Monday, October 29, 2012

Any bets?

An Ngram search establishes the post-1950 decline in the use of the word "monopoly". 

Most people can easily see the battle between Apple, Microsoft, Google and others and gather that these giants are anything but monopolists.  Most economics textbooks, nevertheless, still preach that monopoly is a "market failure" to be corrected by government action.  Go figure.

But we know that the real monopolies are the ones established by law.  And even these are precarious in modern times.  The U.S. Postal Service has a legal monopoly on the delivery of "first-class" mail, but that has become mostly an expensive jobs program.  Most of us no longer use USPS.  In an election season, we see that it is simply a means to clutter our lives with junk mail -- delivered at subsidized rates and felling trees that could be absorbing CO2.

Today's WSJ includes "Taxi Apps Face Bumpy Road ... E-Hailing Startups See Soaring Demand, but Cities Say They Violate the Law." Most cities work hard to protect licensed taxi operators.  The rising price of a NY taxi medallion (the legal right to operate in a restricted market) tells the story.  

Inter-city travelers using a taxi at both ends of the trip often see that their taxi expenses are not so much less than their flight costs.  On an LA-SF run, a bargain air fare makes it very close.

But in the race between tech (app developers and the supporting smart phone infrastructure) and city hall (politicized regulators), who will you bet on?

Saturday, October 27, 2012

No Goldilocks

Students and others looking for a place to start often ask, "If I could read just one book about xxxx, which would you suggest?"  When it comes to cities, I have a new favorite.  It is Shlomo Angel's Planet of Cities.  The author studies an amazing amount of data covering the world's 3,646 cities (usually, metropolitan areas) with population of 100,000 or more in 2000.  This is one amazing data base and Angel makes the best of it, addressing the interesting questions surrounding growth, spread, "sustainability", etc.  Yes, cities spread out everywhere and "containing" them is undesirable as well as implausible.

Angel evokes the "Goldilocks Principle" more than once and wonders if there is a population density which is not too low and not too high.  As I have often mentioned, the question obscures the real story.  Metropolitan areas are very big and diverse. The Los Angeles-Orange area covers more than 3,250 square miles. In 2000, the population residing in that area was 12,366,000 and the number of jobs was 5,292,000.  Annual sub-metropolitan data are available for Public Use Microsample Areas (PUMAs) of which there are 84 in LA-Orange with an average size of about 40 square miles.  The average PUMA density was 8,748 per square mile but the standard deviation of the PUMA densities was almost as large, 8,456.

Angel argues (as have many others) that there is no "optimal" urban size.  There is, likewise, no "optimal"  urban density.  There are complex density distributions in all of the metropolitan areas.  These are endogenous and it takes flexible land markets to hone in on the most suitable (congenial to growth) ones in each case.

Thursday, October 25, 2012

Behold the preferences

In recent years, I have started and ended the semester by showing this well-known graphic depicting long-term (200-year) average annual U.S. per capita GDP growth of 2 percent. Has the U.S. had incredibly good fortune?  Can it last?  Is it too soon to tell?

Two-hundred years is a long time and I am prepared to remain optimistic.  But at the same time, the increasing influence of the political coalitions and lobbies that Mancur Olson described is undeniable.

Which will dominate? The long term U.S. trend (e.g., all of the institutional, cultural and geographic phenomena that explain it)? Or the forces described by Olson?

Here is a related question.  Cities here and abroad keep spreading out in spite of widespread policy efforts to somehow stop or reverse the trend.  "Return to the cities" episodes keep being uncovered by advocates, but they are usually too minor to matter in the big picture.

Wendell Cox has assembled 33 case studies from around the world in his Evolving Urban Form series. All of them offer the same lesson:  cities growth by spreading out. Robert Bruegemann has made the case for the universality of "sprawl", as have many others. I have argued here that suburbanization is why and how urban growth can continue.  It represents the market's way of accommodating to the stresses and problems of bigness.  People manage to find the spatial arrangements that work for them.  This is how and why the net agglomeration economies that cities offer remain available.

There are two questions and they have the same answer.  Expressions of people's preferences are a thing to behold.

