Saturday, April 29, 2006


High gasoline prices probably bring out the worst in politicians. Econbrowser evaluates some of the proposals now coming from the White House.

But what if Strategic Petroleum Reserve manipulation becomes the norm? Markets have been trained to react to Fed policy swings (real and expected). They will now be trained to react to SPR policy swings (real and expected) in approximately the same way.

The parallel is worth thinking about. FRB policy calls have only recently become respectable and there is clamor for transparency. Will SPR policy become as problematic? Is that the price we pay for having -- and manipulating -- an SPR?

Perhaps not. Oil will sooner be replaced as a source of fuel than will U.S. dollars as a medium of exchange.

But new policies do create new worries.

Friday, April 28, 2006

Jane Jacobs

Most people find fault with what politicians do. Yet, these critics divide into two camps. Most cherish the dream of a better class of politicians and better outcomes. Others believe that this is naïve and/or silly. They pin their hopes on less politics instead of better politics.

The same divisions apply to the fans of Jane Jacobs. All sorts of people claim her as an ally. Her advocacy of more open-ended spontaneity and less ham-fisted top-down planning has been embraced by most city planning academics who, at the same time, love to assert that “regional problems have regional solutions.” In other words, in this view, Jacobs pointed to the need for “reform” and top-down planning but of a better sort.

Others see her analysis as more proof that top-down planning, even by the most worthy souls, does not hold a candle to a limited ambit for top-down interventions.

Friday, April 21, 2006

Congestion pricing and happiness

I am in Lisbon, appreciating Fado and reading about happiness economics in the Journal of Economic Perspectives. A much wiser blogger would be able to comment on how Fado relates to happiness.

The two papers are "Developments in the Measurement of Subjective Well-Being" by Daniel Kahneman and Alan B. Krueger and "Some Uses of Happiness Data in Economics" by Rafael Di Tella and Robert MacCulloch (unable to link at the moment). Knowing very little about the field, the two papers offered me a splending survey.

Kahneman and Kruger cite a happiness rating by "mean net affect". At the top are"intimate relations," "socializing after work," "relaxing." At the bottom are: "evening commute," "working," and "morning commute."

And there are policy implications. "For example, interventions that reduce the amount of time spent commuting alone (such as congestion taxes and carpool subsdidies) could possibly have a beneficial effect on individuals' emotional states." (p. 21).

Friday, April 14, 2006

Separation of race and state

The 1987 German language film Wanssee Konferenz is reputedly based on the actual minutes of the meeting. The film is well done and, of course, chilling. In several of the scenes, the primitives gathered around the table grapple with racial definitions and get stuck when it comes to consistent classifications of mixed marriages -- and who precisely should be murdered first.

We also know that leaders of apartheid-South Africa felt compelled to come up with racial categories. And the famous "one-drop" rule from U.S. history ludicrously classifies millions of mixed-race Americans as "black". These labels are all politicized and often lethal.

Yet, these days, racial categories are the bread and butter of the U.S. political left -- which is unlikely to ever retain significant power unless old racial categories and grievances are stoked.

The good news is that eventually dumb ideas die. Too slowly, to be sure, but they do recede. Today's WSJ includes the following:

"We Are All Rainbows Now"

"For decades, TV journalist Geraldo Rivera has battled the old rumor that he changed his name from Jerry Rivers to qualify as a Hispanic and thus become eligible for some news outlet's minority-hiring program. As inaccurate as the story may be, it's easy to see why many people believed that someone holding an ethnic card might try to cash it in -- and how the tale fed cynicism about America's emerging system of racial and ethnic 'preferences.'

"A serious legal debate about affirmative action rages on today and will not end anytime soon. Yet once again, an absurd story is drawing attention to the essential difficulty of trying to engineer diversity or make up for past racial wrongs generations after they occurred. Actually, there are two stories, but they both raise the same question: What if everyone in the U.S. is now holding an ethnic chip, theoretically redeemable at some college or workplace or government program? If we all try to cash them in, will the preference edifice collapse?

"We're not there yet, but some signs are pointing in that direction. The first comes from Peter Kirsanow, a member of the U.S. Commission on Civil Rights. Writing about a commission hearing on the development of questions for the 2010 census in the April 12 National Review Online, Mr. Kirsanow noted that the 2000 census let respondents define themselves according to 126 racial/ethnic categories -- up from just five in 1978. Such information is more meaningless than ever, Mr. Kirsanow writes: 'The rapid proliferation of racial and ethnic classifications does little to dampen suspicions that the categories are, at a minimum, arbitrary -- and probably specious. Someone may have been Black of Hispanic origin in 1990, but today that person might be Cuban or 'some other race.''

"What criteria should we use to determine a person's race? Some Americans are trying to use DNA testing to win success or riches in the diversity sweepstakes. A New York Times article Wednesday opened with the story of adopted twins, born of white parents. Since DNA tests purport to show that the boys have a bit of Native American and African blood, their father hopes the newfound ethnicity will help them qualify for college financial aid. Is this the new 'one-drop rule'?

"Then there is the 98% 'European' woman who applied to college as an Asian after a DNA test found a 2% "Asian" strain. And with all that casino money out there, it's no wonder that some Indian tribes face people demanding a share of it based on only DNA 'evidence.'

