Wednesday, January 31, 2007

Something useful

The economy is doing well. Housing-doomsday was wrong. Economists make crummy forecasts. In fact, if they made better forecasts, more of them would be rich.

There are many reasons to be analytical in discussions of the future. Survival requires no less. But this is different from quarterly forecasts of macroeconomic aggregates. We simply do not have the equipment to get this right. Our best models are hopelessly inappropriate in light of the complexity of the real thing.

What the best economists get right is to achieve a better understanding of history. (No small thing.) And that may help us to be better prepared for what the future may bring.

A wonderful example is Deepak Lal's Reviving the Invisible Hand. Once we train (and reward) young scholars to decode (and learn) history -- instead of making silly macroeconomic forecasts -- we will have done something useful.

Sunday, January 28, 2007

Why is Europe different?

We passed through the Golan Heights yesterday and travelers can enter one of many remaining (Russian built) Syrian bunkers and peer at the Kibbutzim that the Syrians fired on daily for almost 20 years. What is so stunning about it all is the nearness of the downhill targets. Literally a stone's throw. Yet the targets somehow and defiantly went on with their lives.

Middle East politics revereberate everywhere, especially in Europe. Some people wonder why so many Europeans do not take Islamic terrorism seriously. George Weigel (The Cube and the Cathedral) wonders why it was impossible to get allusions to Europe's Christian past into their draft constitution. So what makes Europe different?

Robert Kagan (Of Paradise and Power: America and Europe on the New World Order) believes that most of the continent was traumatized by the bloodshed of the 20th century. Weigel believes that all the 20th century disasters (1914-1989) themselves go back to earlier departures from Christianity, in the direction of modern secularism.

But Christian Delacampagne, writing in the January 2007 Commentary alludes to plain old fashioned vote-counting by French politicians. With ever more Muslim voters, the politicians react.

Wednesday, January 24, 2007

Speaking truth to power

I love the usage, "speaking truth to power." It may be a leftover from the '60's.

Trouble is that the ears have walls. Power may not want to listen This episode reported in the WSJ is too good to miss:

Will Al Gore Melt?

January 18, 2007; Page A16

Al Gore is traveling around the world telling us how we must fundamentally change our civilization due to the threat of global warming. Today he is in Denmark to disseminate this message. But if we are to embark on the costliest political project ever, maybe we should make sure it rests on solid ground. It should be based on the best facts, not just the convenient ones. This was the background for the biggest Danish newspaper, Jyllands-Posten, to set up an investigative interview with Mr. Gore. And for this, the paper thought it would be obvious to team up with Bjorn Lomborg, author of "The Skeptical Environmentalist," who has provided one of the clearest counterpoints to Mr. Gore's tune.

The interview had been scheduled for months. Mr. Gore's agent yesterday thought Gore-meets-Lomborg would be great. Yet an hour later, he came back to tell us that Bjorn Lomborg should be excluded from the interview because he's been very critical of Mr. Gore's message about global warming and has questioned Mr. Gore's evenhandedness. According to the agent, Mr. Gore only wanted to have questions about his book and documentary, and only asked by a reporter. These conditions were immediately accepted by Jyllands-Posten. Yet an hour later we received an email from the agent saying that the interview was now cancelled. What happened?

One can only speculate. But if we are to follow Mr. Gore's suggestions of radically changing our way of life, the costs are not trivial. If we slowly change our greenhouse gas emissions over the coming century, the U.N. actually estimates that we will live in a warmer but immensely richer world. However, the U.N. Climate Panel suggests that if we follow Al Gore's path down toward an environmentally obsessed society, it will have big consequences for the world, not least its poor. In the year 2100, Mr. Gore will have left the average person 30% poorer, and thus less able to handle many of the problems we will face, climate change or no climate change.
Clearly we need to ask hard questions. Is Mr. Gore's world a worthwhile sacrifice? But it seems that critical questions are out of the question. It would have been great to ask him why he only talks about a sea-level rise of 20 feet. In his movie he shows scary sequences of 20-feet flooding Florida, San Francisco, New York, Holland, Calcutta, Beijing and Shanghai. But were realistic levels not dramatic enough? The U.N. climate panel expects only a foot of sea-level rise over this century. Moreover, sea levels actually climbed that much over the past 150 years. Does Mr. Gore find it balanced to exaggerate the best scientific knowledge available by a factor of 20?

