Saturday, March 31, 2012

No unmixed blessings

Urban economists and urban planners have a renewed interest in the ideas of Jane Jacobs. Richard Florida's work on "creative cities" may have received the most attention, but city success linked to cities' ability to spawn new ideas is now the "hot" area in these fields.  Ed Glaeser's Triumph of the City provides an excellent summary of this thinking.

How, specifically, does it all happen?  Paul Kedrosky cites "ingenuity-sparking collisions;" Glaeser likes "Chains of collaborative brilliance;" my favorite is Matt Ridley's "I believe that at some point in history ideas began to meet and mate and have sex with each other." Sex in the city about does it.
But there are no unmixed blessings.  Today's WSJ includes "How Big Cities Can Lead to Small Thoughts."  The writer cites results of some disquieting research and reports that ... "there's nothing magic about concrete and good cappuccino that keeps us from following the herd. ... Sometimes it's a trendy phone, sometimes it's a monolithic political or ideological culture. But whatever it is 'small town' thinking can crop up as easily in megalopolis as in Palookaville."

Thursday, March 29, 2012

Start with HSR

"Cities in Western Europe and the U.S.: Do policy differnces matter?" by Wendell Cox and myself is now available in the most recent issue of the Annals of Regional Science.

We take off from the position of Nechyba and Walsh that, “While we seek in this paper to address only the issue of urban sprawl in the United States, we suspect that greater insight into the causes of sprawl within the United States could be obtained from a better understanding of why cities in other developed societies look very different.” Our
purpose was similar, but we were less sure of “very different.”

And, contrary to some views, that European and U.S. cities are converging in important dimensions, we found that the Europeans are drifting closer to the U.S. model.  Small wonder; people everywhere like their cars.

Beyond all this, Wendell keeps running around the world's cities and reporting what he finds.  Here are more than twenty of his reports. What goes?  Most development is outside the historic core -- and there are declining shares of transit use.  People like their cars everywhere.  In fact, they like them so much that their preferences seemingly trump all the policies designed to get them to change their evil ways.

Think of what could be saved if some very expensive policies (dreams) were aborted?  Start with high-speed rail. 

Tuesday, March 27, 2012

One can hope

Penguin publishers sent me Joe and Blake Kernan's Your Teacher Said What?! and it was engaging enough for me to put down what I had been reading and have a look.  Joe hosts CNBC's Squawk Box and Blake is his ten-year old (at the time of the book's inception) daughter.

I decided to keep reading when, on page 2, the authors revealed how their project began.  Blake came home from school and started asking questions about the recession which they had discussed in class.  "And my teacher says it's 'cause we care too much about buying stuff, and it might not be so bad if we stopped."

Hence the book's title and how the book was launched.  Joe Kernan takes Blake through Smith-Schumpeter-Hayek-Friedman-Coase-Buchanan.  I assume that the teacher never could nor would.

The book is clear and written in a father-daughter chat fashion.  Blake asks great questions.  Leanard Read's I, Pencil is nicely elaborated as "Who Made My Shoelaces?" (Ch. 4), which launches a fine discussion of supply chains.  Those are always more poignant than the standard textbook presentation of comapartive advantage (which is also covered).

I accept that we all live in bubbles (my March 19 post) of various thicknesses.  But we keep hoping that the likes of Kernan will be read and appreciated by a few brave souls who think like Blake's teacher.  One can hope.

Sunday, March 25, 2012

Market test? Naw!

Businesses and products fail all the time.  Good thing.  The error-correcting market is all we have.  But when it comes to green and electric cars (and industrial policy), some people cannot grasp the idea of a market test.  They reach for the conspiracy instead.

Now that the heavily subsidized Chevy Volt is not selling, what gives?  The New York Times' John Broder ("The Electric Car, Unplugged") does it again.  He goes to the source.  He ends his report by ominously quoting Chris Paine (who made the "documentary" "Who Killed the Electric Car"?):
But one possible culprit still stands to gain if the electric car is killed yet again, Mr. Paine suggested.
“Not too hard to guess,” he said. “With Americans paying $250 a month to fill up on gasoline when electricity can do the job in a Volt for $50 a month, why are we being told electric cars are failures? Who could possibly be behind this?”  

Thursday, March 22, 2012

California dreaming

The Urban Land Insitute had commissioned a report by Prof Chris Nelson re The New California Dream:  How Demographic and Economic Trends Shape the Housing Market -- A Land Use Scenario for 2020-2035.  Note the dates. I don't buy the whole thing.  In fact, I was asked to comment in a public session this morning. 

