billion of spending already authorized for Hurricane Katrina relief. Cancel the Bush tax cuts, raise the gasoline tax by $1 a gallon, increase deficit spending, and sharply cut spending on national defense and the war in Iraq. In Washington, it seems, everything is expendable except for the slabs of bacon that are carved out of the federal fisc to ensure re-election.

"The glory of what is happening in Bozeman is that taxpayers are proving to be wiser about priorities than their politicians. We like the suggestion by Ronald Utt of the Foundation Heritage that, when the new levee is built to protect the Big Easy from future storms, it should bear a bronze plaque stamped: 'Proudly Brought to You by the Citizens of Alaska.'"
It's all about change. We live by it and mostly benefit from it but it scares many among us. Ronald Bailey's Liberation Theology: The Scientific and Moral Case for the Biotech Revolution argues persuasively that we have more to gain than to fear, biotechnical treatments will do more to enhance than to undermine human dignity.

Monday, September 12, 2005

What do we know?

The Katrina news and commentary keep piling up but some are worth repeating. This morning's WSJ (page B1, cannot link for non-subscibers) reports that: "At Wal-Mart, Emergency Plan Has Big Payoff ... The Federal Emergency Management Agency can learn some things from Wal-Mart Stores, Inc. On Wednesday, Aug. 24, when Katrina was reclassified to a storm from a tropical depression, Jason Jackson, the retailer's director of business continuity, started camping out in Wal-Mart's emergency command center. By Friday, when the hurricane touched down in Florida, he had been joined by 50 Wal-Mart managers and support personnel, ranging from trucking experts to loss-prevention specialists. On Sunday, before the storm made landfall on the Gulf Coast, Mr. Jackson ordered Wal-Mart warehouses to deliver a variety of emergency supplies, from generators to dry ice to bottled water, to designated staging areas so that company stores would be able to reopen quickly if disaster struck ..."

Yesterday's NY Times David Brooks piece is a nice complement. "The Best-Laid Plan: Too Bad It Flopped" looks at pre-Katrina planning, which Brooks finds to be impressive -- but reiterates the plain fact that there is only so much that government can do. Even well-meaning and competent officials (not to speak of the other) will not perform up to the level of a Wal-Mart.

Meanwhile in the LA Times, Niall Ferguson ("The Economic Hurricane") raises the sceptre that Katrina will plunge the U.S. (and the world?) into economic recession. No one knows and Murphy's Law can always kick in. Nevertheless, all doomsayers ought to carefully consider the Wal-Mart example -- as well as (drum roll) the perennially evoked and nevertheless widely neglected Econ 101.

Friday, September 09, 2005

Institutional Entrepreneur

Entrepreneurs make the world go round and insitutional entrepreneurs deserve special mention. Not only do they invent ways to overcome transactions costs and thereby expand property rights and the exchange economy but they also develop (and profit from) ways to overcome dumb policies.

I once blogged about the LifeSharers network, whereby precommitments by members make organ swaps possible.

Another example is in the current Forbes. "That's Hot" describes a way that one entrepreneur arbitrages electrical power between peak and off-peak in ways that skirt the official reluctance to do just that -- and thereby save and make money (all at the same time!).

"With the mercury peaking at 96 degrees, in New York's Central Park on an afternoon in late July, the city set a record for energy draw: 13 gigawatts. That is equal to the generating capacity of seven Hoover Dams.

"During spikes like this, New York's Consolidated Edison buys exensive energy from peak-usage power plants, sending the wholesale spot price of a kilowatt-hour of energy -- 3 cents on a cool day -- to $1 or higher. New Yorkers never notice the difference because the price they pay hardly varies on the hottest day of the year.

"The discombobulated pricing is a senseless waste and it might make Michael Gordon rich. His $12.5 million (sales) New York energy services shop, Consumer Powerline, is New York's largest " aggregator" of electricity savings contracts.

"Twice a year Gordon signs up huge office tenants ... to volunteer in advance to shut off nonessential lighting or turn down a building's chillers a bit on heavy usage days.