Sunday, October 21, 2012

City not beautiful

Most of us like green spaces to break up city drab.  Here are two photos taken at a location about 1.5 miles from where I live (not a poor area).  The City had created a small pocket park which quickly became an encampment.  The City then closed off the place with a permanent encircling locked iron fence.  A never used park bench is visibile in the top photo.  A mini-encampment then bloomed under a tree just outside the fence (bottom photo).

Parks and green spaces are universal favorites, but advocates are almost silent on why we have so few.  Not only do we not have ideas or policies that address the problem of street people, but we rarely even discuss what we might do.

Until we gain the nerve to seriously address the problem, let's put all the other discussions on U.S. big cities on hold.  We routinely counsel addicts to get past denial as a first big step.  The folks who write learned essays about the problems and prospects of large U.S. cities should do the same.

Saturday, October 20, 2012

No candidates

Inequality is a great question in election years.  People disagree passionately but never bother to try and agree on basic terms definitions.  Inequality of what? Looks?  Health? Longevity? Happiness? Wealth? Income? (One can go on.)

Most discussions focus on the latter two, but without bothering to be clear?  If income? Over just a one-year period?  Before or after taxes?  Count full compensation package (with perks? with in-kind transfers?)  Include changes in net worth?

Static or dynamic?  Count upward mobility chances?  Count access to opportunity?  How?

This will not be an election where any of these questions are addressed.  The candidates will continue to make vague claims about "fairness" and their unshakeable commitments to the "middle class" and similar banalities.

Or is meritocracy the most "fair"?  Is meritocracy most likely to result in growth?  Does growth take us away from the focus on envy?  Benjamin Friedman says "yes".

Amazing that there are no candidates who can get behind this message. 

Tuesday, October 16, 2012


Without taking anything away from the two new economics Nobel laureates, David Henderson comments on the context:
Once Mr. Roth confronted the medical market, it wasn't that big a step to thinking about an especially knotty problem doctors faced: matching live kidney donors and recipients. The fact that the federal government has made it illegal for people to sell their kidneys means that there is a shortage. Mr. Roth's "market design" solution led to the New England Program for Kidney Exchange, which allows husbands and wives with incompatible kidneys to "swap" a kidney with another incompatible pair.

Mr. Roth's solution has not ended that shortage because his solution is essentially one of barter. The only suppliers in the market are those who want kidneys for their loved ones. But his system gives a better match.

There is a more fundamental solution to the kidney shortage. Don't "design" a market; simply allow one. A ban on selling kidneys is essentially a price control of zero and, like other price controls, causes a shortage. There are thousands of "demanders." There are also thousands of potential suppliers who, at a price of zero, are not willing to give up a spare kidney. A straightforward solution is to allow the sale of organs.

Now that the Nobel Peace Prize has been given to such an amorphous entity as the European Union, perhaps next year the Nobel in economics should go to the free market, which would do more than all the market designers to get kidneys to desperate people.
Steven Landsburg makes the point in fewer words:
So Alvin Roth wins the Nobel Prize for, among other things, figuring out the best way to allocate kidneys subject to the constraint that you’re too damned dumb to use the price system.
Next up: A Nobel prize in medicine for figuring out the best way to prolong your life while repeatedly shooting yourself in the head.
And it's been noted many times that Iran has a market in kidneys.

Avoiding the market option also costs lives.  Many viable organs are never made available because many people take them to the grave.  With incentives, some of them might choose to will body parts rights to heirs or directly to an organ exchange.

Sunday, October 14, 2012

No politicized sermons

Information markets are better than ever.  Thanks to the internet, we can consult Yelp, TripAdvisor, Rotten Tomatoes, WebMD and many millions of others.  But are they "objective"?  Who is?  The hard work of investigating and judging will always remain with each one of us.

Most of us like the First Amendment to the U.S. Constitution because we rightly fear politicized speech.  Why then invite politicized speech in the form of government provided food labeling?  I recently posted re my fears of proposed GMO food labeling in California.

Today's NY Times includes Mark Bittman's "My Dream Food Label".  I know he is not kidding, but I did have to look twice.  Bittman proposes that labels be simplified and that foods be scored in terms of "Nutrition", "Foodness", and "Welfare". 

