Wednesday, June 29, 2005

Sea change?

Here is an interesting take on Kelo (from Instapundit): the decision is so bad that it will eventually have huge repercussions, including a "sea change" in laws and attitudes. Cited in the discussion are Dred Scott and the Bowers case re permissible private sex.

Each decision (it would be interesting to see how many others) is notorious for the effects if had on changing the world -- in directions contrary to the rulings. Something to think about.

Monday, June 27, 2005

Urban renewal

Richard Epstein's analysis of Kelo vs. City of New London (today's WSJ) is not to be missed -- and repeated below.

Jane Jacobs famously articulated the problems with top-down urban redevelopment in 1961. She, more or less, approximated a Hayekian analysis: no way could top-down planners have a clue on how to build attractive and functional neighborhoods. It is much too complex

Oddly, Jacobs was embraced by most city planners -- who drew all the wrong conclusions. Their view has been that the idea of top-down redevelopment is a fine one -- but it had simply fallen into the wrong hands ("greedy developers", etc.).

Fine a writer as she was, Jacobs did not deliver the knockout punch. It is no simple task to do away with large-scale coerced redistribution. The only thing that could stop that would be a court that begins with the presumption that the Constitutional guarantees of private property are fundamental. Like, for example, the 1st Ammendment guarentees of free speech.

We now know that the Justice Stevens and his colleagues presumed precisely the opposite. They did not get property rights and they did not get Jane Jacobs.

Here is Epstein:

"Supreme Folly"

By RICHARD A. EPSTEIN June 27, 2005

"Last week's regrettable 5-4 decision in Kelo v. City of New London marks a new low point in the Supreme Court's takings jurisprudence. The Constitution allows private property to be taken for public use only on payment of just compensation. But what counts as public use? In Kelo, Justice John Paul Stevens held that courts, especially federal courts, should be hugely deferential to a government decision, done after comprehensive hearings, to displace one private property owner in favor of a second private party in the name of overall economic development.

"To understand why Kelo is truly horrible, it is necessary to look both at Kelo and the constitutional logic of public use requirement. On the former, the declining economic fortunes of New London spurred the city elders to embark on a general urban development plan, underwritten by $73 million in state money devoted to general planning, physical infrastructure and environmental cleanup. The plan lacked only one ingredient -- some real live developer prepared to risk his own capital to build any office or hotel on part of the 90 or so acres the City already had.

"Not content with its overheated vision, New London's plan envisioned taking down about 15 old homes overlooking Long Island Sound, to be used for some unidentified form of "park support." Fancy new private homes were not listed on the plan. None of the endless frustration and delays in implementing its grand plan were attributable to the decision of some landowners to fight New London. Quite simply, the slow rate of development made obsolete some of the original projects, such as a luxury hotel to support a new nearby Pfizer facility. Pfizer could not wait 10 years to house its visiting dignitaries. One obvious compromise position, therefore, should have appealed even to the five member majority on the Supreme Court: to force the City to postpone the condemnation of these private homes until the City revealed its hand.

"No such luck with Justice Stevens, for in his view New London had made its case when it asserted, without evidence, that the new projects would both increase tax revenues and create new jobs. It hardly mattered that its projections had been pulled out of thin air and were already hopelessly out of date when the case reached the Supreme Court. All that need be shown to Justice Stevens was procedural regularity and some claim that the proposed project served some 'public benefit.'

Astute readers will quickly note that the phrase 'public benefit' is far broader than the constitutional words "public use." That last phrase clearly covers only two situations. The first arises when land is taken to build government facilities, such as forts, or to construct infrastructure, such as highways, open to all. The second covers those cases where property is taken by, or conveyed to, private parties who are duty bound to keep it open to all users. Private railroads and private grist mills, both of which are subject to the common carrier obligation of universal service, are two obvious examples. Note too that once a given use is properly identified as public, it does not matter for constitutional purposes whether the project is wise or is as foolish as New London's redevelopment program. The constitutional inquiry is over once it is proved that the project falls into these categories. Factually, the standard of review hardly matters, for it takes little genius to prove that a given structure is a fort or a highway.

"There are, however, good reasons why the public use language has long been extended to cover some cases of takings for private purposes with indirect public benefits. One recurrent problem of social coordination arises when one party is in a position to blockade the productive ventures of another. To take a real historical example, assume that the owner of a mine (who has no choice on where to dig) can only get his ore to market by ferrying it over scrub lands owned by another individual. That second landowner can demand a huge chunk of the mining profits for his trivial contribution to the overall venture. For over 100 years, the Supreme Court has allowed the state to condemn the obstructing property for the mine owner upon payment of just compensation, here measured by the trivial losses sustained by the obstructing landowner. The net gains from blocking the holdout are huge.

