Tuesday, January 31, 2006

Bearish for theory

The Greenspan farewells are interesting, most of all (in my view) Milton Friedman's, as in his WSJ op-ed today:

"Over the course of a long friendship, Alan Greenspan and I have generally found ourselves in accord on monetary theory and policy, with one major exception. I have long favored the use of strict rules to control the amount of money created. Alan says I am wrong and that discretion is preferable, indeed essential. Now that his 18-year stint as chairman of the Fed is finished, I must confess that his performance has persuaded me that he is right -- in his own case."

Computer algorithms cannot translate languages because they cannot capture context and nuance. Can algorithm's (programmed by whom?) guide money growth? The original Friedman view was that rules are better than the hash that previous FRBs served up. Faint praise for rules. But a really good governor can beat simple algorithms.

The WSJ front-page adds: "Greenspan's Legacy Rests on Results, Not Theories ... Fed Chief's Biggest Idea Was to Avoid Having One: Embracing Ambiguity".

Can this wisdom be bottled -- and served to the new Chairman? The whole story is bearish for economic theory.

Monday, January 30, 2006

Preferences over policies

The tireless Wendell Cox assembles more interesting urban data than anyone. His graphic on metro area population density trends, comparing London, Los Angeles, New York and Paris shows long run convergence -- to now. In other words, policy differences matter very little. Preferences are more similar than different -- and they trump policy differences.

The graphic also shows that big density differences were in place about 100 years ago. Yet, this is the contrast that most "experts" still believe in. They spend too much time in the old cores of the European capitals when they travel -- and not enough time studying Wendell's numbers.

Thursday, January 26, 2006

Urban problems

We know that getting the prices wrong can be disastrous and we also know that when pricing is by planners, instead of markets, they are very likely to get them wrong -- setting off all sorts of problems. This is of course ironic because most planners think of their work as greatly beneficial.

Putting some meat on all of this has been the steady work of Don Shoup who looks at parking in cities and shows how many urban problems can be traced to planners misallocating scarce urban space because they have arrogated allocation functions to themselves.

Don makes a huge point, one that has been overlooked by practically everyone writing about land use and transportation.

Dan Klein's review (in the Independent Review) of Shoup's book adds interesting context and some elaboration. When it comes to ham-fisted municipal management of curbside parking, Shoup suggests that parking benefit districts, created to replace the city's role, would lead to better pricing. Klein adds: "It seems [that] in-vehicle meters could easily be adapted such that the driver punches in a parking-merchant code, which is then displayed by the meter. This system could operate nationwide among anyone who wanted to participate. Call it the Acme system. For example, if you wanted to rent out space in your personal driveway as parking space, you simply put up a sign announcing rates and saying that the customer must have an Acme-system meter and punch in the merchant code (provided by the sign). You then monitor parked vehicles for compliance. A car without an in-vehicle meter, or with the wrong merchant code, or perhaps the wrong rate code displayed would be a trespasser, and could be booted or otherwise held to account. You then collect your payments from the Acme system, who like American Express, takes a cut. With such an Acme system, we will easily be able tio imagine a reform movement in favor of capturing the potential revenues of parking supply."

New technologies can easily expand property rights, exchange, wealth and welfare. And there would be less work for the hamfisted.

Tuesday, January 24, 2006

Size and growth do not (much) matter

My student Bumsoo Lee knows more about traffic in cities than anyone I know. I asked him to look at U.S. metro areas (pre-2003 definitions) with over 500,000 population in 2000. The largest was New York and the smallest was Fort Wayne. The ratio of their populations was 42.2:1; the ratio of their 2000 drive-alone commute times (based on census tract averages) was 1.3:1.

In the ten years leading up to 2000, the fastest growing was Las Vegas and the opposite (greatest decline) was Scranton, 83.3% vs. -2.1%. The ratio of their commute times was 1.1:1.

Do faster-growing and larger places have worse traffic? Not nearly as bad as the alarmists suggest. The alarmists tend also to be central planners who have no use for markets or road pricing.

Yet in the absence of pricing and without the levels of transit use that all right-thinking people prescribe, size and growth do not deliver doomsday traffic.

How will they get their plans right when their prognoses are wrong?

Monday, January 23, 2006


Market efficiency (and all of the associated benefits) hinge on the rule of law. Trouble is that the making of law is often politicized and that works against market efficiency. This is the catchiest of Catch-22s, one that has driven many smart people (including James Buchanan) to contemplate desirable Constitutional amendments.

