Friday, November 30, 2012

"Planned obsolescence"

JK Galbraith introduced the idea of "planned obsolescence" many years ago.  Competition and an eye to profits, one would think, challenge the concept.  Yet a check of Google Scholar reveals quite a few serious academic papers that model planned obsolescence.  Here is one that relies on "oligopoly" (another idea I have trouble with).

As one who drives a 1998 model car and has no thought of giving up on it, I enjoy reports like this one.  I am not the only one who is happy to keep driving an oldie.  Cars last longer than ever.  And they are cheaper than ever (in terms of hous worked to acquire one).

It's pretty clear that the likes of Apple get many fans to ditch their iPhone in favor of the newer and better one.  The newer is seen as better by enough customers to fuel the smart-phone arms race.  So is failure engineered into products?  No, success is engineered into ever better ones.  No "planned obsolescence."

Tuesday, November 27, 2012

More on churn and stability at the top

Matt Ridley praises Taleb's Antifragile in today's WSJ.

What about cities?  I have mentioned before that churn is great, but when it comes to cities, there is less churn towards the top of the rankings.  Paradoxically, this does not mean that these places are static.  To the contrary, it means that they have the means to adapt and remain competitive.  I should have said that they have means to be antifragile.

Whereas I referred to city size (actually metro size) rankings, there is also stability at the top when one looks at metro GDP rankings. Look at this at Urban Demographics.

Call it flexibility, adaptability, or (from now on) antifragility.  We even get it in our world of second best.  Note that New York, Los Angeles and Chicago have remained one-two-three not because they are well run by a central city leadership but, quite the opposite, because they benefit from extensive hinterlands.  For the largest U.S. metro areas, just 26 percent of the population is in the historic core.  We know that competition is great.  We can now add that it gives us antifragility.  "Fragmentation," lamented by many, is not so bad.

Sunday, November 25, 2012

Why we pay?

In "Tax Time ... Why we pay", Jill Lepore (New Yorker, Nov 26) starts with Oliver Wendell Holmes' "Taxes are what we pay for a civilized society" and elaborates for about 3500 words.  Yes, we look to governments to pave the roads and fill the potholes (which they have trouble doing where I live), but Holmes' glibness is exactly what we do not need as we approach a fiscal cliff. 

Governments in the U.S. do a million things way beyond the standard "public goods" discussions.  (And even these are dated; anything that can be metered can be privatized. And metering is cheaper than ever.)  If there is going to be a useful discussion it cannot be hobbled by aggregating to "taxes, yes or no".  Rather if there is going to be a move from a twenty-percent-of-GDP federal government to the twenty-five-percent version, questions have to be addressed in terms of the many pieces and programs that get us from twenty to twenty-five.

But the recent election and its aftermath indicate that we do not have the deliberative democracy whereby we examine the many items that move us from twenty to twenty-five (or beyond).  We are seemingly unable to discuss whether to privatize the post office and Amtrak, whether to pare farm subsidies, or a thousand others.  That's the problem.

Lepore ends with, "Taxes are a pact. The pact needs renewing."  No.  The much bigger problem is that we are not anywhere near having a discussion of which items our taxes should be used to fund.  Holmes-Lepore help us ignore this basic problem.

Wednesday, November 21, 2012

Are you ready for some poker?

Our brains are conditioned by our evolutionary past and we often jump to conclusions.  This was once a pretty good survival tactic.  But we are also endowed with the capacity to learn.  So we screw up -- but we also have some good ideas about how to screw up less.  This is a crude way to sum up Nate Silver's message in The Signal and the Noise: why so many predictions fail -- but some don't.

It's a great read with many good example and stories (chess, politics, climate, earthquakes, poker, anti-terrorism, etc.).  If you are one who uses markers to flag the good passages, your marker will soon run dry.