"The great intellectual blunder of the public use law over the past 50 or so years is that it has wrenched the public benefit language out of this narrow holdout context. In the mid-1950s, the Supreme Court held that takings were for public use when they were intended to relieve various forms of urban "blight" -- a slippery term with no clear constitutional pedigree. Thirty years later, the Court went a step further by allowing Hawaii to force landlords to sell their interests to sitting tenants, as a means to counteracting ostensible "oligopolistic" market conditions. Now any "conceivable" indirect social benefit would do, without regard to the attendant costs.
Given this past legacy, Justice Stevens found it easy to take New London at its word. Any comprehensive public project will produce some benefit for someone, so that -- as Justices O'Connor and Thomas stressed in dissent -- his test always allows the legislature to gin up some rationale for taking public property for just compensation (which alas falls far short of making the individual landowner whole: legal, appraisal and moving costs, for example, are systematically ignored). But the slightest bit of reflection should have shown just how the new public use cases have migrated from the old mining cases, or even under the Hawaii statute, which did not displace sitting tenants.

"In the present case, Susette Kelo and her fellow plaintiffs have not tried to extract some unconscionable gain out of some sensible business venture. They have no desire to sell their homes at all. At the same time their subjective losses have been enormous. It was a perfectly sensible line for the Court to say when subjective values are high, and holdout problems are nonexistent, the requisite public use is not present.

"The Court could only arrive at its shameful Kelo ruling by refusing to look closely at past precedent and constitutional logic. Courts that refuse to see no evil and hear no evil are blind to the endemic risk of factional politics at all levels of government. And being blind, this bare Supreme Court majority has sustained a scandalous and cruel act for no public purpose at all."

Sunday, June 26, 2005

Unruly world

Some rightly worry that a government that cannot fix potholes is unlikely to fix the world.

Others, such as Michael Ignatieff (in today's NY Times) write: "Who Are Americans To Think That Freedom Is Theirs To Spread? ... Around the world (and among some critics at home), America's long-held desire to export liberty and democracy is called hubristic, messianic, imperialistic and worse. But try imagining a world without it."

It's an unruly world and has always been so. Yet, unruly now poses a bigger threat than ever. Our responses (and those of our allies) are also unruly -- to say the least.

Read the whole Ignatieff piece. He reviews and arranges the arguments nicely.

Saturday, June 25, 2005

Junk mail

Everybody knows it but it can still hit you like a ton of bricks (just about literally). It's the volume of junk mail, especially what's accumulated after some days away. At home and at the office. Most, I guess, goes straight from the mailbox to the trash bin.

Private delivery services carry most of the important bulk mail and electronic mail takes care of just about everything else. That leaves the hugely subsidized U.S. Postal Service to deliver mostly junk mail. The U.S. Statistical Abstract's Table 1112 shows the lopsided relationships beteeen pieces handled and revenues. "Standard A" (formerly 3rd class) accounts for almost half of all the pieces handled but brings in only about a quarter of USPS revenues.

And USPS is the sort of politicized jobs program that will probably be around forever, no matter what.

Sellers looking for eyeballs also cash in on the subsidy to junk mail. I note that most solicitations now contain the bribe of a postage stamp inside so that we do not automatically toss them on arrival (on the chance that some might want to recycle this much of the junk).

Further, I can report that railing against wasteful government subsidies does not make them go away. Yet, William Baldwin, writing in Forbes (July 4) suggests that we can divert some of the stuff to electronic spam by offering to pay to receive it. "Someday, the experts who design e-mail software will figure out how to attach a user-chosen entrance fee to every e-mail inbox. If you don't like getting spam, you might set your fee at 40 cents rather than 4 cents. This could be the ultimate end of both the spam crisis and, once we get used to paid spam, printed junk mail. Save the trees!"

USPS would never really downsize it's work force but most postal workers would carry a lighter burden. Second-best, but way better than the status quo.

Wednesday, June 22, 2005

High culture and low politics

Now that a U.S. Senator has used the Nazi analogy to U.S. policy, intemperance in high places has crossed the Atlantic Ocean.