Writing in the latest Regulation, Daniel A. Crane elaborates "The Perverse Effects of Predatory Law". His point is that the law should not get in the way of competition that actually lowers prices. In fact, legal rulings that challenge alleged predatory pricing usually preserve a high-price status quo.

Crane's summary makes perfect sense. Yet it is up against anti-competitive coalitions made up of all the usual suspects, including those who gave us "... advances in game theory and behavioral economics ..." (Crane, p.26).

Thursday, January 19, 2006

New science and old science

In this morning's WSJ Letters to the Editor, Andrew Morriss responds to a recent op-ed by James Heckman. The latter wrote a policy piece advocating early schooling for disadvantaged children. Morriss worries that the education establishment, notably the teachers' unions, will make a hash of this and invites readers to ponder the insights of public choice economics.

Take anyone's list of the top-100 economists or the top 100 economic policy papers, and it is a safe bet that most pay no attention to the public choice insight.

When new science devastates old models, what to do but ignore it? It has happened before.

Wednesday, January 18, 2006

War is hell

The op-ed version of the Bilmes-Stiglitz AEA paper on the costs of the Iraq war ("War's stunning price tag") has been running in various newspapers.

The authors report that a proper economic accounting puts the price tag at much higher than the adminstration has admitted. It is actually in the trillions of dollars and rightly includes the dollar valuation of death and injury.

We are on well-tread cost-benefit ground. First, good CBA is comprehensive and usually comes up with bigger cost figures than those doing the spending. Second, economists place an explicit dollar value on lives lost when many others cannot bring themselves to do so. Finally, economic analysis identifies boundaries between aspects that avail themselves of economic analysis vs. those that do not.

Economists and others can agree that lives lost -- here, there and everywhere -- matter. They can also agree that lives lost today vs. those that may be lost tomorrow matter (although discounting the future may enter).

And this brings us back to where the whole discussion began. What are the losses (among Iraqis and others) vs. the risks from doing nothing?

Many of my friends believe that if we only leave the bad guys alone, they will leave us alone. I believe that many of my friends are wrong to the point of naivete. Let's admit that we have some awful choices: war on our terms vs. war on their terms. And I agree that the conduct of the war on our terms is always an area for discussion.

When we look at big or small government and clean or corrupt government, we are tempted to conclude that there are four cases. A moment's reflection suggests that big but clean is likely to be an empty set. Do governments as we know them conduct wars efficiently? Probably never. This is why we have two bad options.

Monday, January 16, 2006


Air travelers are often perplexed when they pay almost as much (or even more!) for ground transportation (taxi, parking, car rental, etc.) at the two ends of the trip than for the air fare.

We all know that air travel is less regulated than the ground transport that services airports. Once again, it is not just another inefficiency but also a resource transfer to connected suppliers and their political co-conspirators. Rent-seeking and rent-extraction associated with ground transportation survived the deregulation of the 1970s and 1980s.

The latest Econ Journal Watch, includes "Do Economists Reach A Conclusion on Taxi Regulation?" by Adrian Moore and Ted Balaker. Most economists who have published on the matter favor deregulation.

Well, it's a start.

Sunday, January 15, 2006

If wages were a moral issue ...

It is probably inevitable that the near-ancient discussion of "just" prices, wages, rents, interest rates will continue to be a staple of small talk as well as the other. Never mind the fact that we now know that the wheels come off when we eschew market prices and legislate them instead.

Man-bites-dog is always newsworthy. So is Law-of-Demand-has-exceptions, elasticities-are-negligible, free-lunches-are-available, trade-offs-are-for-the-hidebound, etc.

Not only does this stuff open the gates to the politicization of wages but it also animates the preening of the "progressives". Today's New York Times Magazine feature "Is How Much You Pay a Worker a Moral Issue?" evokes both.

It is, in fact, a moral slam dunk -- once you buy into the fiction that it is a free lunch.

Evidence matters and econometricians debate the exact magnitude of wage elasticities.

But, speaking of evidence, does anyone deny large and growing off-the-books employment in the U.S.?

Saturday, January 14, 2006

Industrial policies

The U.S. economy has been growing nicely in spite of our very own industrial policy. Europeans and others like to scoff at our "cowboy capitalism" but they have no clue. Nearly half of U.S. GDP (including mandates) is subject to politics.

And politicization favors "the rich" and suggests anything but some progressive wonderland.

We have regressive plus inefficient -- rather than the equity-efficiency trade-offs that are still textbook staples.

Contra cowboy, there is widespread agreement that cities are too complex to be deprived of industrial policies. Joel Kotkin summarizes all of this in today's WSJ and is well worth quoting.

