Tuesday, November 29, 2011

Fix labor markets first

Here are Cowen-Brynjolfsson (each evoking arguments in their recent books) debating whether technological change as we are now experiencing it is grounds for economic optimism or pessimism.  Cowen admits that we have some great new tech toys but one of his concerns (about 3.5 minutes into his opening statement) is that the associated new jobs are very few. In this New Yorker (gated) piece on Peter Thiel, he also complains that the information age has not created enough jobs.

The job creation rhetoric preoccupies politicians of both political parties. Trade agreements are always discussed in terms of jobs created, never in terms of lower product prices.  We live to work; not the other way around. But Randall Holcombe reminds us that this is backwards.  Labor is a cost; its product is the benefit.  "We need to drop the job creation rhetoric, because mistakenly characterizes a cost as a benefit. If someone tries to convince me that a solar energy project will add value to the economy, at least the argument is reasonable. If someone tries to convince me a project should be initiated because it will create jobs, the argument that this is a benefit is just plain wrong."

The most pithy phrase in econmics is Joseph Schumpeter's "creative destruction."  It goes to the heart of what occurs in a dynamic economy but it is near impossible for a politician to champion.  Production involves income opportunities as well as product.  But it is the income opportunities that people pay attention to.  OWS demonstrators and many others long for the post-WW II years and the idea of well paying and steady jobs.  The GM bailout was a bow in that direction.

It seems that, more then ever, labor markets are a weak link that requires attention. What do we know?  First, labor markets do not easily clear but politically popular policies (raising minimum wages, extending unemployment insurance) only make that situation even worse (Richard Epstein makes that case).  Second, education must keep up with technology.  Our educational system(s) are not up to the job.  Politicians see "monopoly" where it is not (prosecutions of IBM, Microsoft, Google, etc.), but are blind to innovation by these groups.  But the same powers that be also defend teacher's unions, monopolies that do get in the way of innovation and choice.

Finally, here is an interesting labor market innovation prompted by another set of bad policies (H/T Marginal Revolution).


I have not yet Alex Tabarrok's new book, but it sounds like a winner.

Monday, November 28, 2011

Wishful thinking

Here is Chris Leinberger opinining on little evidence over the "Death of the Fringe Suburbs" in the NY Times.  He also offers a novel explanation for the economic downturn:  "It was predominantly the collapse of the car-dependent suburban fringe that caused the mortgage collapse."

But here are the last decade's fastest growing counties in terms of housing.  Granted some of the new houses are empty.  But here are data for population.  Most of these counties are the fringe suburbs. 

And I had previously cited Wendell Cox's report of census population data for 2010 which show continuing suburbanization.

Arguing from data beats arguing from wishful thinking.


Data from Joel Kotkin

Saturday, November 26, 2011

OWS do not get it

The OWS people do not get it.  Their problem (everyone's problem) is with crony capitalism.   The bad guys of Wall Street owe their survival to their friends in Washington.  Fred Siegel makes this point in this morning's WSJ.

Confusions like this (over Good Capitalism, Bad Capitalism and the economics of growth and prosperity) were nicely sorted out by William Baumol, Robert Litan and Carl Schramm.  But the ignorance of the crowd reverts to a sort of zero-sum stale Marxism.

What do China and the U.S. have in common?  Each is mired in their own crony capitalism.  Today's WSJ also has a piece on the "princelings" of China, the Children of the Revolution.

This Ngram shows that the term "crony capitalism" did not take off until the second Clinton term and peaked in the early Bush years.  Ngram only goes to 2008 so we do not yet know whether there has been a comeback in the Obama years.  I'll bet there has.


Dear Left ...

Thursday, November 24, 2011

Regulate Marijuana Like Wine

Here are news of the latest marijuana crackdown.  America's marijuana laws are stupid.  But repeal efforts have had little success.  All the more reason to appreciate a current California effort which sensibly suggests that the State should Regulate Marijuana Like Wine.  The petition can be signed on-line.

Media coverage usually includes interviews with the spaciest pot-head the reporter can find.  So I have two requests .  If you live in California, please sign the petition.  And if an advocate, please do not speak to news people when on a marijuana high -- at least while the RMLW campaign is alive.

Happy Thanksgiving.

Tuesday, November 22, 2011

Where talent goes

Here are county-to-county IRS migration data as represented on interactive maps via Forbes.