Mr. Gore says that global warming will increase malaria and highlights Nairobi as his key case. According to him, Nairobi was founded right where it was too cold for malaria to occur. However, with global warming advancing, he tells us that malaria is now appearing in the city. Yet this is quite contrary to the World Health Organization's finding. Today Nairobi is considered free of malaria, but in the 1920s and '30s, when temperatures were lower than today, malaria epidemics occurred regularly. Mr. Gore's is a convenient story, but isn't it against the facts?

He considers Antarctica the canary in the mine, but again doesn't tell the full story. He presents pictures from the 2% of Antarctica that is dramatically warming and ignores the 98% that has largely cooled over the past 35 years. The U.N. panel estimates that Antarctica will actually increase its snow mass this century. Similarly, Mr. Gore points to shrinking sea ice in the Northern Hemisphere, but don't mention that sea ice in the Southern Hemisphere is increasing. Shouldn't we hear those facts? Mr. Gore talks about how the higher temperatures of global warming kill people. He specifically mentions how the European heat wave of 2003 killed 35,000. But he entirely leaves out how global warming also means less cold and saves lives. Moreover, the avoided cold deaths far outweigh the number of heat deaths. For the U.K. it is estimated that 2,000 more will die from global warming. But at the same time 20,000 fewer will die of cold. Why does Mr. Gore tell only one side of the story?

Al Gore is on a mission. If he has his way, we could end up choosing a future, based on dubious claims, that could cost us, according to a U.N. estimate, $553 trillion over this century. Getting answers to hard questions is not an unreasonable expectation before we take his project seriously. It is crucial that we make the right decisions posed by the challenge of global warming. These are best achieved through open debate, and we invite him to take the time to answer our questions: We are ready to interview you any time, Mr. Gore -- and anywhere.

Monday, January 22, 2007

Dysfunctional in LA

Heather MacDonald wrote the following in yesterday's LA Times:

THE LOS ANGELES City Council recently paid $593,000 for a report on how to end the city's rising gang violence. The taxpayers didn't get their money's worth. The much-ballyhooed study, directed by civil rights attorney Connie Rice, makes a whopping 100 recommendations yet can't bring itself to mention the most important driver of gang involvement — family breakdown.

"A Call to Action: A Case for a Comprehensive Solution to L.A.'s Gang Violence Epidemic" recycles all the failed nostrums from the war on poverty, such as government-created jobs, "life-skills training," "parenting education and support" and "crisis intervention." Since the 1960s, trillions of dollars have been spent on such programs without so much as making a dent in the underclass culture that gives rise to gangs. And these initiatives will never make a significant difference in that culture as long as the vast majority of young males in inner-city neighborhoods are raised without their fathers.

To be sure, plenty of heroic single mothers are bringing up law-abiding young men. But the evidence by now is overwhelming: Boys raised in fatherless homes, on average, are disproportionately likely to get involved in crime and fail in school. Without a strong paternal role model, these boys are vulnerable to the lure of macho gang culture as a surrogate for a father's authority. When the norm of marriage disappears from a community, furthermore, the pressure for young males to become socialized evaporates as well. Boys in South Los Angeles and other gang-plagued neighborhoods grow up with little expectation that they will have to woo and marry the mother of their children. The standard assumption is that girls and women will raise their children by themselves, resulting in an out-of-wedlock birthrate of greater than 70%. Freed from the necessity of marriage, boys have little incentive to develop the bourgeois habits of selfdiscipline and deferred gratification that would make them an attractive prospect as a husband.