"The War Against Suburbia"
By JOEL KOTKINJanuary 14, 2006; Page A8

"Suburbia, the preferred way of life across the advanced capitalist world, is under an unprecedented attack -- one that seeks to replace single-family residences and shopping centers with an "anti-sprawl" model beloved of planners and environmental activists. The latest battleground is Los Angeles, which gave birth to the suburban metropolis. Many in the political, planning and media elites are itching to use the regulatory process to turn L.A. from a sprawling collection of low-rise communities into a dense, multistory metropolis on the order of New York or Chicago. Mayor Antonio Villaraigosa has outlined this vision, and it does not conform to the way that most Angelenos prefer to live: 'This old concept that all of us are going to live in a three-bedroom home, you know this 2,500 square feet, with a big frontyard and a big backyard -- well, that's an old concept.'

"This kind of imposed 'vision' is proliferating in major metropolitan regions around the world. From Australia to Great Britain (and points in between), there is a drive to use the public purse to expand often underused train systems, downtown condominiums, hotels, convention centers, sports stadia and 'star-chitect'-designed art museums, often at the expense of smaller business, single-family neighborhoods and local shopping areas. All this reflects a widespread prejudice endemic at planning departments in universities, within city bureaucracies, and in much of the media. Across a broad spectrum of planning schools and practitioners, suburbs and single-family neighborhoods are linked to everything from obesity, rampant consumerism, environmental degradation, the current energy crisis -- and even the predominance of conservative political tendencies.

"Acolytes of such worldviews in our City Halls are now working overtime to find ways to snuff out "sprawl" in favor of high-density living. Portland's 'urban growth boundary' and the 'smart growth' policies promoted by former Maryland Governor Parris Glendening, for example, epitomize the preference of planners to cram populations into ever denser, expensive housing by choking off new land to development. More recently, this notion even has spread to areas where single family homes and suburbs are de rigueur. Planners in Albuquerque have suggested banning backyards -- despised as wasteful and 'anti-social' by new urbanists and environmentalists, although it is near-impossible to find a family that doesn't want one. Even the mayor of Boise, Idaho, advocates tilting city development away from private homes, which now dominate the market, toward apartments.

"Perhaps the best-known case of anti-sprawl legislation has been the 'urban growth boundary,' adopted in the late '70s to restrict development to areas closer to established urban areas. To slow the spread of suburban, single-family-home growth, the Portland region adopted a "grow up, not out" planning regime, which stressed dense, multistory development. Mass transit was given priority over road construction, which was deemed to be sprawl-inducing.

"Experts differ on the impact of these regulations, but it certainly has not created the new urbanist nirvana widely promoted by Portland's boosters. Strict growth limits have driven population and job growth further out, in part by raising the price of land within the growth boundary, to communities across the Columbia River in Washington state and to distant places in Oregon. Suburbia has not been crushed, but simply pushed farther away. Portland's dispersing trend appears to have intensified since 2000: The city's population growth has slowed considerably, and 95% of regional population increase has taken place outside the city limits.

"This experience may soon be repeated elsewhere as planners and self-proclaimed visionaries run up against people's aspirations for a single-family home and low-to-moderate-density environment. Such desires may constitute, as late Robert Moses once noted, 'details too intimate' to merit the attention of the university-trained. Even around cities like Paris, London, Toronto and Tokyo -- all places with a strong tradition of central planning -- growth continues to follow the preference of citizens to look for lower-density communities. High energy prices and convenient transit have not stopped most of these cities from continuing to lose population to their ever-expanding suburban rings.

"But nowhere is this commitment to low-density living greater than in the U.S. Roughly 51% of Americans, according to recent polls, prefer to live in the suburbs, while only 13% opt for life in a dense urban place. A third would go for an even more low-density existence in the countryside. The preference for suburban-style living continues to be particularly strong among younger families. Market trends parallel these opinions. Despite widespread media exposure about a massive 'return to the city,' demographic data suggest that the tide continues to go out toward suburbia, which now accounts for two-thirds of the population in our large metropolitan areas. Since 2000, suburbs have accounted for 85% of all growth in these areas. And much of the growth credited to 'cities' has actually taken place in the totally suburb-like fringes of places like Phoenix, Orlando and Las Vegas.

"These facts do not seem to penetrate the consciousness of the great metropolitan newspapers anymore than the minds of their favored interlocutors in the planning profession and academia. Newspapers from Boston and San Francisco to Los Angeles are routinely filled with anecdotal accounts of former suburbanites streaking into hip lofts and high-rises in the central core. Typical was a risible story that ran in last Sunday's New York Times, titled 'Goodbye, Suburbia.' The piece tracked the hegira back to the city by sophisticated urbanites who left their McMansions to return to Tribeca (rhymes with 'Mecca'). Suburbia, one returnee sniffed, is 'just a giant echoing space.'

