Sunday, September 30, 2012

No simplicity, no transparency no nakedness

Election season is not the happiest time of the year. I will not be watching the debate this Wednesday evening and I am not keen to see whether the astute businessman or the cerebral law professor is the better China-basher-mercantalist-nativist.

This morning's NY Times includes a federal income tax reform proposal by Richard Thaler, "For the Wealthy, a 28 Percent Solution."  He suggests that all income over $1 million be subject to a flat 28 percent tax rate with no deductions or exemptions.  The messy code would remain in place for those earning more. Thaler writes that this is in the spirit of “lowest possible tax rates on the broadest base.”

But we also hear about the current 66,000 page IRS code which costs Americans several hundred billion dollars of annual effort to cope with.  Why this mess?  Why are real reforms a long shot?

I can think of three reasons.  First, it is impossible to get anything near a consensus on what a  "fair" tax code and tax burden would be.  Second, targeted rates and favors pass for policy making (as in "energy policy," "trade policy," "housing policy," etc.).  Third, complexity is a convenient place for politicians to hide.  Simplicity and transparency are akin to nakedness.  We did not get to where we are by accident or oversight.

Thursday, September 27, 2012

The race (still) goes to wealth creation

Today's WSJ lists their "Top 50 Start-Ups".  Thirty-seven are in California, 30 in the north (Bay Area-Silicon Valley) and seven in the south.  Of the 13 in other parts of the U.S., five are in the NYC area; three in the Boston area, two in Bellevue-Seattle, one in Durham, one in Boulder, one near Dallas.

Living in California, I see plenty of abysmal governance; third-world class potholed streets and highways plus high-speed rail are at the top of my long list. 

But we also know about the power of agglomeration economies.  Where is the deepest and brightest labor pool?  I expect that pools of talent are found in many parts of the U.S.  But 60 percent of the top U.S. start-ups located in a cluster of three counties is eye-popping.

In the race between bad governance and wealth creation, the latter is still winning.  May it last.

Tuesday, September 25, 2012

Revealing discourse

I am a great fan of Russ Roberts' econtalk.  I have pointed readers of this blog, students, friends, anyone who will listen, to many of the fine interviews posted there.

This week it's a discussion Russ has with economist Robert Frank on Infrastructure.  It's an old story and Frank has made the argument many times, including in the pages of last Sunday's NY Times.  We "need" lots of infrastructure repair and replacement; the Treasury can borrow at very low rates; we can put people back to work.  Let's do it.

It's a nice discussion.  Both participants come across as well intentioned and well informed.  But (differences over Keynesian stimulus aside) they fundamentally disagree on what government can do.  Frank talks about the government and infrastructure planning we should have while Roberts talks about the ones we do have.  I urge people to listen for themselves.

My own bottom line is one I have mentioned many times.  I find it stunning that smart people can be so naive about politics.  This is not simply "government bashing" (Frank's phrase).  We are not Scandinavia and their civil service is not a plausible model for the U.S. 

At the margins, we can probably make improvements (Frank cites a new and improved DMV in his home state), but the discussion involves a non-marginal $2 trillion infrastructure program.  At that scale, I'm afraid we have to focus on the politics and politicians we have, not the ones we could have in a better world. 

Sunday, September 23, 2012

Take that, Luddites!

Are we getting smarter?  It's a lovely thought.  James Flynn says that by conventional measures we are.  Actually, IQ (and related) tests identify how good we are at performing tasks that matter in the modern world.  We can say that modernity has made us smarter.

Steven Pinker argues that we have become more peaceful.  He cites the Flynn effect as one of the causes. 

Modernity (including industrialization) make us wealthier and smarter and more peaceful.  Take that Luddites!

To be sure, I do not expect that Luddites care about very much about these three trends.

Friday, September 21, 2012


Wendell Cox has summarized the latest ACS report on commuting in America.  He shows three years of data for the major travel modes, 2000, 2010 and 2011.  Skip the one-year change and look at the eleven-year comparisons.  The biggest loser has been car/vanpooling (all those diamond lanes have not helped).  Bicycling is up, but from a very small base.