Compared to this overwhelming reality, Rice's jargon-ridden recommendations border on irrelevancy. For instance, Proposal 4.21, addressed to no one in particular, holds: "Acquire expert assistance to provide culturally competent, linguistically fluent, developmentally appropriate services that improve program performance, facilitate communication and improve access to services for immigrant and/or isolated and alienated communities."

Big city government in America is mostly dysfunctional. So are serious people who pen such gibberish. Leaving the big cities is the only logical response -- and people continue to do just that. People who can, vote with their feet. All the rest are stuck and at the mercy of their advocates.

Sunday, January 21, 2007

History and war

Off to the Middle East and greatly enjoying Bernard Lewis' The Middle East, A Brief History of the Last 2000 Years. Also watched the Battle of Algiers last night and looked at Niall Ferguson's "A War to Start All Wars" (will start the book too).

Do politicians listen to intellectuals? Mostly not and mostly that's a good thing. I believe that Lewis and Ferguson once favored the Iraq invasion. In any case, they are refreshingly wise about all things.

More later.

Tuesday, January 16, 2007

A terrible thing to waste

Charles Murray's WSJ op-ed (Jan 16) begins this way:

Education is becoming the preferred method for diagnosing and attacking a wide range problems in American life. The No Child Left Behind Act is one prominent example. Another is the recent volley of articles that blame rising income inequality on the increasing economic premium for advanced education. Crime, drugs, extramarital births, unemployment -- you name the problem, and I will show you a stack of claims that education is to blame, or at least implicated.

One word is missing from these discussions: intelligence. Hardly anyone will admit it, but education's role in causing or solving any problem cannot be evaluated without considering the underlying intellectual ability of the people being educated. Today and over the next two days, I will put the case for three simple truths about the mediating role of intelligence that should bear on the way we think about education and the nation's future.

Like all nature-nurture questions, this one is complex. But speak English to Europeans and speak any foreign language to Americans and the power of better education is quickly apparent. And language facility opens many doors -- on the job, reading, traveling, thinking, etc.

I agree that there is no substitute for intelligence but what a waste to not adorn it.

Sunday, January 14, 2007

Invisibile on the trend line

Wendell Cox posts all sorts of very cool stuff at His latest are compilations from the National Transit Database.

We hear so often that approximately 4.5% of Americans commute via transit. But what about all other travel? Transit's share of total vehicle-miles? It was 1.51% in 2005; it was last above 10% in 1955. It was 5.19% in the mid 1960s when the federal coffers became available to the industry. Several hundred billion dollars of subsidies spent since then are invisible on 100-year transit use trend line.

And these data include New York city which accounted for 41% of national transit use.

Matt Kahn (now of UCLA) and I will be blogging about these matters at WSJ Econblog later this week.

Wednesday, January 10, 2007

Dodging bullets

Steve Jobs (and many others) regularly point us to the future and the next gotta-have items. We all know that these are all the proverbial two-edged swords but resistance is futile. There is usually some predictable grousing but gotta-have is gotta-have.

We have all experienced the temporary panic of power outages -- not so temporary when traveling. But most of the time life does go on.

Last week many millions of people in Asia temporarily lost their email. The WSJ's Mary Kissel (below) takes us through that episode.

We can only say that, "there but for the grace of God ..."

The Great Asian E-Mail Outage

January 5, 2007

HONG KONG -- I have long harbored a secret resentment of electronic mail. I spend hours upon hours, day and night, shooting off notes with little delicacy. "TXS" now suffices for "thank you" and "got your msg, am fine" is all my family gets when they kindly inquire as to my well-being. Among other things, I credit email with my deteriorating eyesight, now-lackluster letter writing (once a fond hobby), and rapidly degenerating prose.

And then, one day, it was gone.

