Sunday, July 31, 2005

Really scary numbers

The July employment report arrives on Friday and these things often move markets. They also move policy makers. Then there is all of the speculation of how markets guess policy makers will respond -- and vice-versa.

In all of the talk of Alan Greenspan's succession, one WSJ op-ed ended by posing the rhetorical question: when Greenspan leaves, would we rather have his computer or his frontal lobe? The writer preferred the latter.

Who processes which tea leaves and how do they do it? Rote reactions to low unemployment as signaling "overheating" have often been blamed for an overeagerness by the FOMC to "step on the brakes".

This week's Economist shows OECD data on long-term unemployment, the proportion of those unemployed for 12 months or longer as a percent of total unemployment in 2004. The U.S. is near the bottom (top) with a proportion that appears to be just over 10%; only Norway, Canada, Iceland and New Zealand have lower proportions. It is the other tail that is revealing. Japan, Ireland, Spain, France, Hungary, Belgium, Italy, Germany and Greece all had proportions over one-third.

Of all the things that should get policy makers' (and market participants') attention, this index should be high on the list.

Saturday, July 30, 2005

The cost of our politics

Both houses of Congress have now passed and agreed on an Energy Bill and a Transportation Bill. In both cases, mega-bucks go to large numbers of projects that could not pass a benefit-cost test nor could many of them pass any sensible federal role test. The motivations of the Congressional reps involved is self-aggrandizement and re-election. Business as usual in an atmosphere of stunning rational ignorance and/or superficial due diligence from voters.

Yet, we manage 3.4% quarterly GDP growth (probably to be revised upward), even while oil prices top $60/barrel, more than one costly war engages us (here and abroad), most urban public schools remain dysfunctional, unfunded liabilities are practically ignored in the face of the cold demographic facts of life, bizzare tort settlements abound, etc. One wonders, how rich would we be if our politics could generate just a few common sense policies?

We will never know but researchers have often benefited from cross-sectional studies of the 50 states. For example, the Fraser Institute's Economic Freedom of North America: 2005 Annual Report points to an answer. More economic freedom means greater prosperity -- and they tell us how much: "... a one-point improvement [on a scale of ten] in economic freedom on an all-government index increases per capita GDP by US$ 5,907 ..."

As near to a free lunch as we will ever get? Back in the real world, members of Congress are now flying home to bask in their accomplishments.

Wednesday, July 27, 2005

Close the public libraries?

Now that Amazon's quarterly earning's report came in better than expected, some of the worriers can relax. The WSJ's "Ahead of the Tape" Justin Lahart had shown concern yesterday that Amazon now faces the prospect of e-commerce competition from just about anyone. E-bay and copycats make that a possibility.

When Amazon came out of nowhere ten years ago to compete with established book retail giants Borders and B&N and others, a new business model had to be acknowledged. Yet, Lahart has a point. Amazon's well deserved customer loyalty will be up against the most intense price competition imaginable once the thousands (or more) who had always dreamed of running a bookstore set up a virtual one.

You may have noticed that most books on Amazon these days are damned cheap. Borders and B&N fight back with coffee bars and reading spaces.

Time to think about closing the public libraries?

Monday, July 25, 2005

Death of distance (not)

In a previous post, I noted that the top-75 U.S. cities' share of the total population peaked in 1940. This makes sense because people have been suburbanizing beyond (almost) fixed city boundaries for many years.

The Census Bureau also tracks population by urbanized areas which are not defined by political boundaries but which follow actual development -- "where the lights start when you fly in at night."

And the amazing Wendell Cox makes it easy for everyone to track and compare the top 33 UAs since 1950. Their share of the total population has grown over the last 50 years -- from 33% to 40%.

Urban economists rely on agglomeration economies, the all-purpose and all-manner of "glue" that binds all sorts of activities together. Interestingly, these effects have not gone away, even as communications costs have plummeted. Rather, they have become available over larger areas. The "death of distance" has been overrated.

Sunday, July 24, 2005


International ties via voluntary commercial contracts evoke a warm glow in some of us. What can get in the way? Many things: distance, trade barriers, currencies, items "falling of the truck," etc. The Economist cites recent research by Luigi Guiso and colleagues that documents another limit: cultural biases.

"The economists find that cultural biases do drive wide variations among trust among European countries ... and ... cultural driven trust does shape trade and investment."

Yet, even trade between former antagonists is up. So there may be hope that trust follows trade even though trade is impeded by mistrust.

Saturday, July 23, 2005

Realities and TV

Irshad Manji writes "Is Islam to blame?" and chastises "moderate Muslim leaders" who have been silent through the carnage. They were mostly silent when Israeli civilians were targeted and now have trouble finding their voice when others, including Muslims, are targeted.

London's "Red" Ken Livingston and others on the left have long equated Israeli air strikes with Arab suicide bombers. Tragically, civilians die in each case but it is not too subtle to add that they are specifically targeted in only one case.