Silver wants us to be Bayesians.  (I will never grasp how one cannot be.) You must start with good prior beliefs (specified as odds) and you must update these systematically.  To do this, you have to be open, flexible -- and smart enough to known which of the many signals you encounter are worthy (signals and not noise).  This is all solid advice, easy to grasp but less easy to follow through.  Silver's book is really a good pep talk that we can do it.

"Distinguishing the signal from the noise requires both scientific knowledge and self-knowledge: the serenity to accept the things we cannot predict, the courage to predict the things we can, and the wisdom to know the difference."  (p. 453).

But are you now ready to play poker?  I suggest that readers read the last chapter first.  Then read the book, then read the last chapter again.  Then decide.

Monday, November 19, 2012

Mega-projects and "antifragility"

It's unlikely that earthquake prediction will soon advance to the point where it can limit our earthquake exposure risk.  So it is best to invest in adaptability, flexibility, resilience, etc.  Matt Khan makes this point with respect to climate change. 

Nassim Taleb takes this thinking a step further by suggesting that we seek "antifragility".  It is great to bend with the wind, but even better to be strengthened by the stress.  He summarizes this argument in "Learning to Love Volatility: In a world that is constantly throwing big, unprecedented events our way, we must learn to benefit from disorder," in the WSJ. He alludes to his new book which I have not yet read, so I can only respond to the essay.

Taleb suggests "five policy rules that can help us establish antifragility as a principle of our socioeconomice life." They include "Rule 1: Think of the economy as being more like a cat than a washing machine;" "Rule 2: Favor businesses that benefit from their own mistakes ...;" "Rule 3: Small is beautiful, but it is also efficient;" "Rule 4: Trial and error beats academic knowledge;" "Rule 5: Decision makers must have skin in the game."  These rules are all good conversation starters and prompt the question of how they relate to each other.

For example, take #4.  Real "academic knowledge" is by definition unsettled and open to trial-and-error learning.  If not, what is it?  Blind faith?  Take #3. The author attacks blind faith in economies of scale.  Again, blind faith, where it exists is always a problem.  But I think that most people understand that there are also diseconomies of scale -- and finding a sweet spot where each are contained is a great idea.

We can always expect problems where error-correction is not possible.  Where we engage in one-off projects, we take the biggest risks.  Get the Chunnel wrong and what do you do?   Manhattan Projects and NASA projects do not lend themselves to cost-benefit analysis.  No competition means no error-correction possibilities. One way to heed all five of Taleb's admonitions is to minimize the number of mega-projects in our lives.  Start by forgetting about high-speed rail.


Cost-benefit analysis is not even applied in the simple cases.  The Nov 20 WSJ includes "California Spurs Electric Cars ... Chrysler Group LLC next week plans to unveil an unusual automobile -- an electric car that doesn't stand a chance soon of turning a profit and is unlikely to draw many customers. So why is the company doing it? It has to. California requires it."

Sunday, November 18, 2012


This morning's LA Times' Travel section includes the umpteenth piece on how "interesting" it is to see Cuba.  We are often implored to visit places on Earth that have not yet been "spoiled".  This usually means places where people are still condemned to living in conditions that readers (and potential visitors) would not tolerate in their own lives.  Sad to say that many who live a pretty good life in market economies have no idea why they are rich and others are poor.

Governor Cuomo thinks that the way to handle fuel shortages is to make the available supply available for free -- with predictable results.  This is just one example.  There are many people like Cuomo (many in high office) to whom pricing is either exotic or sinister or both.

Transportation officials in Los Angeles are finally taking belated baby steps towards road pricing.  Access to an Express Lane is now available for purchase on Los Angeles' busy I110, which goes through the downtown.  Small progress is indicated by gruding acceptance by the LA Times' Steve Lopez ("Doing the math on 'Lexus lanes' ... Congestion pricing pencils out for those who want to travel faster.  And it takes some of the burden of funding transit off the poor.")

It is still "Lexus lanes".  Free should be the default.  We call the damn things "freeways."  The fact that "the poor" have been hammered by the rail transit fetish is still beyond Lopez.

