Saturday, April 30, 2011

Paper money

We teach that money must be homogeneous, divisible and durable.  It must also be credible.  And politicized central banking can limit credibility.  We also teach that economic freedom means that people can be inventive about ways to dodge crises in their lives.

I can ignore debased currencies and revert to barter and some do, but that's horribly inefficient. 

But free instiutions have also brought us the internet.  Put all of these observations together and you get Bitcoin.

Here is a description from the May 9 Forbes:

The Internet has left plenty of dead and maimed paper-based institutions in its wake. If Gavin Andresen and his underground cadre of cypherpunks have their way, another archaic slice of pulped tree may be next: the dollar.

Bitcoin is a grassroots nonprofit project that seeks to fashion a new currency out of little more than cryptography, networking and open-source software, and Andresen is the closest thing the project has to a director. Bitcoin is not, he explains, just a new way to digitally spend dollars, pounds and yen. ... Bitcoin is different: It wholly replaces state-backed currencies with a digital version that's tougher to forge, cuts across international boundaries, can be stored on your hard drive instead of in a bank, and--perhaps most importantly to many of Bitcoin's users--isn't subject to the inflationary whim of whatever Federal Reserve chief decides to print more money. "Bitcoin is designed to bring us back to a decentralized currency of the people," says Andresen, a 44-year-old software developer and entrepreneur based in Amherst, Mass. "This is like better gold than gold."  As with shiny-metal-backed currencies, Bitcoins derive their value partly through their scarcity, which is defined not by how much can be dug up with shovels but by a cryptographic lottery. Anyone can get Bitcoins without paying cash for them by downloading and running Bitcoin's "mining" program. The machines in Bitcoin's mining network, now in the thousands, compute an encryption function called a "hash" on a set of random numbers, and coins are awarded every ten minutes to whichever miner happens to compute a number below a certain threshold.
That lottery tightly controls how many Bitcoins are created. There are currently close to 6 million in existence. By 2014 there will be about twice that number. Bitcoin's distributed software is set to slow production over time so that there will never be more than 21 million in circulation. "No banker can control it. No evil dictator tyrant can print zillions and destroy the value," says Bruce Wagner, organizer of New York's Bitcoin developer's meet-up.
Of course, the other factor that determines the worth of a currency is whether anyone will accept it in exchange for goods and services. And for Bitcoin, a subculture of geek-friendly merchants is catching on. About $30,000 worth of Bitcoins change hands every day in electronic transactions, spent on Web-hosting, electronics, dog sweaters and alpaca socks.
Also drugs. Particularly illegal ones. Since Bitcoins can be spent on the Internet without the use of a bank account, they offer a convenient system for anonymous purchases. There's no centralized storage of funds, so accounts can't be frozen by law enforcement or PayPal administrators. "Illegal stuff will be a niche for Bitcoin," admits Andresen. "That bothers me, but it's just like any currency. You can't stop dollar bills from being used for the drug trade either. That's an unfortunate feature of any cashlike system." ..
Sounds very geeky, but so did Facebook.

S&P downgrades the dollar and the response has been to scoff at S&P. Bond markets are derided as "bond vigilantes," a usage that smacks of ancient misunderstandings of "the speculators." No, they are facts of life. Name-calling will not stop the creative juices and better alternatives than simply barter or politicized money.

Thursday, April 28, 2011


Mark Pennington and his thoughts (video here) are the perfect antidote for the depressing nature of the previous post (the one just below).

WalMart in NYC

Just when you thought that there must be some reason to reserve a warm spot for unions and their local government supporters, along comes this clip about WalMart in NYC.

It speaks for itself.

Tuesday, April 26, 2011

Conscience of an economist

I am a great fan of Russ Roberts' econtalk (link at econtalk.comorg; printed text of podcasts also posted). I actually look forward to Mondays when the new ones are posted.

This week's discussion is with Ariel Rubinstein and begins with his views of game theory.  He is a prominent contributor and a skeptic.  Rubinstein and Roberts then focus on the limits of economics and especially behavioral economics and also on widespread tendencies towards scientism.

The discussion is wise and refreshing, prompting listerners to work towards a sense of perspective, especially with respect to their own work.

Sad to say, perspective cannot be bottled, but listening to discussions by wise folks is very helpful.  Rubinstein even notes that he is not shy about spilling the beans to eager young students.