The Great Asian Email Outage caught almost everyone by surprise. Who knew that the notes we zipped off went by sea cables swimming with the fishes? A 6.7-magnitude earthquake off the southern coast of Taiwan on Dec. 27 thankfully did not inflict as much human damage as recent natural disasters -- two people died and more than 40 were injured in Taiwan. But the electronic -- and mental -- destruction was enormous.

In a split second, great swathes of the region's Internet and telecommunications services went black. The snapped cables -- six in all, plus others that were partially mangled -- were located on a key chokepoint for telecommunications traffic, linking North and South Asia with the United States. The damage in this region stretched from Indonesia to South Korea. Lucky users had on-again, off-again service. But most of us just sat, frustrated, fuming at the screen at work or at home, with no connectivity at all.

The timing was, in a sense, lucky. Much of the world was on vacation. Imagine what would have happened if the temblor had hit on Jan. 2, when many people were back at work. Asia boasts 387.6 million Internet users, fully 35.5% of the world's total, according to Internet World Stats. That's well ahead of Europe, at 28.6%, and North America, at 21.3%. Internet connectivity is lower in Asia as a percentage of the population but the number is growing by leaps and bounds as places like India link up.

Still, despite the lucky timing -- if one can call it that -- workers of all shapes and sizes lost their cool over the past week. Banks couldn't trade stocks and bonds. U.S. and European retailers couldn't communicate with their Asian suppliers. Shipping companies reported problems reaching their customers. An education consultant told me she was resorting to mobile phone text messaging to communicate with her clients, many of whom were scrambling to hit January business school application deadlines. Others resorted to ancient technologies such as fax machines to get their jobs done.

At work, the horror sank in quickly for me. Our production system worked only intermittently. The information technology whizzes, normally quick to solve any problem, simply shrugged their shoulders. "Not us," they answered my entreaties, with a sigh. "Taiwan!"
Now, Taiwan is blamed for lots of things in Asia. China can't stand it because it's a functioning democracy with a separate cultural identity. Neighboring countries fear it will one day spark a war with Beijing. I normally feel great sympathy for Taiwan, which struggles to get respect or even recognition in all sorts of supposedly broad-minded groups, such as the World Health Organization and the United Nations. But suddenly, I, too, felt a deep resentment of the place. How could Taiwan have allowed all the cables to run through one narrow stretch of sea?

The telecom companies respond that the Great Email Outage was a once-in-a-lifetime event, and the current setup suffices. The probability that this will happen again isn't worth the money to protect against.

While this past week has been stressful, it's also been instructive. I've learned to love what I hate: namely, those short, zippy e-mails that I had come to detest. Whether I like it or not, email facilitates the vast bulk of the work and transactions I gobble up during the day. The Internet provides the news, weather and entertainment. And the more one has, the more one wants. That's why socialism is a dead theory (except in some tenacious European circles). But I digress.

It's never comfortable to realize how dependent one is on a machine, be it a computer, a car, or something else. But if the Great Asian Email Outage taught me one thing, it's that email is a new necessity, period. And if you don't believe me, try a week without it.

Monday, January 08, 2007

Happy to see each other

Yesterday's NY Times Magazine included Dubner and Levitt on "The Gift-Card Economy", citing the well-blogged Waldfogel result on dead-weight losses from gifting. Also included was "Unconsumption: Can getting rid of stuff feel as good as getting it?" by Rob Walker (could not link this AM; their server is down).

Who would have thought that affluence could be so difficult? We have the means to acquire stuff at a faster pace than we can find to manage or enjoy it. We also have trouble buying or renting enough space. Real estate is the binding constraint.

The Walker piece alludes to recycling our many discards via Freecycle, "a Web-enabled network of about 3,900 such e-mail groups ... Save-the-earth types make up only a fraction of Freecycle users. Like any successful market place, this one works because it links people with widely disparate motivations. Some participants want to declutter. Some see it as akin to a charity. Some just don't want to lug items to the dump. And of course, many people are looking for free stuff ..."