Is the glass half-full?

Thursday, November 15, 2012

Amazing disconnect

Watching the election returns on TV, I heard more than one commentator note Mitt Romney's problems stemming from his unclear embrace of the auto bailouts -- which directed about $65 billion of TARP money to GM and Chrysler.  But the auto bail-outs are simply a case of unusually unsubtle crony capitalism. I have posted previously that those who complain about hundred of millions of dollars spent by super-PACS on political campaigns remain strangely silent about the hundred of billions that clearly fall into the crony capitalism category.

One who is not fooled is Neil Barofsky, author of Bailout and former Inspector General in charge of oversight of the $700 billion Troubled Asset Relief Program (TARP).  Barofksy describes himself as a "lifelong Democrat" and served as Special Inspector General charged with looking at how and where the TARP billions went -- in the Bush as well as the Obama Administrations.  His book is important in that it details how old Washington hands worked very hard to mask the crony capitalism at the heart of TARP.  Barofsky also notes that, "Dodd-Frank didn't change the post-crisis status quo of too-big-to-fail; it cemented it" (p. 220).  So much for the Washington "reformers".

There is no "good" vs "bad" crony capitalism. There is only big money flowing in and out of big government with predictable results.  One of the most amazing disconnects in modern America is in the minds of those who rationalize big government but who cringe at the money flowing into politics.

Monday, November 12, 2012

Thriving and growing

In yesterday's NY Times, Adam Davidson wrote about "$5 Watches vs. $5 Coffee ... The battle for 29th Street might portend the future for the global economy. ... Years ago it no longer made economic sense to concentrate meatpacking in Lower Manhattan.  But globalization makes a wholesale district in a crowded urban center more economically viable than ever."  Read the whole thing.

It's a theme that Ed Glaeser and others have been developing for some years.  New York has been and remains the #1 U.S. metro area for many years.  How does it do it?

Consider that the NY urbanized area's share of 1950 U.S. population was just below 18 percent but has fallen steadily to just under six percent in 2010.  But NY is still #1.  The U.S. mean population center has been moving steadily southwest, but NY hangs in at #1.

Churn is the sign of a dynamic economy (though fighting it gives many politicians a career).  The neighborhood churn that Davidson describes is the sign of a successful city -- which is an essential ingredient of a dynamic economy.

Immigrants keep refreshing the NYC talent pool.  And there has to be enough regulatory flexibilty to permit the neighborhood evolutions that Davidson describes. He cites places with free WiFi where locals mix and mingle. He also notes "low-end glovalization" which "brings goods and technologies to the poor."  This is some of the stuff that is bought for export to Nigeria on 29th Steet. 

I have noted previously that the higher up the urban hierarchy, the greater the stability of city rankings.  The bigger the place, the more likely that it will not slip in the rankings.  A growing talent pool and flexible land markets are essential.

Letting the new talent in and letting the land markets churn is anathema to many political instincts, but it is the way places thrive and grow. 

Friday, November 09, 2012

More pork on the way.

It appears that Los Angeles County's Prop J (to boost sales taxes to pay for transit "temporarily" for another 30 years) failed because it did not muster the required two-thirds vote.  But it was close, coming within two percent of passage.

Whereas we have divided government in Washington DC, after last Tuesday there may no longer be a similar blessing in Sacramento. Will California voters next repeal Prop 13?  Will two-thirds voter approval requirements go?  We shall see.

I have posted re transit policy in LA many times.  The county's high-water transit use year was 1985 when there were 497.2 million boardings (data found at the U.S. Federal Transit Administration's  National Transit Database site)-- and when the county's population was 9.327 million.  But then they started building rail transit.

Transit use fell as fares were raised and bus service cut.  Although county population grew and rail capacity was added, transit's 1985 high-water mark was never equaled.  The closest was 495.2 million boardings in 2007 (county population then at 10.276 million).  In 2007, bus use accounted for approximately 80 percent of transit boardings while new heavy rail accounted for 10 percent and new light rail another 10 percent.