The biggest numerical gains are in drive-alone. "Getting people out their cars" continues to be a challenge.
Work-at-home is also up appreciably.  That did not cost the public a lot in new infrastructure.  No worries over "who built that."

One more irony

The NY Times recently reported that U.S. CO2 emissions are down.  The substitution of natural gas for coal is the cited reason.  The political favorites (wind, solar, biofuels, etc.) did not get any of the credit.  In terms of the 2012 game of "you did not build that," it is clear that the credit goes to private energy markets.

No, they are not totally free of tax credits and other meddling, but that would not be a bad idea.

This morning's LA Times reports the extent to which taxpayers and ratepayers will be on the hook for more of the least cost-effective alternatives.  These have already spawned lobbies to assure that they will go on. We know the ethanol story.  It is so awful that it has no serious support, but it may be here to stay.

The other story is that the U.S. has slipped from it's position as #1 carbon emitter.  China is now #1.  What to do?  Export more windmills?  There is a better way.  Become an exporter of cheap natural gas.  The latter can actually happen.  The WSJ documented the falling price of natural gas -- and the prospects for U.S. natural gas exports.

Carbon is a global common pool. The capacity of markets to "solve" the global CO2 problem will always be pitted against the efforts of policy makers to do the same thing.  You would think they could work together and you would be wrong.

Monday, September 17, 2012

Food for thought

There is much discussion of the "religious right", but much less of the "religious left".  The Google ratio is 16:1.  The religious right is populated by folks who cannot accept evolution; the people who I place on the "religious left" are the well educated modern-day Luddites who cannot accept/grasp the idea of gains from trade.  And you thought this was settled by the writings of the classical economists.  (Steven Landsburg has looked at the economics of our presidential candidates and has settled on describing them as Dunce and Other Dunce.)

Pierre Desrochers and Hiroko Shimizu take on some of the religious left in their splendid The Locavore's Dilemma: In praise of the 10,000 mile diet.  The great success story of our time (not just for Americans but for residents of half of the 34 OECD countries) is that most of us are more at risk for obesity than famine. 

Foods of great variety reliably delivered via an international supply chain consisting of an uncountable number of specialists is an amazing achievement.  And it was not always so, but (sad to say) many people don't get it.  They love their "locally grown" (fine), but ignore the costs (dumb) and often want to impose their romanticized choices on others less wealthy (worse than dumb).

"Isn't it possible that crushing bugs and removing weeds by hands were neither very effective nor the most productive use of one's time?" p. 185. There are many compelling lines like this, scattered through the book.

Tyler Cowen wrote about "World Hunger" in yesterday's NY Times.  He cited dumb food policies here (biofuels) and abroad (trade controls and price controls).  (Today, he blogs about the sorry state of the debate over GMOs.)

Saturday, September 15, 2012

Further research, please

It's hard to have a policy discussion without alluding to Bruce Yandle's Bootleggers and Baptists.  When the true believers find common cause with the rapacious, what can be done?  In modern times, the former are often "green" while the latter, as always, are shameless.

But that is not the whole story.  Don Boudreaux , in today's WSJ, describes the problem of adding hubris to the mix:
A market economy is indescribably vast and complex—its success depends on so many intricate, changing details all somehow being made to work smoothly together that the "facts" that are essential to its thriving cannot be catalogued with anywhere near the completeness that can be achieved by a 21st-century scientist studying and cataloging the "facts" that enable sparrows to fly. A sparrow is complex compared, say, to a limestone rock. Compared to the modern market economy, however, a sparrow is extremely simple. ...

Awareness of these facts, and of knowledge of workable options of how to respond to them, are key to the growth and continued success of any market economy. These facts are dealt with successfully only in market economies and only to the extent that individuals on the spot are free to respond to these facts as they, individually, see fit.

Yet no observer or planner or regulator can see and catalog all these highly specific facts. The facts—each of which must be dealt with—are far too numerous at any moment for an observing scientist to catalog even if that moment were to be frozen for decades. ...