Sunday, April 24, 2011

Work to do

Peggy Noonan writes about "What the World Sees in America ... It's not all something to be proud of. ... We have work to do at home, on our culture and our country."  Read the whole thing.  She writes about grafitti and unfriendly public places as well as some of the garbage on TV that enthralls millions.  I like the U.S. probably as much as Noonan does, but she has a point when she itemizes the coarse aspects of our culture. 

Visiting some of Shanghai's neighborhoods.  Some very old ones are "gated" in a very informal sense.  I found that perfect strangers are welcome.  I visited a very poor neighborhood and felt very safe.  I wish it were so in my home country. 

Trouble is that I have no idea what Noonan has in mind re "work to do at home."  Does anyone? 

Friday, April 22, 2011

Getting to three

Go from the mainland to Hong Kong and you go through immigration and exchange currencies.  This is part of the odd post-1997-fifty-year arrangement called one-country-two-systems.  At the end fifty years, which side will have evolved to be more like the other?

On the Hong Kong side, there is also internet policing.  I could not buy via Kindle.  I cannot link to my blog.

This morning's International Herald Tribune includes "Confucius vanishes from square ...  'When you have faults, do not fear to abandon them,' Confucius once said.  Apparently, someone extremely powerful has taken that saying to heart, having decided that a 9.4-meter ... bronze statue of the ancient Chinese sage that was unveiled four months ago did not belong on the nation's most hallowed slice of real estate.  The sudden disappearance of Confucius which took place under cover of darkness early Thursday morning, has stoked outrage among the philosopher's descendants, glee among devoted Maoists and much conjecture among analysts who try decipher the intricacies of the Chinese leadership's decision decision-making ..."

I am greatly enjoying Francis Fukuyama's The Origins of Political Order.  He tries to make sense of all this, noting that of the three categories of institutions he writes about -- the state, the rule of law, accountable government -- many places only manage to get two of the three.  How do you get to three?  If you have all three, how do you keep them?

Tuesday, April 19, 2011

Central planning and city planning

The China Daily's April 12 opinion page included "Debate: Urban congestion."  One by Murad Qureshi, ("Charge cars out of city center") argued for Singapore-style congestion charges.  Another by Tian Li, ("Problem lies deeper in economy") blamed government policies that favored autos as well as poor traffic management.  The third by Su Lang ("Multiple centers can clear jams") suggested that, "... city planners must also shift from concentric-circle to cluster-based development development, building multiple centers in a city."

The same sentiments could have appeared in any major U.S. paper.

Why do the major Chinese cities feature concentric ring beltways?  Beijing now has seven.  Historically, the emperor was to be at the center of Beijing.  Perhaps that was the model for the other cities.  Perhaps this thinking was reinforced by Western monocentric city ideas.  There is much willy-nilly copying of Western approaches.

But missing from the China Daily's debate as well as from so much Western city planning discussions is the thought that land markets left to themselves can best place and populate any city's sub-centers.  When it comes to cities, Americans as well as Chinese think in terms of central planning.

Sunday, April 17, 2011

Markets and cronies

From the Shanghai Sunday Daily (17 April; will not link):  "Shanghai's car license plate prices continued to rise in April after reaching a three-year record high last month.  Industry analysts said the rise is within market expectations as the introduction of a policy limiting vehicles with out-of-town plates has prompted a demand for local licenses.  ... The average auction price for a private car license in Shanghai was 47399 yuan (US $7,260) this month, up 742 yuan from March. ... The local government offered 8,000 licenses for auction this month."

These things are tradable, with premium prices going for numbers thought to be "lucky."  I understand also that there are "black" markets.  Why not?

Market mechanisms have obvious appeal.  But they can veer off the tracks when corrupted via cronyism and worse.  And then it is the idea of markets that gets the blame.  Can we get capitalism without the threat of crony capitalism?  The widely cited U.S. example is the internet which reached full steam faster than the FCC and Congress could react.

Is that our best hope?  I hope not.

Trying again

Anyone trying to read my posts can tell that I am no match for the internet blockers.

Tyler Cowen at Marginal Revolution recently mentioned that he liked Brasilia and that planned cities can work.  (I cannot link to his post from here.)  Another way to approach all this is to note that there are top-down plans as well as bottom-up plans.  There is no "unplanned".  But what is the division of labor?

Top-down is intuitively plausible to many.  Bottom-up planning is not.

Paris has Haussmann's top-down plan plus a lot of infill which is likely to be bottom-up.  Americans are increasingly moving into bottom-up privately planned communities and shopping and playing in bottom-up planned lifestyle and other centers.  And anything that can be metered can be privatized.