As readers of this page know, I worry about large-county (or large-area) aggregates.  The variances for most measures are much too big.

USC's Cheng-yi Lin has fun playing with PUMS migration data.  These areas are much smaller and their population density readings more useful.

Consider the top receiving (PUMS areas) PUMAs for MA+ (advanced degree) movers.  They ended up in dense districts of Manhattan as well as in much less dense districts of Silicon Valley. In 2009, the #1 receiving PUMA for MA+ people (with MA degrees or higher; 12,537 arrivals) was in Manhattan with a population density of 44,799 residents per sq km. But the #2 receving area was in Silicon Valley (11,912 arrivals) at a place with a population density of 773 residents per sq km.

The density ratio of #1 vs #2 was a factor of 58 times.

For the top-50 receiving PUMAs, the average population density was 5877 per sq km, but the standard deviation was 8875; the coefficient of variation for population densities of the top fifty PUMAs was 1.51.


Witold Rybzcynski notes that metro area densities can denote many things, including suburbs where people meet and trade ideas.

Sunday, November 20, 2011


The NY Times' Charles Blow discussed Pew Global Attitudes survey results and noted the apparent "Decline of American Exceptionalism."

I am wary of surveys like this and leary of inevitable framing effects. Daniel Kahneman drives this home.  His amazing Thinking Fast and Slow clarifies these and many related problems as we try (try) to learn and think.

But aside from all that, we expect some cultural chauvinism everywhere. We also hope that there is some increase in cosmopolitanism.

If we are going to rank/compare cultures, how about whether or not they have incorporated Enlightenment values?  In fact, when Steven Pinker looks for explanations for declining violence, Enlightenment values is one of his favorites.

But whereas Blow highlights global similarities (47% of Germans think their culture is "superior", but 49% of Americans do), I noted some of the key survey differences.  Asked whether "Freedom to pursue life's goals without state interference" is more important than "State guarantees nobody is in need", only the Americans were the only ones who weighed in more heavily for the former.  Asked whether "Success in life is determined by forces outside our control," Americans showed the highest levels of disagreement. 

We do not have to call it "exceptionalism", but it is exceptional.

Friday, November 18, 2011

More than cuckoo clocks

Anyone who has seen The Third Man recalls Orson Wells' remark that, "In Italy for thirty years under the Borgias they had warfare. terror, murder, bloodshed -- they produced Michelangelo, Leonardo da Vinci, and the Renaissance. In Switzerland they had brotherly love, five hundred years of democracy, and peace, and what did they produce? The cuckoo clock."  Not the best history, but suggestive of some of the continent's riddles. 

The Euro and the Euro-zone were supposed to end the rivalries that had led to the most awful wars and conflicts.  But it's unraveling.  Here is David Brooks slamming the Brussels bureaucrats.  Here is Nigel Farage doing the same (H/T Walter Grinder).

Make trade, not war, is a great idea.  But can they make trade without a Euro and a Euro-zone?  I think they can.  Doing it with a Euro and a Euro-zone gives us the sort of poaching we are now witnessing.  Politicians who could not say "no", are looking for bailouts from those who ran a tighter ship.  The public choice model wins again. 

The Swiss, of course, did much more than produce cuckoo clocks.  They avoided horrific wars and they also sidestepped the Euro.

Wednesday, November 16, 2011

Hold them to a higher standard

Holman Jenkins has a different take on Congress's insiders engaged in insider trading ("Congress's Insider-Trading Non-Scandal").  He writes that, "There are few ways in which a congressman can be more innocently employed than in day trading."  But, on the whole, "... congressmen underperform the market for all the same reasons that most active traders do.  They buy high, sell low and waste money on trading commissions." 

Points granted.  They are all just people, like the rest of us.  But they are the ones who suggest that they go by a higher standard ("public servants").  They are the ones who are zealous about regulating all of the (other) "greedy" people out there.  They are the ones who have the power to tax, subpeona, prosecute, regulate, etc.  They are the ones who are always ready and eager to exempt themselves form the laws and regulations they impose on others.

I agree with Jenkins that "insider trading" is a complex idea and there are always over-zealous prosecutions (e.g., Martha Stewart).  But I worry about under-zealous (probably no such word) when it comes to the folks who are special in the four ways I just mentioned.