"When the New York State power grid is under stress, Con Ed calls in the favor with Gordon to ease demand -- and pays 50 cents a kilowatt hour for the energy he saves. That's half the price of juice on the spot market . In addition, Con Ed writes Gordon and his clients a check based on the avoided cost of building more peak-usage power plants. ... Such reductions stave off rate hikes for Gordon's clients. They saved $2.5 million in future electric bills that day ..."

Even when policy makers tremble from real deregulation, market participants still run circles around them -- to the benefit of all concerned, including the regulators. And I live in a world where the regulators are still looked to as the saviours. Good government is always just around the corner.

Sunday, September 04, 2005


Randal O'Toole's "Vanishing Automobile" series is always enlightening. Here is the latest installment.


"Those who fervently wish for car-free cities should take a closer look at New Orleans. The tragedy of New Orleans isn't primarily due to racism or government incompetence, though both played a role. The real cause is automobility -- or more precisely to the lack of it."The white people got out," declared the New York Times today. But, as the article in the Times makes clear, the people who got out were those with automobiles ( Those who stayed, regardless of color, were those who lacked autos.

"What made New Orleans more vulnerable to catastrophe than most U.S. cities is its low rate of auto ownership. According to the 2000 Census, nearly a third of New Orleans households do not own an automobile. This compares to less than 10 percent nationwide. There are significant differences by race: 35 percent of black households but only 15 percent of white households do not own an auto (see But in the end, it was auto ownership, not race, that made the difference between safety and disaster."The evacuation plan was really based on people driving out," an LSU professor told the Times. On Saturday and Sunday, August 27 and 28, when it appeared likely that Hurricane Katrina would strike New Orleans, those people who could simply got in their cars and drove away. The people who didn't have cars were left behind.Critics of autos love the term "auto dependent." But Katrina proved that the automobile is a liberator. It is those who don't own autos who are dependent -- dependent on the competence of government officials, dependent on charity, dependent on complex and sometimes uncaring institutions.As shown in the table below, the number of people killed by hurricanes in the U.S. steadily declined during the twentieth century. Economists commonly attribute such declines to increasing wealth. Wealth differences are also credited with the large number of disaster-related deaths in developing nations vs. developed nations. But what makes wealthier societies less vulnerable to natural disaster? There are several factors, but the most important is mobility.Number of Deaths Caused by Hurricanes in the U.S.
1900-1919 10,000
1920-1939 3,751
1940-1959 1,119
1960-1979 453
1980-1999 57

Source: Atlantic Oceanographic and Meteorological Laboratory. Number for 1900-1919 is estimated as the exact death toll from 1900 Galveston hurricane is unknown.

"People with access to autos can leave an area before it is flooded or hit with hurricanes, tornados, or other storms. When earthquakes or storms strike too suddenly to allow prior evacuation, people with autos can move away from areas that lack food, safe water, or other essentials.Numerous commentators have legitimately criticized the Federal Emergency Management Agency and other government agencies for failing to foresee the need for evacuation, failing to secure enough buses or other means of evacuation, and failing to get those buses to people who needed evacuation. But people who owned autos didn't need to rely on the competence of government planners to be safe from Katrina and flooding. They were able to save themselves by driving away. Most apparently found refuge with friends or in hotels many miles from the devastation. Meanwhile, those who didn't have autos were forced into high-density, crime-ridden refugee camps such as the Superdome and New Orleans Convention Center.Rather than help low-income people achieve greater mobility, New Orleans transportation planners decided years ago that their highest priority was to provide heavily subsidized streetcar rides for tourists. *

"In the late 1980s and 1990s, New Orleans spent at least $15 million converting an abandoned rail line into the 1.5-mile Riverfront Streetcar line. * In 2004, New Orleans opened the 3.6-mile Canal Street streetcar line at a cost of nearly $150 million. * New Orleans was planning to spend another $120 million on a Desire Street streetcar line.These tourist lines do nothing to help any local residents except for those who happen to own property along the line. The city was not deterred by its own analysis of the Desire line showing that each new rider on this line would cost taxpayers more than $20 (see table 7.2 on page 8 of 26,000 low-income families in New Orleans don't own a car. If all the money spent on New Orleans streetcars from 1985 to the present had been spent instead on helping autoless low-income families achieve mobility, the city would have had more than $6,000 for each such family, enough to buy good used cars for all of them. Add the money the city wanted to spend on the Desire Street streetcar and you have enough to buy a brand-new car for every single autoless low-income family -- not a Lexus or BMW, certainly, but a functional source of transportation that would have allowed them to escape the current disaster.