"Such reports confirm the cognoscente's notion that the cure for the single-family house lies in the requisite lifting of consciousness, not to mention a couple of spare million in the bank. Yet demographic data suggest the vast majority of all growth in greater New York comes not from migration from the suburbs, but from abroad. Among domestic migrants, far more leave for the 'giant echoing spaces' than come back to the city. As a whole, greater New York -- easily the most alluring traditional urban center -- is steadily becoming more, not less, suburban. Since 2000, notes analyst Wendell Cox, New York City has gained less than 95,000 people while the suburban rings have added over 270,000. Growth in 'deathlike' places like Suffolk County, in Long Island, Orange County, N.Y., and Morris County, N.J., has been well over three times faster than the city.

"So as he unfolds the details of his new urban 'vision,' Mr. Villaraigosa might do well to consider such sobering statistics. Californians, too, like single-family homes. According to a 2002 poll, 84% prefer them to apartments. Instead of dismissing the suburban single-family neighborhood as 'an old concept,' L.A.'s mayor might look to how to capitalize on the success of such sections of his city as the San Fernando Valley, where a large percentage of the housing stock is made up of owner-occupied houses and low-rise condominiums. The increasingly multi-ethnic valley already boasts both the city's largest base of homeowners, as well as its strongest economy, including roughly two-thirds of the employment in the critical entertainment industry.
It is time politicians recognized how their constituents actually want to live. If not, they will only hurt their communities, and force aspiring middle-class families to migrate ever further out to the periphery for the privacy, personal space and ownership that constitutes the basis of their common dreams."

Wednesday, January 11, 2006


Findings from the 2001 National Household Travel Survey (NHTS) have been pored over by some of us with as much interest as the JPL people have in photos from the Mars Rover.

The sponsoring Federal Highway Administration has just released a helpful summary, Our Nation's Travel: Current Issues.

Here are some tidbits worth thinking about (page nos. refer to hard-copy version):

From 1969-2001 (the years of the various surveys), U.S. population grew 41% and auto use 191%, but, "[t]here was a 43% decrease in carbon monoxide, a 59% decrease in volatile organic compounds (VOC), and a 5% increase in nitrous oxide (NOx)". p. 3.

"Since 1969, the number of households without vehicles has declined (to about 8% of all households), while the majority of households now have two or three vehicles. In 2001 the number of household-based vehicles, 202 million exceeded the number of drivers by 12 million. In fact, in 22.7 million or 21.2% of all households, there are more vehilces that drivers." p. 6.

"Travel time for a 10-mile trip does increase as area size increases, but a larger dterminant seems to be the density of population." The accompanying graphic shows that the longest trip durations are in the largest, densest metros with rail. p. 15.

"The NHTS asked respondents how much of a problem congestion was in their life. Almost half (49.3%) of the survey respondents reported that congestion was not a problem or a little problem. ... For those living in the largest metro areas (three million or more population) only 37.2 percent said congestion was not a problem or a little problem ..." (p. 16).

Tuesday, January 10, 2006

Good news

Some of my friends interested in road pricing remain perennial optimists. Perhaps they have a point.

The Economist (Jan 7) reports on "Jambusters ... New technology could improve London's congestion charge ... Despite the doubts, and despite complaints from shop owners, London's congestion charge -- introduced in February 2003 -- has managed to ease the gridllock in the city centre. Traffic is down by 18%, jams by 30%. ..."

The story also reports that fine-tuning is coming via time-sensitive variable-charging approaches. This means that the numbers will get even better.

Yes, it took road pricing to relieve traffic -- in a city that has some of the best public transportation in the world.

And yes, Richard Nixon normalized relations with mainland ("Red") China and "Red Ken" Livingston introduced road pricing to London.

Sunday, January 08, 2006

Brain cramps and speed bumps

I am being repetitive but this stuff has to be hit (and hit hard) whenever it appears in print. In today's NY Times, Ann Hulbert ("Speed Bump") writes about traffic congestion and gets almost everything wrong.

She frets over the prospect of peak-load pricing in the DC area -- in place of "farsighted congestion control strategies like improving public transportation or regulating land use and development." It would have been nice to include as little as an iota of evidence that the "farsighted" stuff ever worked. Or try to address all the evidence that it has only made matters worse.