Here in Europe, the commentary that I can fathom is as shrill as Sen Durban's. Paul Johnson's piece in the WSJ made the point that the "no" vote on the EU constitution suggested an unfocused discontent. Few are drawing the lessons drawn in the U.S. that the "social market" is a disastrous construction. Rather, a not-so-vague anti-Americanism-anti-Semitism emerges.

My hotel manager in Paris kindly (but unsolicitedly) instructed me that "Bush is the worst dictator of the century". He did not make clear whether he meant 20th or 21st. I avoided the impulse to tell him that the competition for 20th century's was stiff and includes an almost all-Europe slate (consider Hitler, Stalin, Lenin, Franco, Petain, Mussolini, Milosovic, etc.).

What are you going to do when high levels of education and high culture do not pay off?

Friday, June 17, 2005

Froth, fizz and New York city.

Labor and capital in the U.S. have been moving from "frostbelt" places to "sunbelt" destinations for many years. Climate matters.

A recent paper by Gyourko-Glaeser (I still cannot link from my European hotel computer but the paper is easy to find) made the point that much of urban captal stock, including housing, is durable and takes many years to whither. Simply cover variable costs and this stuff (including many old U.S. cities) hangs on for many years. And variable costs can be covered by low-income and/or welfare populations. Old and run-down places will be around for years to come.

What about the exceptions to the rule? Ed Glaeser's recent NBER paper cites New York City and the productivity gains from high densities of human capital. Tom Wolfe famously asked whether the CEOs like Manhattan because the great chefs are there or whether it is vice-versa.

Densities, however, are a funny thing. They vary drastically as geographic definitions change. New York has the nation's highest city density while Los Angeles has the highest urbanized area density. Agglomeration economies surely matter for Silicon Valley but the place, according to some, straddles San Francisco Bay.

Apparently, it takes both insights -- the long life of the NYC building stock that houses immigrants and other low-income families and the propinquity of CEOs, chefs, sex-and-the-city types, etc. -- to explain the Frostbelt success stories. Besides, even the sunbelt-to-frostbelt migration cannot go to the point where it empties half the country. There will always be some outposts.

Also, Fred Siegel's writings re New York City politics point to much that is dysfunctional -- and a continuing challenge to the area's peculiar advantages.

When the housing "froth and fizz" dissipate, differential rates of slowdown will be worth studying.

Tuesday, June 14, 2005

Markets and pessimists

As there are usually two or more explanations for almost anything, it is interesting to look at how commentators divide on the surprisingly low long-term interest rates.

Some (pessimists and left-leaning commentators) see a signal of an economic downturn.

Others (optimists and others, including Greenspan himself) see price pressures from increased global competition.

As if on signal, these three events were reported in rapid succession over the weekend (sorry, links cannot be attached from this computer in Old Europe): i) Toyota announced plans for price increases and suggested that this will give GM an opening to raise prices; ii) the U.S. Justice Department made plain their suspicions of possible price fixing in the auto industry; iii) GM announced plans for lower new-car prices.

Stay tuned but in matters of markets, better to be optimistic.

Thursday, June 09, 2005

Poor people and rich people with dumb ideas

The sad state of much of Africa is once again in the forefront. Tony Blair, entertainers, editorialists and many others are posturing for the opportunity to be seen as on the side of the angels. "The boys and girls with guitars will finally get to turn the world on its axis", the NY Times quotes Sir Bob Geldof this morning.

In the same paper, David Brooks reports on his surprisingly positive findings ("Braced for despair and finding hope.") on a recent visit to South Africa.

Missing from the hoopla are the wise words of George Ayitttey ("Betrayal: Why Socialism Failed in Africa"; excerpted below but do go to the link and read the whole speech):

"Free at last! This euphoric cry rang across Africa in the 1960s as one country after another gained independence from Western colonial rule. New national flags were unfurled to the strains of new national anthems. Leaders who fought gallantly and won independence were hailed as heroes. The dream of self-rule, political freedom and economic progress was finally to become a reality. Africa was now free to develop in its own image: but into what? The challenge was daunting.

"The dream never came true. The astonishing natural wealth of the continent (gold, diamonds, palladium, titanium -- name the mineral and you will find it in Africa!) was never used to lift the people out of poverty. By any standard, the vast majority of African people are worse off today that they were 40 years ago. The only thing that changed was the skin color of the oppressor: from white to black.

"Africans feel betrayed, yet it's nothing we can talk about in America because it is not politically correct.

"What went wrong? First democracy and pluralism were denounced as both 'Western invention' and 'imperialist dogma'. In all but four countries, a one-party state rule was imposed, concentrating power in the hands of one individual. You don't have to be a rocket scientist to know that any political system with such concentration of power will degenerate into tyranny. The Soviet Union gave us a perfect example of it.