"Evidence is in quotation marks because DNA testing for genealogy involves as much supposition as science at this point. Human beings have so many genes in common that assigning slight variations to countries of origin or specific ethnic groups is often just guesswork. Even so, it is not that difficult to imagine a flood of Americans trying to milk the preference cow this way. Now picture officialdom struggling to respond. In a world where everybody is a rainbow, where does the sorting begin?

"Come to think of it, though, this was always the ultimate goal of people of goodwill: no sorting by race, color or creed. It may just happen by ways and means we never expected."

Tuesday, April 11, 2006

C'est la vie

France is the world's #1 tourist destination country and Paris is the #1 tourist destination city. And most Paris visitors go to their Disney Park (!); the Louvre is second.

The center of Paris, the only part that most tourists ever see, is certainly splendid and most (not all) of the surroundings look pretty awful. Yet the Ville de Paris (the core) lost population -- from 2.9 million in 1921 to 2.1 million in 1999. Over the same period, Ile de France (the greater Paris area) grew from 5.9 million to 11 million. (Thanks, Wendell Cox.)

And what are Paris planners doing? They are converting boulevard traffic lanes to bus lanes. This is supposed to get people out of their cars and onto transit. Sound familiar? As usual, people are not cooperating. So the cars move more slowly and foul the air more. Claude Raines would be shocked(!).

Prof Remy Proud'homme and his colleagues have done the math and found a $1 billion annual net loss.

Central planning will always be hard work. Tourists will keep coming to the city (including it's Disney Park) and Parisians will keep moving to the suburbs.

Saturday, April 08, 2006

Teaching economics

Does teaching economics make a difference? Many of us fervently hope so. Today's International Herald Tribune (April 8-9), includes the following front page story:

"Economics, French-style...looking behind the rebellion on jobs law ... PARIS: Danielle Scache tries to avoid using the term 'capitalism' in her economics class because it has negative connotations in France. Instead, she teaches her high school students about the market economy, a slightly less controversial term she started using last year after a 2-month internship at the dairy giant Danone. That was an experience that did away with one of her own predjudices, she said. 'I was surprised to see that people actually enjoyed working in a company,' said Scache, who is 59. 'Some of them were more enthusiastic than many teachers I know.'... Scache, who has been teaching economics for 37 years, said her stint at Danone made her realize how little the official syllabus focuses on the market...."

The article is priceless in how it depicts economics instruction in France. Many of us hope that ours in the U.S. is more friendly to the idea of markets and spontaneous orders -- but you never know.

I have been teaching in Paris for two weeks now and must say that my students were bright, attentive and open -- and much more sophisticated than the curriculum described in the IHT piece.

Friday, April 07, 2006

A world of internalities

The Economist (April 8, 2006) includes "The new paternalism: The avuncular state," a nice summary of the views of "behavioural" economists and the policy implications that follow.

Referencing company pension plans, the article cites a study of "soft paternalism" whereby the default was changed from the employee not in the plan (and he has to join but with minimal effort) to the opposite (and he can withdraw with minimal effort). The punchline is that the enrollment rate jumped from 49% to 86%, indicating a benign application of policy.

Who can object? There is always the slippery slope argument. One can imagine all sorts of intrusions being sold under the guise of SP. For example, the article mentions "internalities", a reference to how our demons can dominate our better angels. Taxes and subsidies could help the good side win.

Acquiesce to that program and the slippery slope becomes the precipice that no one wants. Most of my students have been weaned on the idea of an external cost (and an associated fix) around every corner. Economists have now compounded the problem by adding a world of internalities.

Monday, April 03, 2006

It's not easy being rich

China's move to prosperity includes more suburbs and more chunky folks. Therefore suburbs make you fat.

According to the messages from the people at National Public Health Week, almost anything in our surroundings contributes to our being fat or unhealthy. Add the no trade-offs mentality to the no personal responsibility view and you get their menu of "solutions" to redesign the world.

Good, then, to see that the Transportation Research Board's Does the Built Environment Influence Physical Activity? Examining the Evidence leans in the agnostic direction.

Yes, our French brothers and sisters are thinner than so many shockingly fat Americans. So, by all means, let's not let our fellow citizens (oops, and non-citizens) off the hook by painting them as simply victims of their environment.


Time stops when you're in love or in revolution.

I have met any number of Parisians over a certain age who are neither. In fact many are embarrassed by the "manifestations" (great word) that emerge at train stations, monuments and highways -- at odd moments. The participants that I have seen seem to be rag-tag, young and prone to the romance of the barricades.

What is so sad is that they are willing to trade job security at their first job (!) for the prospect of growth and development. Sinecure over career prospects and challenges.

One Parisian, writing to the International Herald Tribune (April, 3, 2006) muses: "The unemployment among French young people is linked to global unemployment. If you reduce job security, you also reduce the faith people have in their future and, by the way, reduce their consumption. If there is a decrease in consumption, France will have to face a decrease in growth which will produce an even higher unemployment rate. If that is the aim of the French government, fine; but do not expect reasonably not-too-stupid students let France go to ruin."

The writer apparently eschews "Anglo-Saxon" economics. We may like our demand curves downward-sloping but that may simply be an acquired taste.