Nevertheless, too many people, including politicians, continue to believe that because they can observe a handful of bulky facts about the economy, they can thereby know enough to intervene into that economy in ways that will improve its operation. That belief, though, is hubris. It's very much like believing that you'll fly if you simply strap on a pair of wings and commence to flapping madly.
If that's not bad enough, in the same paper, there is this, cited and summarized by David DiSalvo:
Psychopaths and successful U.S. presidents may share some common psychosocial territory.
Both possess "fearless dominance," a trait of swagger or extreme confidence that may contribute either to criminality and violence or to successful leadership, a new study suggests. The analysis drew upon personality assessments of 42 presidents through George W. Bush, compiled by Steven Rubenzer and Thomas Faschingbauer for their book "Personality, Character and Leadership in the White House."
More than 100 experts, including biographers, journalists and scholars who are established authorities on one or more U.S. presidents, evaluated their target presidents using standardized psychological measures of personality, intelligence and behavior.

Theodore Roosevelt ranked highest in fearless dominance, followed by John F. Kennedy, Franklin D. Roosevelt, Ronald Reagan, Rutherford Hayes, Zachary Taylor, Bill Clinton, Martin Van Buren, Andrew Jackson and George W. Bush.
Scott O. Lilienfeld and five other authors, "Fearless Dominance and the U.S. Presidency," Journal of Personality and Social Psychology (September)
Bootleggers, Baptists, the hubristic and the psychopathic?  How do you face down that line-up?  All good science ends with the call for further research.  That would be putting it mildly.

Friday, September 14, 2012

Connected and "Hyperconnected"

Many of us like cities.  We vote with our feet and choose to live in, work in, play in, and visit these places.  We also know that cities are good for economic growth which is good for people.  Many supply chains benefit from some degree of clustering.  This includes the less formal supply chains by which we become inventive and creative.

And these human chains also nurture our keen interest in sociability and groupishness.  And the latter feed back to the economic benefits.

Nicholas Christakis and James Fowler address the many ways that we connect. Some are well known.  Many others are worth learning about.  The authors offer a wonderful and readable survey in their Connected: How your friends' friends' friends affect everything you think feel and do.  They note that we are now "Hyperconnected" (their Chapter 8).  The book was published in 2009.  We must know be moving beyond the "hyper".

Most people who write about cities love "density" and use it to proxy for all the networking options cities make possible.  That story is much too interesting to leave it to one aggregate index.  

Monday, September 10, 2012

Politicizing the numbers

We know two things about most aggregate economic indices.  First, they are never simple.  Second, many of them are controversial and politicized.  The official poverty rate is a prominent example.  It can be fiddled up as well as down.

Many economists advocate consumption-based, as opposed to income-based, poverty measures.  This recent paper by Bruce Meyer and James Sullivan, two researchers who have spent serious effort on the question for some years, concludes:
Official poverty statistics suggest that poverty has increased over the past forty years. This claim is inconsistent with our results which show substantial improvements in income based poverty over the past forty years and even larger improvements in consumption based poverty, especially in the last decade. These poverty results are corroborated by other indicators of well-being for those with low income such as increases in car ownership and evidence of improved living conditions including larger living units that are more likely to have air conditioning and other features. While the deficiencies in the official poverty measure have been the subject of much previous research, most poverty scholars still rely on the official measure as the definitive measure of trends in poverty and draw important conclusions based upon it.
These views have been around for some time. But there is inevitable opposition to "defining poverty down".  The safety net is not adequate; we "need" a new and better net.  That goes with the idea of defining economic success and prosperity down.

At the other end of the spectrum, this week's Economist includes "Argentina's dubious poverty line ... rumbling stomachs, grumbling citizens".  This sounds like North Korea and the other economic failures.  Our people are well-fed, thank you.  This is all about defining political failure down.

Nothing new here.  Political agendas intrude on scoring and counting.

Saturday, September 08, 2012

A good place to start

The Congressional Budget Office has a tough mandate and my impression is that they have worked hard to maintain a reputation for credible research.  They consider costs and benefits when asked; they are often tasked with related analytic work.  There are no slam-dunks in policy analysis, but CBO reports are often a good place to start.

Today's WSJ includes "Bill Aims at Rules' Costs, Benefits ...The measure would require an independent cost-benefit analysis of federal regulations."  We have heard this song many times before.  Common sense suggests that the costs and benefits of proposed rules are things we want to know about.  Again, knowing these is a good place to start.

