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."