Economists celebrate markets and transactions where buyers and sellers are happy to see each other at the market-clearing price. The Web pushes transactions costs down to a point where the folks that Walker described are also happy to see each other -- but this time at an acceptable transactions cost.

Friday, January 05, 2007

Autos and highways

Will Rogers (may have) said that there would be fewer traffic problems if the government built the cars and the roads were private.

But Ken Orski ( suggests that the world is changing: "Toll concessions, private financing and public-private partnerships continue to dominate the news ... evidence that road pricing and private sector involvement in highway financing have indeed reached (and gone beyond) the tipping point."

And on the flip side, auto regs keep mounting and climate change is shaping up to be latest cudgel.

On related matters, how the game is played at Volkswagen is discussed in this morning's WSJ. It's a delicious story of work habits and work rules in Europe as well as the power of international competition for jobs and capital.

VW's 28-Hour WorkweekGoes Kaputt in Wolfsburg

WOLFSBURG, Germany -- Time moves slowly in the town Hitler built to churn out his "people's car."

The giant Volkswagen AG factory here still bears the shrapnel scars from World War II bombs and still makes small cars -- but now it takes the company twice as many hours as its competitors to build them, roughly 50 hours for one compact.

At the same time, Volkswagen workers like Ronald Wachendorf, a 50-year-old mechanic, have enjoyed the shortest work week in the global auto industry: 28.8 hours, pulling down a full week's pay while working a day less than the 40-hour norm at General Motors Corp. and even less than the 35-hour standard at other German car makers.
VW's Wolfsburg employees will work more hours.

The extra time off from work has given Mr. Wachendorf ample time for simple pleasures: taking his 10-year-old daughter to soccer practice, playing chess with her after school, reading books about his diverse interests: philosophy, Henry Ford and the development of the German railroad.

But now, Mr. Wachendorf is having to adjust to a more hectic schedule -- at least by Volkswagen standards. In September, Mr. Wachendorf's union agreed to extend working hours at the company's German plants by more than four hours a week, to 33 hours, after the auto maker threatened to shift production outside the country. Volkswagen won't pay the workers extra to compensate for their longer schedule. On an hourly basis, the workers' wages will fall more than 14%.

"We all knew something like this would come," says Mr. Wachendorf. "The general mood among my colleagues is not good."

The change under way at Volkswagen reflects a broader trend in Europe's largest economy. With unemployment running around 10%, companies have more leverage to demand sacrifices of workers. Increasingly, businesses are pressuring employees to work longer for the same amount of money and threatening to shift production abroad.
In a country that is home to the world's best-paid auto workers, Volkswagen goes even further -- paying $69 an hour, compared with the national average of $44 and the U.S. standard of $34. Because of its reluctance to cut jobs, Volkswagen employs thousands of workers to make seat covers, exhaust systems and steering gears -- work most auto makers outsource.

With low-cost Asian rivals making inroads in Europe, Volkswagen is having to implement painful cost cuts. Over the next three years, the company is trying to shed up to 20,000 jobs -- mostly in Germany and mostly assembling cars -- by offering large severance packages to encourage workers to leave.

Despite that, the company's shift to longer hours remains hard to swallow.

"It is a pity for family life," says Sandra North, 34, a mother of two whose boyfriend works for Volkswagen. She works in one of the company's cafeterias. Ms. North says short work schedules allow more time for family activities, such as taking the children for pony rides at a stable near their home. Yet Ms. North says she also understands why her employer can no longer afford to be so generous.

"If you look at other companies around, they have always worked much more -- 38 to 40 hours," she says.

Volkswagen isn't like most companies. Its second-biggest shareholder is its home state of Lower Saxony, which has an interest in protecting jobs. More than half the seats on the company's board belong to German politicians and labor representatives, in keeping with a German law that requires big corporations to give workers a voice in governance.
Within Germany, few towns depend as much on Volkswagen as Wolfsburg, a community of 123,000 surrounded by farmland. The red-brick Volkswagen complex here covers an area the size of Monaco and accounts for more than half the town's jobs. Local streets carry the names of former Volkswagen executives.