Meanwhile "Sleeper Cell" is coming to a cable TV station near you. The terrorists are: "... a wealthy blond ex-student from UC Berkeley, a former skinhead from France, a Bosnian Muslim whose family was murdered -- and a practicing black Muslim secretly dedicated to thwarting their plans as an undercover agent for the FBI."

They say that TV audiences get the programming they deserve (or demand). Sleeper Cell will surely be an important test of this idea.

Friday, July 22, 2005


Interesting discussion re mercenaries for the U.S. military at Marginal Revolution. Alex Tabarrok asks if U.S. business can do well outsourcing, then why not the U.S. military?

Around the world, many young people would kill to get into the U.S., now they legally could. Offer full U.S. citizenship to anyone serving honorably for, say, five years or more. Gurkhas and many others would galdly take up the offer, perhaps even weighing it against the one they have from Great Britain.

There would be an end to putting reservists and others who have qualms about going to the front in harm's way. The MR post mentions that many now sent are the wrong ones for the job anyway. It is simply win-win all around.

Monday, July 18, 2005

Bowling Alone -- Not

The Economist features "Survey of America: Degrees of Separation" in the July 16 issue.

One of the topics taken up is the Bowling Alone thesis. As many had suspected, there is also good news and it has to do with the internet.

"... if you go to, you can type in where you live and what your interests are -- say Young Republicans, Chihuahua fanciers or Brazilian reggae -- and the site will tell you where and when Young Republicans, Chihuahua fanciers and Brazilian reggae enthusiasts are meeting up withing 15 miles of your home over the next two weeks. ... Since 2002, Meetup has been the forum for over 100,000 clubs with 2m members. This spring there were 2,400 Meetup meetings of the like-minded, of people with particular tastes in common ..."

The pessimists do not even have to get out more. It's all there on your browser.

Saturday, July 16, 2005

Local democracies

In 1963, Mel Webber published "Order and Diversity: Community without Propinquity." In this and related papers, he noted:

"The enlarged freedom to communicate outside one's place-community that the emerging technological and institutional changes promise, coupled with an ever-increasing mobility and ever-greater degrees of specialization, will certainly mean that urbanites will deal with each other over greater and greater distances. The spatial patterns of their interactions with others will undoubtedly be increasingly disparate, less and less tied to the space in which they reside or work, less and less marked by the unifocal patters that marked cities in an earlier day. ... I contend that we have been searching for the wrong grail, that the values associated with the desired urban structure do not reside in the spatial structure per se. One pattern of settlement is superior to another only as it better serves to accommodate ongoing social processes and to further the nonspatial ends of the political community ..."

This morning, I found this from Randy Cohen: "The congressman from $37,000 ... Why shouldn't our political districts reflect our incomes instead of our ZIP codes? ... Because it is our 1040s not our ZIP Codes that best express our political interests, congressional districts should be re-imagined to comprise not the people who happend to live within a few miles of one another, but whose earn within a few dollars of one another."

Granted we would be rid of re-districting controversies and granted Webber's prescient insights from over 40 years ago, Cohen's proposal scares me for its class warfare assumptions and implications.

Why not the other extreme? Just as modern data and computing can carve districts that provide safe havens for incumbents, we could also write code to draw geographically cogent and compact districts that maximize the income diversity of the voters.

Congressional (and perhaps local) politics would be more about finding common ground than manning the barricades. Representatives might have to spend more time in their districts and they might have to help to develop common visions rather than exploiting anatgonisms.

Friday, July 15, 2005

A harsh world

The morning after 9/11, I was at a meeting where no one really knew what to say. One learned man asserted that we will now embark on massive racial profiling, something that he suggested we were very good at. This turned out to be standard leftist silliness. Almost everyone has by now witnessed the TSA charade at U.S. airports. Old ladies in wheelchairs are searched, etc. Europeans as well as Americans are trading political correctness for security.

Charles Krauthammer explains that there is now a civil war within Islam that necessarily involves the rest of the world. Christianity's reformation and counter-reformation, coming about when the religion was approximately as old as Islam is now, were also long and bloody.

The recent Pew survey of Muslim attitudes is hardly comforting; the LA Times reports: "Poll Finds Less Support for Terrorism". Even then, the newer numbers on how many Muslims assent to the use of terror and suicide bombings denote much more than just a fringe -- 57% in Jordan, 39% in Lebanon, 25% in Pakistan, 15% in Indonesia, 14% Turkey, 13% Indonesia. That is a lot of people.

When large numbers of people cope badly with the modern world, there is, unfortunately, no simple way to bring them into modernity. The Bush people have a plan and there are many reasons to be skeptical of it. Yet, I have heard nothing from the other side -- except perhaps the admonition that we go easy on the profiling.

Wednesday, July 13, 2005

Political competition

Competition is a very good thing, in everyday markets as well as in political markets. The insights of public choice economics are clear once articulated and even more appealing once corroborated by serious research. This is why "Political Competition and Economic Performance" by Timothy Besley, Torsten Persson and Daniel Strum deserves attention.