"Second, new African leaders rejected capitalism. They harbored a deep distrust and distaste for capitalism, falsely perceiving it as an extension of colonialism and imperialism. To them, freedom from colonial rule meant freedom from capitalism, free enterprise and foreign investment, which was viewed as 'foreign exploitation.' To them, Soviet-style socialism with the state determining the economic destiny of the people seemed the most adequate and fair way to protect their hard-won sovereignty and to move African toward economic prosperity ..."

Needless to say, government-to-government aid in this context did more harm than good.

On the plus side, Forbes includes "Trickle-up Economics ... How low-cost designs are helping the poorest farmers on Earth grow their way out of poverty ..." Not dams, but practical low-cost devices such as better bicycle racks and clever water transport devices and many others that large numbers of poor people can use to great advantage right now.

Entrepreneurialism and ingenuity do better than socialism. Explain that to the boys and girls with the guitars?

Wednesday, June 08, 2005

PUPs points to Arnold Kling, who points to Dan Klein, etc. In any case, it's a discussion worth having. James Buchanan mentioned the "romantic view of politics" some years ago. Kling's post is a wonderful summary of thinking and feeling in politics -- to get us thinking.

The bad news is that as people get richer, they are more likely to be rationally ignorant -- and more inclined to take up unexamined views, which are often the romantic tales and postures that Klein writes about.

We get the stock of Popular Unexamined Propositions (PUPs), many of them taught in our schools and universities. Fewer than ever believe that the Moon is made of blue cheese but most accept that the Great Depression forever indicted market economics and that the New Deal forever vindicated top-down economic planning for the democracies.

Kling's good news is that blogging and easy communications may be an antidote. The fight against blogging that totalitarians around the world are trying to pick provides the evidence.

Writing about an earlier conflict, Robert Massie noted that when WW I sailors spotted another ship on the horizon that was both faster and mounting longer-range guns, they knew that they were doomed.

Monday, June 06, 2005

Green Cities Declaration

The San Francisco Urban Environmental Accords Green Cities Declaration (June 5, thanks to Wendell Cox for the pointer) has to be read in its entirety (all 21 proposed Actions) to be fully appreciated. It assembles all of the feel-good proposals that the green-left has come up with (more "renewable" energy, city-wide greenhouse reduction plans, reduce the use of disposable, toxic or non-renewable products by 50% in seven years, zero-waste landfills by 2040, accessible public parks or recreational open spaces within one-half km of every resident by 2015, the same for "affordable" public transit, etc.).

Sorry, no trade-offs cited. One has to read all of it to appreciate it.

I know that politics is weird and that economic thinking competes badly in terms of feel-good nostrums.

And just last week, the NY Times (May 29) ran a front-page piece on "Goals Reached, Donor on Right Closes Up Shop", reporting that the John M. Olin Foundation had a "mission accomplished" moment.

Perhaps it's all Machiavellian: the SF Accords are actually a very clever ploy to keep the Olin (and other) money flowing. Of course.

Sunday, June 05, 2005

Policy analysis -- not

"Downtown? L.A. Doesn't Need One" writes Joel Kotkin in today's LA Times. He points out that times have changed and downtowns are, with very few exceptions, not significant or particularly useful.

This at a time when everyone in sight has signed on to another multi-billion dollar downtown renewal project that will have about the same effect as all of the other ones that we have been through since the 1950s. Insiders will cash in; taxpayers will be ripped off; politicians and their acolytes will preen -- and downtown L.A. will remain what it has been for the last 50 years: of very minor importance.

There is no perceptible learning curve on these matters and (textbook economics aside) there is no equity-efficient trade-off. Just less of both.

Saturday, June 04, 2005

"The worst economy since Herbert Hoover"

The Economist (June 4) weighs in on current interest rates.

"Can bond yields fall further? ... Think the unthinkable: America's long-term interest rates may be heading down, not up. ... Are rates low and curves flat because inflation has been broadly tamed? Is it because economic activity is expected to slump? Or has the link between growth and inflation been changed in some more or less permanent fashion, so that faster growth can take place with slower inflation than in the past?"

One can go on. Is the available capital growing faster than the available (perceived) investment opportunities? Will more money flow into housing? Will the "housing bubble" continue to expand? Will house price appreciation continue to fuel consumption and all the rest?

The flat-yield-curve-predicts-recession literature that we all grew up with did not include the housing appreciation-economic growth link.