Consider the latter. "This would include the treatment of workers, animals and the earth. Are workers treated like animals? Are animals produced like widgets? Is environmental damage significant? If the answer to those three questions is 'yes' — as it might be, for example, with industrially produced chickens — then the score would be zero, or close to it. If the labor force is treated fairly and animals well, and waste is insignificant or recycled, the score would be higher."

Interesting stuff, but not from the FDA or the USDA or any other possibly politicized group.  Just as we do not want speech to be politicized, we also want to avoid politicized sermonizing.

Saturday, October 13, 2012

Parlor game

Last night, the PBS News Hour's Paul Solman tried to highlight the differences between election polling, econometric modeling (in this case, Ray Fair's) and betting markets ("Political Polls, Professors and Election Markets Predict the Presidential Race").  But it took commentator David Brooks, appearing a few minutes later, to explain.  These approaches offer competing readings on today's electorate, but predicting the election results is entirely another matter.  Brooks did not mention Black Swans, but they can easily materialize.

One would think that of the three, only the betting markets were forward looking.  The models are based on historical data, the polls are random chat (who decides to answer the phone and stay on the line), but people putting up cash might be looking ahead (as best they can) as well as backward.

This is another area where the News Hour report was muddled.  Polling and betting go on until almost the last minute.  They offer many readings along the way.  Which of these are scored when evaluated against the actual results?  The very last ones.

It's an old story.  Forecasting is a fool's errand.  Some people must plan and take a stand in some situations.  For others, it's simply a parlor game.  

Wednesday, October 10, 2012

Live with them

Witold Rybczinski ("Ask the people") has his doubts abou the value of "public participation" and "public input".  He is writing about the design process, but it is a view worth considering.  What do we know?  (1) Who shows up at hearings?  Who is "the public"?  How representative are such folks?  The answers are pretty clear. In fact, public choice economics suggests that when participation is invited, interests with a strong stake will mobilize first; and (2) Talk is cheap.

From Rybczinski's post: "Speaking recently at a British conference on urbanism, Daniel Libeskind called for a greater degree of public participation in the design process. 'The people have to be empowered to be involved in shaping the program, not just the program but also the actual space, he said. Let the voice of the people be heard!"

These are simple points.  But when I cite market tests and how they vet worthy vs. unworthy projects, I am often reminded that there are analogous opportunities outside the market.  These are elections and other channels of public participation.  Democracy has its well known problems, as does "public participation".

I have blogged before about a plausible division of labor.  At most scales error correction is possible (although never trivial).  This is critical for better resource allocations.  But at large enough scales, error correction becomes almost impossible.  These are the mega-projects.  In those cases, soothing evocations of public participation are not nearly enough and we have to live with the mistakes. 


From a more recent WR blog post: “'I want my architect to have already made all his mistakes,” a developer friend once told me."  I had not heard it put this way before.

Sunday, October 07, 2012

More "help"?

"I'm from the government and I'm here to help you."  This is seemingly a gag line for some. But most of what I hear from both presidential candidates is about how ready and eager they are to "help" anyone within earshot.  Earnest commentary is usually along the lines of "But did he signal his readiness to help [fill in the blank]?"  It is worse when news people interview prospective voters, most of whom complain that the man they had just seen/heard did not say enough about how he would help them.

Today's NY Times has an op-ed piece along similar lines.  Under the mock newspaper banner "Republicans to Cities: Drop Dead" ( take off of the NY Daily News' "Ford to City" 1975 headline), there is, "The party can't get past its disdain for the very idea of urban life."

But consider the source.  "Urban life" to writer Kevin Baker and his editors means Manhattan or something similar.  Baker acknowledges that while the country is four-fifths urban, most of that is suburban.  And, "... as urban areas continue to grow, they become more and more intertwined with what once were the distant suburbs ..."  Yes, there are thousands of distinct comunities and neighborhoods out there.  (And we are no longer in an era of 1960s Model Cities programs when "help" was rooted in a view of urban America as a world of dysfunctional "inner cities".) Baker and his editors must grasp that "the cities" we have are extremely varied.  This complexity and variability is well beyond the capability of federal officials and politicians to "make policy" for or to "help."

"Do few things and do them well," is gone.  What we have instead is, "Do many more things and do not stop to consider that you have no prospect of doing them well."  