Monday, November 14, 2011

Dated opera

60 Minutes presented an interesting expose of insider trading by members of Congress.  The implicated (of both parties) did their usual dance.  I thought that Pelosi's answers were amazingly disingenuous -- even for her.  But here she is sticking to her story.  No problem making money on an IPO fed to her and others in powerful positions -- because she has been relentless in her pursuit of "credit card reform." !!!

And there you have it. She profits financially as an insider while she profits politically by posing as a "reformer."  And getting away with it. 

This is what I do not get about the OWS people and their friends.  Private sector people accused of insider trading are proscecuted (there is often a perp walk for TV) and many do serious penitentiary time.  But the OWS people seemingly live in a 19th century opera, the one populated by fat robber barons wearing top hats, riding in limos that splash water on the socialist news boy as they speed by.  There are no Pelosis in that cartoon.


I found this at Carpe Diem.


Richard Green points to a source which says that elected officials are not immune to insider trading prosecution.  One awaits action from the Department of Justice.

Saturday, November 12, 2011

What if ...?

"What if Rest of World Had as Many Cars as U.S.?"  "What if..." questions like this pop up all the time. The implication is that the result would "unsustainable."  Another is that growth is a problem.  These are Luddite conversations.  They are also misleading for the simple reason that if all of those people could afford all those cars, they would have to be much more productive than they are now.  The world would be a very different place and the intended implication of the question does not follow.

Julian Simon was right and all of the doomsday foreacasts have been wrong.  These observations are not a basis for smugness, but they are a good counter to the "what if?" questions.  The Doomsday Myth recounts 10,000 years of these.  The book is a few years old, but it has held up and probably will for a while.

Friday, November 11, 2011

Good and bad preening

David Brooks writes about the many kinds of inequality -- and about the interesting fact that some are more acceptable/fashionable than others.  It's OK to flaunt your academic credentials but not the resulting income or wealth unless they are spent in politically acceptable/correct ways.

There are also health inequalities, longevity inequalities, contentment inequalities and many others.  Brooks offers a longer list.  There is good preening and bad preening. Robin Hanson notes that there is a battle for accepteable vs unacceptable status displays with winners and losers.

Of course.  Have you ever wondered why and how wealthy entertainers have the gall to show up at OWC events and get away with it?  Have you ever wondered how wealth-bashing leftist politicians have the chutzpah to hang out with rich Hollywood celebs?

But the status biz is tricky.  Vogue had to do a PR dance re it's breathless coverage of Syria's First Lady when it became clear that her other half was just another murderous tyrant.   And who can forget all the fun Tom Wolfe had with the NYC radical chic?

Thursday, November 10, 2011


Malcolm Gladwell writes about Steve Jobs as "The Tweaker" in this week's New Yorker.  Gladwell takes off from a recent paper by Meisenzahl and Mokyr who write about the industrial revolution in Great Britain.  M&M show that the scientists, the engineers and the highly talented craftspeople happened to all be on hand in abundance.  All of them were required to make it all happen, not just the well known visionaries and their macro-inventions.

My "shop" classes in high school are some of my favorite memories, even though I was never destined to be any good at these crafts.  My fear is that we no longer have enough "shop" or enough apprenticeship opportunities.

Gladwell's point is that Steve Jobs' success is explained by the fact that he was as an obsessive tweaker.

But there is some of the tweaker in all of us.  I can tweak text and powerpoints all night long.  We all adopt different stopping rules.  In theory, we set marginal this to marginal that -- and find the best stopping point.  But it is really the expected marginal costs and benefits of further work (or search).  These involve forecasts.

So it is not a question of who is the most obessive tweaker.  Rather, it is about who forecasts best re what the extra hour of tweaking will get us vs. what it will cost us.

Tuesday, November 08, 2011

Creative cities

The way that market participants create complex supply chains should amaze us.  Paul Romer famously noted (in Daedalus, 1994, not available online) that:
There have been 10**18 seconds since the Big Bang, and there are 10*88 particles in the known universe. Those are very large numbers … but they are dwarfed by the number of ways that things or ideas can be combined. Even something as simple as a deck of cards can be arranged in unimaginably numerous ways. There are 10**68 possible card decks, which means that any order you happen to shuffle has probably never appeared before.
I had prevsiously mentioned the Handbook of Creative Cities, David Emanuel Andersson, Ake E. Andersson and Charlotta Mellander, (AAM) eds.  Sandy Ikeda and I have a chapter in the collection, but I want to call attention to how the discussion made me go to Romer's story. 