EU planners and constitution drafters might take note. The free flow of goods, labor, capital and ideas is a wonderful thing. Top-down management is not.

On this side of the pond, Brookings scholars (and many others) are exploring the benefits of metropolitan government. People, moving to small cities in outer suburbs and exurbs, on the other hand, are doing what they can to get out of harm's way.

Tuesday, July 12, 2005

Who knew?

From Forbes (July 25, 2006): "Don't Invest After Sex ... Investors exposed to oxytocin, a hormone commonly released during childbirth, breast feeding, and sexual activity, start acting like dupes in financial matters, says a study just published in Nature. Swiss-led researchers let test subjects play a simple trading game with real money. Those administered a dose of the hormone were twice as likely to overcome any fears of betrayal and display 'maximal trust level.' meaning they were more prone to being hosed by an opponent ..."

I have not read the original article but expect that someone, somwhere, has the evolutionary psychology explanation.

Monday, July 11, 2005

Planning analysis

The segment of I-405 near my home is being worked on (at great cost) so that a diamond lane can be added. Why?

"Carpooling good!" is a pretty good representation of the tone and depth and extent of the underlying analysis.

Carpooling is also unpopular and down by 16%, between the 1990 and 2000 census. As origins and destinations become ever more dispersed, the 11.2% carpooling level of 2000 will fall even further -- no matter how many diamond lanes are built.

Any one can play the game. Here is my contribution: "pricing good."

But here is more: during the Monday-Thursday 6am-9am peak only 35% of the trips are worktrips without a nonwork trip attached. Add the worktrips that are "chained" to an errand and the total rises to 45%. That means that there are a lot of trips (at least 55%) that are candidates for being priced to the off-peak (2001 NHTS is the source).

The idea is old. The numbers that make it compelling continue to pile up.

Tuesday, July 05, 2005

New ideas not in old bottles

In 1970 (and practically in another galaxy), the grad students that I knew were grappling with Burmeister and Dobell's Mathematical Theories of Economic Growth. About the only thing that now rings a bell is Robert Solow's introduction. The founding member of the neo-classical economic growth school had kind words for his students' work, noted all the intellectual progress since his own, and ended by extrapolating and noting that the mind boggles when thinking about how far his students' students might go.

Neo-classical growth economics has been supplanted (thank God) by the New Institutional Economics which asks, bigger questions, looks to anthropology, cognitive science, geography, history, you name it -- and is a lot more fun.

Douglass North's just published Understanding the Process of Economic Change (thanks, Lanlan) is one of those books that I plan to re-read -- for the pure delight of its many fascinating insights and the thinking that they prompt.

Institutions matter, as does culture, and smart people have good ideas on how each evolve. The jargony "multi-disciplinary" now makes sense -- and sets the stage for lots more interesting work as we continue to grapple with differences in the performance and the wealth of nations.

Sunday, July 03, 2005

No trade-offs in Portland

I suppose that one must put up with public discourse that does not acknowledge trade-offs. How about forbearance for the discovery of big-time "solutions" that are perfectly obvious but that the rest of the world had not noticed? And all this from the authority of a NY Times columnist?

Nicholas Kristof writes about Portland: "A Livable Shade of Green ... Tackling global warming need not wreck the economy ... Newly released data show that Portland, America's environmental laboratory, has achieved stunning reductions in carbon emissions ... What's more, officials in Portland insist that the campaign to cut carbon emissions has entailed no significant price ... This was achieved partly by a major increase in public transit, including two light rail lines ..."

Mr. Kristof must dig beyond the assertions of these Portland officials. Portland's light rails are among the most lightly traveled on the planet. And they are not cheap. The literature on all this is quite public and volumnious (,,

Randal O'Toole likes to share the famous photo of a coyote relaxing on the seats of one of Portland's MAX trains (taken Feb 13, 2002). Confronted with the fact that there several photos of notoriously people-shy coyotes in and around these light rail cars, Portland officials dismiss this as having taken place before the trains were open for business. Well, no. The photos were taken five months after the trains opened for business.

Friday, July 01, 2005

Campaign promises

LA's new Mayor Antonio Villaraigosa is now in office and the LA Times reports that "Promises, Promises Could Cost LA Millions, Billions." These include extending each one of the area's rump rail system lines. The Red Line subway would be among these and the cost of that one alone is projected to be $2.7 billion.

This is the line that was to carry 3760,000 riders per day (1983 EIR) but actually serves about 25% of that. Construction costs went over $300 million/mile and the bus system had to be curtailed to make ends meet.

But who's counting? In a low-turnout election, a heavy union vote was essential and the faithful must be rewarded. That much makes sense.

What make no sense is support for this silliness from quarters that do not even have the excuse that they are on the take. Green groups fall into this category and now invoke the threat of global warming to make the case for projects like this.

Trouble is that low transit ridership, negligible impacts on auto use, high-energy heavy lifting during construction and (gasp) high levels of electric power use to run the underused trains do not add up to any atmospheric benefits.

There's a lower standard when other people's money is involved.