"While I don't think that buying low-income families brand-new cars is the best use of our limited transportation resources, it would produce far greater benefits than building rail transit. Studies have found that unskilled workers who have a car are much more likely to have a job and will earn far more than workers who must depend on transit (see, for example, That is why numerous social service agencies have begun programs aimed at helping low-income families acquire their first car or maintain an existing one (see when I point out the comparative benefits of providing mobility to low-income people vs. building rail transit lines to suburban areas that already enjoy a high degree of mobility, rail advocates often respond, "We can't let poor people have cars. It would cause too much congestion." Yes, as the Soviet Union discovered, poverty is one way to prevent congestion (see

"New Orleans is in many ways a model for smart growth: high densities, low rates of auto ownership, investments in rail transit. This proved to be its downfall. While the city was vulnerable from being built below sea level, many cities above sea level have proven equally vulnerable to storms and flooding. In the end, New Orleans' people suffered primarily because so many lived without autos, thus making them overly dependent on the competence of government planners."

Randal O'Toole The Thoreau Institute

Saturday, September 03, 2005

Loss accounting

This morning's NY Times reports: "First Estimate Puts Storm's Economic Toll at $100 Billion". Like it or not, incomplete and point estimates are part of the landscape.

The $100 billion are estimated property losses (mainly structures) that will be revised upwards. Business interruption losses are seldom estimated but these will also be substantial. There is, of course, life and limb and related traumas that will one day also be estimated.

But no one really understands the long-term consequences. Will GDP growth be bumped down to a lower trend? Will civil society take a hit? Or will it be reborn in an aftermath of soul-searching?

After the 1994 Northridge earthquake, a $20 billion guess came down from Sacramento officialdom almost immediately. Insurers were eventually on the hook for $16 billion and the structure (and contents) replacement cost estimates have hovered around $35 billion. Our own research found another $6.5 billion of business interruption effects. Heonsoo Park's co-integration analysis (no link found) suggested no long-term economic effects.

The long-term resiliency of market economies is usually the (mostly unsung) good news. Disasters, however, have the effect of prompting politicians (and acolytes) to undermine markets. So we get more controls and more programs and bureaucracies. Talk about cures being worse than diseases.

In the same NY Times, Maureen Dowd writes: "Stuff happens. And when you combine limited government with incompetent government, lethal stuff happens." She and many other seemingly toilet trained adults believe that less limited but competent government is an option.

On the same page, John Tierney saved my morning by concluding: "Here's the bargain I'd offer New Orleans: the feds will spend the billions for your new levees but then you're on your own. You and others along the coast have to buy flood insurance the same way we all buy fire insurance -- from private companies that have more at stake than Wasington bureaucrats. Private flood insurance has come to seem quaint in America but in Britain it's the norm. If Americans paid premiums for living in risky areas, they'd think twice about building oceanfront villas. Voters and insurance companies would pressure local politicians to take care of the levees, prepare for the worst -- and stop waiting for the bumbling white knight from Washington."

Wednesday, August 31, 2005

More than meets the eye?

There is always more than one theory.

My explanation of Hawaii's gasoline price controls, yesterday, was the standard political grandstanding story. R.S. Radford has another explanation, which brings with it an intriguing puzzle. R.S. sent the following (I quote with permission and I could not have posed it nearly as well):

"Hawaii's new gasoline price controls ... raise the most fascinating public-choice issues I've encountered in a long while. Surely it's a coincidence ... that these controls were trotted out barely two months after the Supreme Court's decision in Lingle v. Chevron? In Lingle, the Court upheld previous Hawaii regulations controling the rent gasoline producers (like Chevron) could charge the independent dealer-operators who lease producer-owned service stations.