The volume includes 26 chapters that elaborate on Richard Florida's work on creative cities and creative people.  I learned that Ake Andersson had written about the penomenon as early as 1985 in Swedish.  But Florida is the one who has made a splash. 

Many urban planners were inspired by Florida's work and concluded that planning for creative cities or districts is part of their repsonsibility.  But Randall Holcombe in Ch. 19 of AAM tells quite another story.  He argues (successfully, in my view) that "The idea of planning a creative city misses the whole concept of creativity" (p. 403).

Go back to combinatorics and complexity. Imagine a medium-sized city with one million population.  There would be about 250,000 parcels and (allowing for density options) at least 15 possible land uses (5 possible uses, each at a high or medium or low density).  That's 2.5**20 possible land use patterns. I doubt that the single global optimum is computable.  But cities survive by competing successfully.  Stick them with land use patterns that get in the way of productivity and the city loses.  It loses labor and capital as well as creative, entrepreneurial people. 

Sunday, November 06, 2011


Roger Backhouse and Bradley Bateman comment on the state of economics in today's NY Times.   While their piece has merit, the authors tie the recent economic troubles to "unfettered capitalism."  Really?  Crony capitalism, yes.  Unfettered, no way.

The Federal Register was up to 82,590 pages in 2010.  It had dipped to 74,408 pages in 2007, down from 83,294 in 2000; but it only had 14,479 pages in 1960. I know these are crude measures, but where do we find "unfettered"?

And in our federal system, there are many state and local governments that also do some regulating.  In terms of share of GDP (table), if the federal share hovers around 20 percent, adding state and local pushes government share up to about 35 percent. 

The NY Times Magazine includes Adam Davidson's "Can Anyone Really Create Jobs? The answer is no. And that goes for the presidential candidates too".  Most of the piece is useful because the idea that politicians can somehow "create jobs" is now standard political jargon.  They can surely add bulk to the Federal Register, but that's another story.


Today's WSJ lists some recent U.S. industrial policy corporate welfare.

Friday, November 04, 2011

Half-full? Half empty?

Ed Glaeser writes that the best we can do for our cities (and the economy) is to Unleash the Entrpreneurs.  No doubt.  He wants to end to job-killing policies and cites some specifics.  He notes that:
In general, we should never use public dollars to bribe people to remain in dead-end jobs. We should place far less emphasis on the industries of the past and more on those of the future. Federal policies that bail out auto companies and subsidize agriculture aren’t merely expensive; they also encourage people to stay in declining industries rather than strike out on their own.
But the people we elect to office have a natural interest in preserving what is.  Existing industries have an easier time getting out the vote than potential industries that might be. 

"Progressive" journalists and bloggers argue that we should listen to the OWS "protesters".  But on the occasions that these folks say something comprehensible, it sounds more anchored to nostalgia for an imagined past than anything else.  Would they really enjoy living in those days?  Without an internet?  Without their iPads and similar toys?  Without cheap airplane rides?  One can make a very long list.

Tom Sowell is characteristically blunt in assessing what he sees in the demonstrations.   I am still looking for one or two of them to carry a banner that says "Unleash the Entrepreneurs."

Here is today's LA Times editorial re the tripling of the cost of California's high-speed rail.  "It's still a gamble worth taking".  This is not the dumbest thing they have ever written, but it is a contender.

I begin each day trying to be Ed Glaeser-optimistic rather than Tom Sowell-pessimistic.  But then I find pieces like this. 

Wednesday, November 02, 2011

So simple, even kids can do it

Trick-or-treaters understand that exchange augments material wealth -- even when nothing new is being produced. Stuff ends up where it is most valued. (It gets even better when there is production by specialists.) This NPR report indicates that 11-year olds readily traded Snickers for Smarties. (H/T The Browser) As fas as I could tell, no econ 101 textbooks or professors were involved.
Will these trick-or-treaters forget if/when they become politicians or lobbyists or talking heads? Yes, they will. Tyler Cowen has noted several times at his blog that public choice economics is one of the most underrated/ignored fields. Of course. Can we think of any other approach that has as much to say about the everyday politics, whether national, state or local -- or international, that we see or hear about?
Lisa Schweitzer worries about the $98 billion tab that even the advocates now attach to California high-speed rail. How much support will the new math cost them? Not much. I put my money on the predictions of public choice economics.