California's SB 375 mandates reduced greenhouse gas emissions by somehow redesigning urban growth in the state.  The report rests on survey responses that suggest there is a trend away from demand for single-family detached housing anyway.  People want to live in attached units and near public transit.  SB 375 can easily be fulfilled.

Here are the take-aways from my response (based on trend, not survey, data):

1) Long run forecasts are implausible; no one knows (no one can know) what 2035 will be like; flexible plans and codes are best. 
2) Surveys of preferences are always second-best. Respondents’ “talk is cheap.” Real data are best; look at what people do, not what they say they would do. Voting with feet and wallets, most people still prefer spacious/suburban housing.
3) People make mistakes, but competitive markets are error-correction devices. This is the best we have for moving into the uncertain future. We inevitably make mistakes -- and we often get to learn from our mistakes. Natural selection is “the only game in town”.
4) Development opportunities are varied, complex and area-specific; broad generalizations and prescriptions can be misleading. Flexible policies and plans that “let 1,000 flowers bloom” are a good idea.
5) Most people (here and abroad) prefer auto travel; conventional transit will continue to be a small niche (NYC is not representative).
6) Urban forms that respond to preferences are resilient; policies that challenge people’s preferences have little chance of success.
7) There is no evidence that patterns we have seen are cause for alarm (or drastic action) -- in spite of the normal collections of “market failures” and “policy failures”.
8) The best air quality fixes are a pollution/carbon tax.

Wednesday, March 21, 2012


Russ Roberts talks to Deron Acemoglu about Why Nations Fail (which I have not yet read; I believe it just became available).  The book's authors have recently set up this blog.

Acemoglu acknowledges his intellectual debt to Adam Smith and Douglass North (and many others).  Smith's question re why some nations are rich and some are poor is as profound and challenging as ever.  North (and colleagues) brought the discussion back to institutions (mainly clear and credible property rights) and how they impact incentives.

Acemoglu (in the interview) does not mention "kleptocracies", preferring to cite "extractive regimes" (as in rent extraction, the partner of rent seeking).  They are seemingly the same.

I first read about "virtuous cycles" in the 1995 paper by Surjit Bhalla.  Economic freedoms prompt prosperity and prosperous people demand economic freedom.  Trouble is that the positive feedback does not occur everywhere.  Kleptocrats often grab power and jam up the unfolding of the virtuous cycle.  But do we know when and where this is most likely?  Acemoglu discusses historic-geographic peculiarities that ocassionaly stymied the kleptocrats.  Colonials respected local institutions in Botswana because the place was apparently too poor to dominate.  This historical accident favors Botswana today and it is a stand-out in African economic development.

(All this sent me back to Deepak Lal, who also emphasizes historical circumstances that seemed to have unintended but profoud economic consequences.)

Is it culture?  Much has been written about the North Korea-South Korea-comparison natural experiment.  (Nogales, Arizona, and Nogales, Sonora, are mentioned by Acemoglu as another useful "twins" study of the power of institutions, but this one involves common geography, not common culture.)

It is a cliche that you can never know enough history.  Picking up on Smith, North, Acemoglu, Lal and others, we see that economists can never know enough history.

Monday, March 19, 2012

Our own bubbles

I greatly enjoyed Charles Murray's Coming Apart: The State of White America, 1960-2010.  He finds that many us live in "bubbles" and are out of touch with large segments of our own society.  He argues that this is a problem.

Quite surprisingly, Murray manages to end his doleful analysis on an optimistic note, citing Nobelist Robert Fogel’s Fourth Great Awakening (2000) which includes the rise of philanthropy in America, much of it geared to promoting equality of opportunity.

Murray's "bubble test" is available here.  My own score tells me what I already knew.  I live in a bubble. Take the test.

The Long Tail is a wonderful thing.  We can easily find vast variety and highly ideosynchratic menus of music, books, TV -- and everything else -- which cater to our peculiar tastes.  As never before, we get to fashion a bubble that works for us.

Is the glass half full?  We have the "secession of the successful.  But "the rich" have always been apart.  That option is now available to large segments of the middle class. 

Saturday, March 17, 2012

Economics or gibberish?