"As we know from the example of mobile home park rent control [in California] , the operative effect of this sort of legislation in general is to allow the renters to capitalize the market value of the regulations into the price of their leasehold when they sell it to a new tenant. But what made the regs at issue in Lingle different from the mobile home park context is that there is a dual revenue flow between Chevron (and other producers) and their dealer-lessees: the dealers pay rent on their stations, but they are obligated to buy all of their gasoline from the landlord-producer. Thus, theoretically, Chevron could have prevented its dealers from capitalizing the value of gas-station rent control by jacking up the wholesale price of gas by an offsetting amount. Now, of course, the new price controls -- which inexplicably cap only the wholesale price of gas -- strip the producers of this offsetting market power, clearing the way for dealers to start pocketing windfalls by selling their rent-controlled dealerships to third parties.

"So far, pretty obvious. The puzzling part is, who could have made this happen? Unlike California mobile home park residents, the Hawaii gasoline dealer lobby cannot be an important force in state politics, either numerically or financially. I mean (and I'm totally guessing here), how many gas dealerships are there in Hawaii? Thirty-five? And assuming such a lobby even exists, it would be going toe-to-toe in Gucci Gulch (or whatever they wear in Honolulu) against a counter-lobbying cabal of multinational corporations listed on the NYSE.

"Anyway, I'm stumped. Even if some local service station operator had broken into the legislature at midnight and slipped this bill into a stack of papers to be voted on the next day, you'd think Chevron, Exxon, et al, would have spotted it and blocked it. I'd be interested in any theories you might have, the more conspiratorial the better. The Truth Is Out There!"

Possible cabals in exotic settings are much more fun than one more poke at economic illiterates.

Tuesday, August 30, 2005

The more things change ...

In 1947, Humphrey Michell published "The Edict of Diocletian" in the Canadian Journal of Economics (no link to the article found). The paper begins, "In 301 A.D., the Emperor Diocletian, with whom were associated his three co-rulers, promulgated an edict which fixed for the whole Roman Empire maximum prices for commodities, freight rates, and wages. According to the evidence available, and it is certain that the whole edict has not been recovered, price 'ceilings' for over 900 commodities, 130 different grades of labour, and a considerable number of freight rates were fixed and severe punishment promised to all 'black market' operators who dared to sell above the maximum. So elaborate a price scheme was not tried again until 1,600 years had passed ..."

Unlike 301 A.D., we now have a fairly solid body of economic analysis along with corroborating experience that price controls are simply crackpot. If price does not ration, something else will -- and the something else can be distasteful (arbitrary allocations) as well as costly (deadweight losses). But this improved state of knowledge matters very little because, following natural disasters and/or price rises that inconvenience the many (as in oil), like clockwork, politicians cannot resist temptation and jump into the breach to "do something" about prices.

People not only get the politicians but also the newspapers they deserve. On prices, they all seem to be on the same page. This morning's LA Times includes: "California Watches Hawaii's Effort to Cap Prices."

It is as though a rare and noteworthy experiment is in progress.

Monday, August 29, 2005

Sorting out

This morning's WSJ coverage of the Jackson Hole monetary policy confab cites Prinecton's Ricardo Reis and Alan Blinder, praising Alan Greenspan as "the greatest central banker who ever lived."

I have several times alluded to remarkable praise for Greenspan's monetary policies from, of all people, Milton Friedman. Part is the normal retirement well-wishing, part surely has merit. Historians will sort it out.

Historians are, of course, still sorting out the monetary history of the U.S., the causes of the Great Depression (I like the "Murphy's Law" explanation), and the 20th-century romance with top-down economic planning, part of Brink Lindsey's "Industrial Counterrevolution" (explained in his Against the Dead Hand).

If we are now emerging from the central planning optimism of the IC, then money managers' increasing sophistication is a part of this cycle. Richard Timberlake's "Gold Standard and the Real Bills Doctrine in U.S. Monetary Policy" (in the recent Econ Journal Watch) appears to be an important part of the sorting out. Economists' understanding of monetary policy and gold standards (real and imagined) helps us to better understand and learn from the monetary mistakes that have been made.