She goes on to raise the specter of $30 tolls ... while the "hoi polloi" suffer ever worse traffic. She cites the California experiments with tolled lanes but does not mention that the tolls were nearer $5 than $30, nor that many of the non-rich paid the $5 when it was worth it to them, nor the fact that general-purpose lanes move faster when some of the demand is serviced by tolled lanes.

Elite opinion is disdainful of flat-earthers and and creationists but is nothing but ignorant when it comes to the economics of public policy.

Saturday, January 07, 2006


Compared to many places on Earth, corruption in the U.S. is tame. This does not absolve the thieves on K-Street or in Congress or in a thousand other places.

But perhaps the worst corruption involves liberal politicians and schools; their obeisance to the education establishment (lobby) condemns the poorest to the worst schools. The costs (human, fiscal, economic, you name it) are staggering.

In today's NY Times, John Tierney (requires TimeSelect) writes:

"Democrats once went to court to desegregate schools. But in Florida they've been fighting to kick black students out of integrated schools, and they've succeeded, thanks to the Democratic majority on the State Supreme Court.

"The court's decision on Thursday was a legally incoherent but politically creative solution to a delicate problem. Ever since Florida's pioneering statewide voucher program began, Democrats have been struggling to deal with the program's success."

The complete article is worth reading. Those who are the most shrill (and sanctimonious) when advocating "social justice", "the children", "people of color", "equity", etc. work the hardest against their causes (slogans, actually).

They do anything they can to protect a favored constituency. That's corruption.

Friday, January 06, 2006

A grand bargain

Against all evidence, many still believe that it is possible to have big government that is also good government. They do not accept a trade-off between the two. This is why it is called the romantic view of government.

The many trillions of dollars now available to politicians creates insurmountable temptation and inevitable problems of pork, graft and corruption.

Tom Sowell suggests that the combination of very high salaries ("I don't make a million dollars a year but I think every member of Congress should be paid at least as much. It's not because those turkeys in Washington deserve it. It's because we deserve a lot better people than we have in Congress.") to politicians along with term limits that work (one term in any political office per lifetime, period).

We are unlikely to shrink government but politcians just might vote themselves a pay raise. In other words, we agree to accept the idea that they vote themselves a million-dollar salary and in return, they enact tough term limits that apply to them and to all of their successors.

For taxpayers, this would be money well spent.

Wednesday, January 04, 2006

What matters

The latest NBER Digest includes commentary on The Happiness of Nations research. David Blanchflower and Andrew Oswald find the following:

"1. For a person, money does buy a reasonable amount of happiness. But it is useful to keep this in perspective. Very loosely, for the typical individual, a doubling of salary makes a lot less difference than life events like marriage.

"2. Nations as a whole, at least in the West, do not seem to get happier as they get richer.

"3. Happiness is U-shaped in age -- that is, it falls off for a while, then stabilizes and rises later in life. Women report higher well-being than men. Two of the biggest negatives in life are unemployment and divorce. More educated people report higher levels of happiness, even after taking account of income.

"4. At least in industrial countries such as France, Britain, and Australia, the structure of the happiness equation looks the same.

"5. There is adaptation. Good and bad life events wear off -- at least partially -- as people get used to them.

"6. Comparisons matter a great deal. Reported well-being depends on a person's wage relative to an average of 'comparison' wage. Wage inequality depresses reported happiness in a region or nation. But the effects is not large."

It is nice to have one's priors corroborated. So why is this report not satisfying? Because it is big-think research that seems to miss the bigger picture.

In my view, the bigger picture was nicely portrayed in the NY Times Magazine piece of January 1, "The Case for Contamination: No to purity. No to cultural protectionism. Toward a neo-cosmopolitanism" by Kwame Anthony Appiah.

A world in which more people are free to make more choices -- even ones that dilute some heritage -- is what matters the most.

While I cannot connect these actions to responses that the individuals involved might give to a happiness survey, I suspect that they are happy (there's the word) to be able to choose.

The Friedmans did title their book Free to Choose.

Sunday, January 01, 2006

2006 and beyond

The Skeptical Optmist cites a beguiling Paul Romer quote.

"If we can make the choices that increase the rate of growth of real income per person to 2.3 percent per year, in fifty years we can get extra income per person equal to what in 1984 it taken us all of human history to achieve. "

The related big story of the year (easily corroborated by hopscotching around economists' blogs) is productivity growth. Add Pete Boettke's discussion of the robustness of markets and we can meet Romer's fifty-year mark -- or better.

The jokers in the deck are the possibility of bizarre events abroad (or from abroad) and/or bizarre policy choices at home. In fact, these may not be independent events.

The good news, however, remain under the radar. Consider the really big news stories of 2005 as compiled by the BBC.