Friday, October 05, 2012

Who do you trust?

Matt Ridley writes that there is almost no new risk from growing or consuming genetically modified foods.  In fact, progress in food cultivation saves people from starvation.  It is also an environmental boon.

But acceptance is opposed by protectionists, holding hands with the usual Luddites.

What exactly is the risk that we are being protected against? More than a trillion GM meals have been eaten worldwide and nobody is known to have had a tummy upset as a result. Genetic modification is a technique, not a product. To say it carries risks is like saying cooking carries risks so you should ban cooking. The older alternative to genetic modification - gamma irradiation of crops - is neither banned nor its products subject even to safety testing. Its products are used by the organic movement without a murmur. 
Nor is there a risk to the environment from genetic modification: indeed, the reverse. GM crops are proving to be unambiguously, spectacularly good for wildlife. Insect resistant crops mean half as much insecticide is used: all over China, India, South Africa, the birds, bees and butterflies are coming back into cotton crops. Higher yields save wilderness. Even the "spiritual" (or "yuck factor") arguments have been exploded. Geneticists now know that genes cross species barriers in nature too.
And this is just the first generation of GM crops. In the pipeline are ones that use less nitrogen; hoard water better; have added nutrients making them better as feed for pigs or salmon; and have omega-3 fatty acids in them, giving us all health benefits. North America, South America, China, India, Australia and increasingly large parts of Africa are now growing these crops and are delighted at the impact on yield, price and wildlife. Only Europe and some African countries that Europe has managed to bully are digging in their Luddite heels. 
Americans merrily eat not only 100 percent pure GM seeds in their food, but also the animals that eat these seeds. Yet we in Europe are not allowed to eat 0.01 percent GM food. This is not just ludicrous; it is scandalous. The bully boys of the environmental movement, whose chief interest in the subject was that it enabled them to get on the TV news for a while, have found common cause with the Eurocrats who love enforcing rules so they can justify trousering more of your money doing so. 
I recently walked out of a restaurant because its menu boasts of not serving GM ingredients. I support a technology that gives cheaper food and cuts down on insecticide use and the destruction of virgin forest.

On November 6, California voters will be asked to vote on Prop 37 which would require labeling of GM foods.  This is in spite of the fact that most people who shop for food have access to Google and can read what Matt Ridley and many others have to say; they can also find reader discussions of almost anything available at the local grocer. I doubt that politically inspired labeling will add anything useful.  In fact, it may even be misleading.

On the same ballot, I will have the opportunity to vote on LA County Proposition J, "Accelerating Traffic Relief Job Creation. To advance Los Angeles County traffic relief, economic job growth by accelerating light rail/subway construction. ... "

Let's see.  We have had light rail and subway construction in the County since the early 1980s.  In the last thirty years, no on has found any evidence that these activities have benefited the County's jobs picture or that traffic has improved.  There is a labeling problem when it comes to Prop. J.

It's safe to say that I do not want these guys in charge of labeling my food or anything else.

Wednesday, October 03, 2012

Complements, substitutes or sweet spots?

I understand the Baumol Cost Disease story, but am not sure I buy it. It's a cinch that we can now enjoy more and better music in the home than ever. Technology does augment the reach and productivity of all those string quartets.  Uneven productivity advances are normal.

I have previously blogged about our fine experiences enjoying the Berliner Philharmoniker at home.  We recently found Jewish High Holy Day services on the net which were splendid.  I was pleasantly surprised.

Substitutes or complements?  Some people like their beer and bourbon together and others think of an interlude with one or the other.  As always, it is all about subjective and personal choices.

MIT President Rafael Reif writes about "What Campuses Can Learn From Online Teaching ... Searching for the sweet spot where cyberstudents around the world pay a small fee that helps make the 'residential' college more affordable" in today's WSJ.  Are the two modes substitutes or complements?  I am a great believer in the idea that competition breeds experimentation which breeds discovery.  Sweet spots will be found.

I have been looking at on-line courses for years.  Some are awful and some are pretty good.  It is no surprise that Marginal Revolution University looks very good.  Many will be looking for the "sweet spot" whereby this freeby complements their teaching.