LA's transit renaissance never came.  We simply chose to move fewer people (and a smaller proportion of a growing population) at much higher cost.  On a per capita basis, 2007 was 10 percent worse than 1985.  And we are still below 2007. 

There is no way that serious people can make an outcome this bad look good.  But absent the two-thirds voter approval requirement, which could go, the spinning will conitnue and more political pork of this sort will be on the way.

People who get their climate news and policy analysis from people like Al Gore may take us all along for the ride.  (Look at the promo poster for the movie.  Love the hurricane coming out of the smokestack?) Where did most of those "yes" votes on Prop J come from?


Reader Rob Dawg reminds me that it's even worse. "The massive backbone reorientation (away from hub'n'spoke and ) of the LAMTA (and ancillary agencies) has resulted in a large increase in 'boardings' per completed one way trip.  What was a single seat trip in 1985 can now easily be counted as three boardings.  Second. the introduction of passes has inflated the number of discretionary trips.  Lots of two-three block walks are now casual boardings.  The actual number of people being moved is far smaller than 'boardings' would imply."

And "while not affecting ridership itself, the population within 1/4 mile of service has grown far more than the raw regional population served meaning popularity is not even holding even."

Wednesday, November 07, 2012

Bad and good tidings

Some people want to "get the money out of politics" and get huffy about the Citizens United decision of the U.S. Supreme Court.  But these same folks embrace bail-outs and all manner of industrial policy crony capitalism.  Politicized auto bailouts (sold with the help of scare talk and misinformation about bankruptcy) sure did not hurt Barack Obama win re-election.  He's the guy who tut-tutted the Supreme Court justices attending his state of the union speech for Citizens United.

Perhaps Mancur Olson was right that this is the fate of mature democracies. In a Mancur Olson world, can policy on budget matters be anything but kick-the-can-down-the-road?  That would not be good.

But here are the positives.  A president not looking for a second term, but towards history's judgement, tries for creativity in fiscal policy.   He spends some political capital and considers incremental polices like those listed by James Hamilton.  Chastened Republicans grab the opportunities.

Monday, November 05, 2012

No relief in sight

Today's WSJ includes "Health Law Spurs Shift in Hours ... Some Low-Wage Employers Seek to Avoid Overhaul's Insurance Requirements With More Part-Timers."

There are countless examples like this. The law of supply and demand takes no prisoners. But most people like to see themselves as compassionate. Both of the major presidential candidates are eager to make the case that they believe.  One recent president was more than clear:  "I feel your pain."

Jonathan Haidt reports that the "care and fairness" values are most prominently weighted by those on the political left (where Haidt writes he is most at home).  This is powerful stuff.  Never mind that coerced compassion is often involved.  Never mind that the "compassionate" policies often backfire.  Feeling good about oneself comes first.

Some are glad that the political campaign ends tomorrow.  But it does not. The compassion derby never stops. 

Thursday, November 01, 2012

Modern times

Just when I was going to cancel my subscription to The Economist, they come up with "A sense of place ... Geography matters as much as ever, despite the digital revolution ..."  There is no "death of distance" (and no "end of history").

All of us form many networks.  Some of them are digital while some are maintained by face-to-face contact -- whether we walk, drive, fly to maintain them.  The internet and the cities are complements, not substitutes.  What is new is the speed at which we adjust our uses of networks in repsonse to the new opportunities.  We get around cities better and faster with an array of apps at hand.

With speed of network adjustment (and flexibilty and openness) more germane than ever, is it time to re-consider  "smart growth", "new urbanism", "compact development", "transit-oriented development", etc.?  Flexible land markets are critical. It is a bad time to nurse sunk intellectual capital.

Speaking of complements and substitutes, today's WSJ includes "After Sandy, Wired New Yorkers Get Reconnected with Pay Phones."


Facilitating help networks.