Yet sympathy for Volkswagen workers runs only so deep. At the Tunnelschänke, a popular VW watering hole decorated with little plastic VW Beetles, bartender Carmen Stumpf shrugs as she listens to workers grouse about their new schedule.

"They don't see their situation in relation to others," says Ms. Stumpf. Wolfsburg's mayor, Rolf Schnellecke, agrees. "It was not a very just situation" that Volkswagen employees "worked four days a week and still wound up getting more money" than "normal people" in the town, Mr. Schnellecke says.

Volkswagen's short work week began in 1994. Rather than cut 20,000 surplus jobs during an economic downturn, the company shaved its work week by roughly 20%, which if it didn't trim wages and benefits, at least cut down on the cost of building cars no one wanted to buy.

The change wasn't easy for some. Ms. North's boyfriend, Thomas Jung, a 43-year-old VW factory worker, says he initially hung out in bars and played videogames. "I preferred going to work....One feels superfluous when one is needed less," he says. Gradually, though, he began going to a gym three or four times a week, and took vacations in Spain, Portugal or the Dominican Republic "at least once a year for two weeks."

After he and Ms. North began living together, he assumed other duties -- buying groceries for the weekend, picking up her children from school on his day off, making them lunch, and helping them with their homework.
"I really enjoy spending time and playing with the children," Mr. Jung says.

The good times stopped rolling in 2004, after disappointing sales of the company's flagship Golf model dropped the Wolfsburg plant into the red. Last June, the head of the company's core VW brand, addressed thousands of Wolfsburg factory workers. The company, he said, could no longer afford to pay them such high wages for such short schedules.
After months of negotiations, Volkswagen's German labor representatives agreed to extend working hours to 33 a week -- but not without extracting a promise from Volkswagen management to continue building the Golf in Wolfsburg.

The deal means thousands of VW workers are again having to adjust their schedules. Mr. Jung is cutting back his gym visits, and Ms. North has hired a baby sitter for an extra day since Mr. Jung can't pick up the children from school on Fridays now.

But the most dramatic ripple effects are outside Germany. To boost Wolfsburg's productivity, Volkswagen plans to shift some Golf production there from a factory near Brussels -- a move that has outraged Belgium's government and which is expected to result in numerous job losses there.

A Volkswagen spokesman says the company "is aware of its responsibility for" the 4,900 workers in Brussels and "will develop a socially responsible settlement." The auto maker has proposed building a new Audi model at the Brussels plant, a step that could significantly mitigate the number of job losses there.

Mr. Wachendorf, the mechanic, puts matters more bluntly. "That's part of the contract, that [VW managers] supply more [Golfs] for us," he says. "It's their problem where they get the cars from."

Monday, January 01, 2007

Smart people

The LA Times ran their annual "New Year's wishes" lead editorial today. Some wishes are whimsical and some are serious. High on the list is this one:

"For local officials to spend some of their Proposition 1B bond riches on extending the Red Line subway down Wilshire Boulevard to Fairfax Avenue; getting it all the way to Westwood would be even better."

The existing 16-mile line accounts for negative net benefits of near $300-million per year, all things considered. Extending the line will surely make this worse.

But this is now an old story. The larger problem is that many smart people (including many economists) ignore the application of basic economic principles when it comes to questions of public policy.

(I had never thought that any serious person took "internalities" seriously until I read in Jonathan Gruber's Public Finance and Public Policy that they were a reason for government to regulate smoking, p. 164. Slippery slope, anyone?)

Many see (negative) externalities practically everywhere. These are, of course, remediable by politicians. Many observers will not take delivery when possible externalities have been accounted for. Others see redistributional opportunties everywhere. Some of them ignore the fact that governments typically make a hash of redistribution -- and that the opportunity cost in terms of growth avoided is an anti-poverty opportunity missed.

Politics is bad enough. But politics given a pass by smart people is worse.