Why are there economic fluctuations? My favorite undergrad textbook asks: "why not?" In this tumult, it's nice when things continue to go right. Last year's loosers cited, "[t]he worst economy since Herbert Hoover." Did the people who came up with this stuff sell their homes?

Thursday, June 02, 2005

Third way or third rail?

I have always been somewhat suspicious of the various "social pacts" that describe the way western Europeans were supposed to divvy-up the spoils. Labor union reps sit on coporate boards of directors and the chieftains of labor and capital are well represented in the various political establishments. Very clubby. Along the way, entitlements and high taxes add up to the sweet life that Americans should envy -- and emulate. Really?

The recent "no" votes on the proposed EU constitution suggest that it is not that simple. High unemployment rates and so-so growth performance, mass immigration, paranoia about the U.S. and more have added up to considerable and not-yet-focused disaffection.

David Brooks sums it up in this morning's NY Times.

"Fear and Rejection"

"Forgive me for making a blunt and obvious point, but events in Western Europe are slowly discrediting large swaths of American liberalism.

"Most of the policy ideas advocated by American liberals have already been enacted in Europe: generous welfare measures, ample labor protections, highly progressive tax rates, single-payer health care systems, zoning restrictions to limit big retailers, and cradle-to-grave middle-class subsidies supporting everything from child care to pension security. And yet far from thriving, continental Europe has endured a lost decade of relative decline.

"Western Europeans seem to be suffering a crisis of confidence. Election results, whether in North Rhine-Westphalia or across France and the Netherlands, reveal electorates who have lost faith in their leaders, who are anxious about declining quality of life, who feel extraordinarily vulnerable to foreign competition - from the Chinese, the Americans, the Turks, even the Polish plumbers.

"Anybody who has lived in Europe knows how delicious European life can be. But it is not the absolute standard of living that determines a people's morale, but the momentum. It is happier to live in a poor country that is moving forward - where expectations are high - than it is to live in an affluent country that is looking back.

"Right now, Europeans seem to look to the future with more fear than hope. As Anatole Kaletsky noted in The Times of London, in continental Europe "unemployment has been stuck between 8 and 11 percent since 1991 and growth has reached 3 percent only once in those 14 years."

"The Western European standard of living is about a third lower than the American standard of living, and it's sliding. European output per capita is less than that of 46 of the 50 American states and about on par with Arkansas. There is little prospect of robust growth returning any time soon.

"Once it was plausible to argue that the European quality of life made up for the economic underperformance, but those arguments look more and more strained, in part because demographic trends make even the current conditions unsustainable. Europe's population is aging and shrinking. By 2040, the European median age will be around 50. Nearly a third of the population will be over 65. Public spending on retirees will have to grow by a third, sending Europe into a vicious spiral of higher taxes and less growth.

"This is the context for the French "no" vote on the E.U. constitution. This is the psychology of stagnation that shaped voter perceptions. It wasn't mostly the constitution itself voters were rejecting. Polls reveal they were articulating a broader malaise. The highest "no" votes came from the most vulnerable, from workers and the industrial north. The "no" campaign united the fearful right, led by Jean-Marie Le Pen, with the fearful left, led by the Communists.

"Influenced by anxiety about the future, every faction across the political spectrum found something to feel menaced by. For the Socialist left, it was the threat of economic liberalization. For parts of the right, it was the threat of Turkey. For populists, it was the condescension of the Brussels elite. For others, it was the prospect of a centralized European superstate. Many of these fears were mutually exclusive. The only commonality was fear itself, the desire to hang on to what they have in the face of change and tumult all around.

"The core fact is that the European model is foundering under the fact that billions of people are willing to work harder than the Europeans are. Europeans clearly love their way of life, but don't know how to sustain it.

"Over the last few decades, American liberals have lauded the German model or the Swedish model or the European model. But these models are not flexible enough for the modern world. They encourage people to cling fiercely to entitlements their nation cannot afford. And far from breeding a confident, progressive outlook, they breed a reactionary fear of the future that comes in left- and right-wing varieties - a defensiveness, a tendency to lash out ferociously at anybody who proposes fundamental reform or at any group, like immigrants, that alters the fabric of life.

"This is the chief problem with the welfare state, which has nothing to do with the success or efficiency of any individual program. The liberal project of the postwar era has bred a stultifying conservatism, a fear of dynamic flexibility, a greater concern for guarding what exists than for creating what doesn't.

"That's a truth that applies just as much on this side of the pond."