Top-down has exclusive jurisdiction of "mega-projects".  We know how most of those have worked out.

Friday, April 15, 2011

Thursday, April 14, 2011

Tuesday, April 12, 2011


The case of modern China suggests that widespread corruption and strong economic growth can co-exist.  The caveat is that the combination is not sustainable.  That is the view of Toke Aidt.  But at what point do we toss in the towel?  China has posted strong growth numbers for almost thirty years.  Aidt evokes the idea of "sanders" and "greasers".  The latter reduce transactions costs whereas the former do the opposite.

Over the years, there have been numerous recommendations for political reform that would do away with the demand for greasers. That's first-best, but second-best is to have the greasers dominate the sanders.

While there are many cases where corruption throttles growth, there is also China.  But does second-best suggest untenable distributional outcomes?  The authorities are forever looking for the "sweet spot", the level of limited rights and freedoms whereby the regime stays in power, rent-seeking and rent-extraction continue as they are and economic growth is maintained.  But sustainable is a huge order.  

Sunday, April 10, 2011

Strong cores

The April 10 China Daily includes this report on the Beijing Metro.  Infrastructure planners everywhere dream of (i) accurately projecting urban expansion to the point of having the proper infrastructure in place when and where growth arrives; or (even better) (ii) putting advance infrastructure in place so that it guides urban expansion.  Both are seemingly on the minds of Beijing subway planners with an emphasis on the latter. "For most of its length, the new line runs through open fields and small towns -- and the construction sites that will transform the area into miles of densely populated suburbs."  

But the story also alludes to the fly in the ointment.  "A 2010 survey conducted by IBM rated Beijing's commute as the worst in the world, tied with Mexico City." And, "For many planners, tackling Beijing's will take more than building a better subway. ... the underlying problem was the concentration of government, universities, and companies in Beijing's relatively small historic core."

Tokyo, Moscow, Seoul, Beijing, Mexico City and New York boast great subways and awful road traffic.  The great subway "fix" falls short when the core is a dominant employment center.  With the exception of NYC, these places maintain big central government bureaucracies (and all of the activities that these attract) in their historic cores.  It's very difficult to build subways fast enough to impact the auto traffic that growth plus centralization account for.

Friday, April 08, 2011


The subject matter of Frank Dikotter's Mao's Great Famine is fair game to people I have spoken to in Beijing.  But Facebook is blocked.  And, I was surprised to see, so is Peter Gordon's blog.  I am trying to scratch my head to figure out how that happened.

In any event, blogging will be light for a couple of weeks as I figure out how to scale the walls that have been set up.

Tuesday, April 05, 2011

Mating dance

When economists discovered "signaling", they were recognizing what the whole world already knew, that we spend a lot of time and effort trying to communicate strength and worthiness to everyone else.  It's part of the mating dance as well as the career dance.  In fact, there is even the possibility that the latter is a part of the former.  Men have been accused of choosing careers only for the money involved because it makes available a larger selection of females.

Advertising and branding are well established.  Much of their focus is on our selection of the signals we want to transmit.

This week's Economist includes "Status displays ... I've got you labeled ... Clothes may make the man, but it is labels that really count."  The story describes experiments that establish the point.  Show people photos of subjects wearing the same shirt, but with designer label digitally removed and note the different impressions on viewers.

It's the sort of news about who we are the upsets some.  The story ends with, "marketers can open another bottle of champagne."  Perhaps, but without the mating dance, where would we be?

Sunday, April 03, 2011

Competing spreadhseets

Today's LA Times has this story about the soon-to-open LA Expo light-rail line.  Officials expect 27,000 boardings by 2020 and have spent $931 million to date.  There will also be operating costs in the ballpark of what LA's MTA now spends on its existing light-rail lines.  The Expo line does not look promising.

This coincides with the current issue of Public Works Management and Policy which includes the Gordon-Kolesar rail transit cost-benefit analysis that I have blogged about before, along with a competing cost-benefit analysis by Robert Cervero and Erick Guerra and Commentary by Lisa Schweitzer.

For teachers of cost-benefit analysis, the two side-by-side studies provide interesting case-study fodder.  The assumptions differ, the findings are (in my view) broadly similar, but the authors of the two studies emphasize different conclusions and policy recommendations.

Every worthy cost-benefit analysis ends with the caveat that there is more to life than just the costs and benefits that we have accounted for (or can account for).  And so it is here.  But competing spreadsheets, when we can build them, is much better than competing rhetoric.