The Progressives of one-hundred years ago were optimistic that governance could be reformed so that decision making would be more fact-based than had been the practice.  Since that time, various abuses of applied cost-benefit analysis have been cited as reason to dump the practice altogether.  But abuse can occur in any realm. It should prompt a demand for good analysis instead of a rejection of analysis.

It can be done and this is why I cited CBO.  Imperfect, to be sure, but a good place to start.

Thursday, September 06, 2012

MR University

MR University is on the way.  Have a look.  Sounds very good.

While not watching the conventions

I have enjoyed all of Brink Lindsey's books and can say the same about his new Human Capitalism: How Economic Growth Has Made Us Smarter--and More UnequalHe shows how U.S. economic dynamism has collided with what he calls cultural "stickiness".  This means that many are able to respond to incentives (high paying work in "new economy" sectors) and  thrive, but many others are unable or unwilling to respond.  The latter fall further behind.  The old "leisure class" were those at the top.  The new "leisure class" are those stuck at the bottom.  

Lindsey's concluding chapter ("Reforming Human Capitalism") argues for his favorite policy antidotes.  They are: "Maintain Economic Growth by Encouraging Entrepreneurship", "Reform K-12 Education by Unleashing Competition", "Compensate for Disadvantaged Environments through Early Childhood Interventions", "Combat Social Exclusion of Low-Skilled Adults", "Improve Higher Education by Limiting Tuition Subsidies", "Remove Regulatory Barriers to Entrepreneurship and Upward Mobility". In each case he cites recent research that supports these ideas.

Perhaps it is not a good idea read about all this while the political conventions are on TV.  Neither party's platform comes close to policies like the ones Lindsey suggests.  In fact, the platforms and speeches can be read as roadmaps for avoiding them.

This morning's WSJ includes a review ("The Grievance Brigades ... The most traditional branches of Western learning have been replaced by disciplines designed to serve radical political ends") of Bruce Bawer's The Victim's Revolution (which I have not yet read).  Perhaps I'll pass on that discussion.  Better to watch re-runs of political convention highlights on YouTube.

Monday, September 03, 2012

Wrong feedback

JP Morgan's Jamie Dimon was recently grilled by a Senate subcommitte re a $2 billion trading loss at the company.  If you are not a stockholder or have any business affiliation with the company, why do you care?  Why do U.S. Senators care?  Because everyone in the room (including Dimon) assumed that large losses are now subject to taxpayer bail-out.  That is where we are in 2012.

Today's NY Times includes "At Least Fun In the Sun Isn't Banned For Now ..." which takes some digs at nanny-state regulations proposed, and many adopted, in California.  It's a silly piece that looks for contraditctions with the area's supposed "frontier menality" heritage.  Blue-state California is, of course, anything but frontier-minded.  Look at California's legislature.

In modern America, we are linked by the ever more popular presumption of socialized losses which does make every other private act a potential "externality". There is a feedback loop here. If taxpayers foot the bill for my bad health habits, they can argue that my behaviors are their business. 

Where do feedback loops end?  It's hard to say and it can be bad.


Speaking of bail-outs, here is a must-listen conversation between Neil Barofsky and Russ Roberts 

Saturday, September 01, 2012

Comfortable assumptions

Writing in the September, 20120, Commentary, Joseph Epstein (full text gated) notes, "... the comfortable assumption that political liberalism and moral goodness are one and the same."  It is a clear and simple description of most of the people I encounter, in person or via their writing.

Dan Klein writes about "The Forsaken-Liberty Syndrome: Looking at Published Judgments to Say Whether Economists Reach a Conclusion."  He contrasts the on-record conclusions by economists addressing key policy issues in their research on eleven specific issues with opinions on these eleven voiced by economists at-large. Klein describes these contrasts in terms of what is revealed about at-large economists' attitudes toward liberty.  He asks:  "Does the set [of eleven essays] serve as meta-evidence of a forsaken-liberty syndrome wherein liberalization finds more consistent support among on-record economists than at-large economists?"

I think that the Epstein description fits the at-large economists Klein describes. Attachment to vague notions of moral goodness comes easy when we are comfortable assuming that our liberty has been secured.