Consider this remark by the author: "A true gold standard provides an economy with a set of rules precsribing the conditions for the supply of common money. Once the rules are in place, the system works on the principles of a spontaneous order. Human design is limited to the framework for the standard, and must refrain from meddling with the ultimate product -- the quantities of both base and common money."

We live and learn.

Sunday, August 28, 2005

Going where (almost) no man (or woman) has gone before

It's all so obvious -- once someone has done it. Networks can be fitted to many things, including webs of ideas and legal opinions.

The Economist ("Statistical modelling: The wisdom of Hercules") reports on legal research by Prof. Seth Handler that involves plotting networks that link large numbers of Supreme Court decisions, in order to detect patterns of precedent. Webs and central nodes emerge.

The research shows, not surprisingly, that the legal landscape changes in the 20th century. Cited work by James Fowler and Sangick Jeon reveals that, " ... before the American Civil War, the most authoritative cases involved freedom of contract. After the war and until the 1930s, when Roosevelt's New Deal was enacted, these were replaced by cases dealing with balance of power to regulate commerce between Congress and the states. Finally, around the second world war, as the Supreme Court shifted its focus to civil liberties, the most important cases became those concerning freedom of speech. According to the model, civil rights opinions remain ascendant today."

Along the way, the reliance on precedent decisions, the analysis shows, experienced a "precipitous drop." Yes, they do legislate from the bench.

Thursday, August 25, 2005

Unintended self-parody (more)

You try to run a serious blog and this stuff comes along. And just when I had thought that public libraries were going to have trouble keeping up with e-books, cheaper retail prices of books and reading rooms at the local bookstore.

From today's WSJ:

"Not a Swedish Joke"

"If you find yourself in Malmo, Sweden, and happen to see a homosexual, an imam and a gypsy walk into a bar, it's not a joke. These are just some of the people who can be borrowed -- yes, borrowed -- from the local library for a 45-minute chat in a nearby pub as part of an effort to fight discrimination.

"Ullah Brohed pioneered the 'Living Library' project earlier this month. 'You sometimes hear people's prejudices and you realize that they are just uninformed,' she says. And since a library exists to educate, she decided to give Swedish bigots the opportunity to come face to face with the prejudice of their choice. The Malmo library also offers a Danish man (since some Swedes and Danes don't get along too well) and, to our great embarrassment, even a journalist. 'Maybe not all journalists are know-it-all and sensationalist,' Ms. Brohed says.

"Inspired by this example, a library in the Dutch city of Almelo plans to start its own human lending program next month. 'The customers can rent a veiled Muslim woman and finally ask her all the questions they would never dare to ask if they met her on the street,' says the director, Jan Krol. Of course, Mr. Krol must adopt his offerings to local tastes. So apart from the usual suspects -- a gay man, a Muslim and a gypsy -- there will also be a politician, a hard-drug user, a gay woman and a German (that World War II episode).

"Given the daily reports of widespread anti-Americanism in Europe, we are surprised that neither Mr. Krol nor Ms. Brohed has a Yank in stock. Should Americans ever become available in libraries in, say, Paris or Berlin, even Jacques Chirac and Gerhard Schröder could check them out."

Monday, August 22, 2005

Public service

Now that the California redistricting initiative (Proposition 77, which would take that authority from the politicians) is back on the Fall ballot, a momentous battle is underway. Dan Walters explains.

It's the Governator in his favorite posture, in an uphill fight, up against politicians from both political parties who are not gridlocked on this one, having joined hands to save their jobs. And they are supported by almost any lobby in sight. The left-leaning ones have been the most outraged, some expressing the fear that this will "hurt the working man."

When the re-election of California legislature incumbents hits 100% while the approval ratings of the same people hovers between 20% and 30%, disenfranchisement by high-tech redistricting is suspect.

For the next few weeks, there will be a great stretching sound heard from around the state as partisans invent story lines to protect their fiefdoms.

And they love to refer to it as "public service."