You would think that trade benefits all sides.  But here is a report from the WSJ that could have been written by any protectionist politician or pundit.  To make it worse, the focus of the story is on the difficulties researchers encounter when they try to get to the bottom of the mystery of how much China gains and others lose.
Number of the Week: Who Gets Credit for iPhone Trade? ... $6.83 Billion: Estimated amount that iPhone sales added to the U.S.-China trade deficit in 2011. ... Every iPhone sold in the U.S. adds to the country’s trade deficit with China, but the official calculations may overstate the Asian nation’s contribution. Now statisticians are trying to find a better way of tracking international trade.
The iPhone provides a good example of the problems with the way trade is currently calculated. The Apple device features hardware from all over the world, but because it’s manufactured in China that country gets credit for the entire wholesale export cost.
The piece cites various economists who have found that,
... each iPhone sold in the U.S. adds $229 to the U.S.-China deficit. Based on 2011 cellphone activations from AT&T, Verizon and Sprint, Apple sold around 30 million iPhones in the U.S. last year — accounting for about $6.83 billion of the U.S.’s $282 billion 2011 trade deficit with China.
But the researchers note that such estimates overstate China’s contribution. Though the iPhone is assembled in China, most of its component parts come from elsewhere.

The iPhone is just one example. This same phenomenon is happening all over the world in products ranging from cars to children’s toys. In an attempt to better gauge which countries are benefiting or losing the most through trade, the Organization for Economic Co-operation and Development and the World Trade Organization announced that they will be working on a project that identifies where value-added flows are coming from. (italics mine)

A better understanding of trade flows should help guide policy makers to manage economic shocks, arbitrate trade disputes and identify global imbalances. (italics mine).
Where to start?  Eager (lusting?) iPad buyers are all over the news.  Apple's record stock valuations are a favorite topic among investors.  Tech reporters are besides themselves with admiration for the device, which many have had in their hands for about a day.  NPR admits that its This American Life report about nasty tech factories in Asia was a fabrication.

I get annoyed when my students worry about these "imbalances".  But this comes from the WSJ and cites the work of real economists.   What hope is there when these people peddle mercantalism?  What hope when serious people ignore the fundamental source of our material wealth?

Thursday, March 15, 2012

Creative destruction comes to higher education

Yesterday's LA Times reported that Santa Monica Community College had adopted two-tiered pricing.
Faced with deep funding cuts and strong student demand, Santa Monica College is pursuing a plan to offer a selection of higher-cost classes to students who need them, provoking protests from some who question the fairness of such a two-tiered education system. 
Under the plan, approved by the governing board and believed to be the first of its kind in the nation, the two-year college would create a nonprofit foundation to offer such in-demand classes as English and math at a cost of about $200 per unit. Currently, fees are $36 per unit, set by the Legislature for California community college students. That fee will rise to $46 this summer.
Just a couple of days ago, The Economist ("A pixelated portrait of labour") reported LinkedIn data that suggests the fastest growing job title in the U.S. is adjunct professor which they describe as "an ill-paid, overworked species of academic."

To explain it all, and much more, there is Ronald Ehrenberg's "American Higher Education in Transition" in the Winter 2012 Journal of Economic Perspectives.  (Ungated and excellent.)  The times are a-changing.  How could they not? 

Mammas, don't let your babies grow up to be PhDs' -- unless you are pretty sure they will be able to claim one of the dwindling number of tenure-track positions at "wealthy private and flagship public research universities and the leading liberal arts colleges" which the author reports "are in a world of their own."

Tuesday, March 13, 2012

Minimum wage

Donald Boudreaux and Walter Williams write about the minimum wage in today's WSJ ("How to Keep More Kids on the Streets ... New Jersey is the latest state that may price teens and young adults out of the labor force").

I think that most people understand that demand curves are downward-sloping.  So what gives?  Boudreaux and Williams write that "Proponents of raising the minimum wage assert in effect that the laws of economics don't apply to human labor."

Perhaps.  I think that another explanation is that minimum wage proponents believe that all businesses have deep pockets.

Many people are supremely ignorant of the world of business.  Some lump all businesses with "corporations" and all "corporations" are big and predatory and exploitative.  Listen to what comes out of the mouths of the "Occupy" people.  See how much deference they received in the media.  In that world, enlightened and caring lawmakers are the proper antidote.  They are there to "help people".

I cannot prove any of this, but we know how business is widely depicted in the popular culture.  

Sunday, March 11, 2012

College tuition

Robert Frank applies his Darwin Economy argument to the problem of high college tuition rates ("The Prestige Chase Is Raising College Costs") in today's NY Times.

Combine the fact that prestigious degrees help grads land lucrative jobs (and careers) with the fact that much of the world relies on signals (the college as a brand) and you get the rush to apply to prestige schools, helping to drive up their tution rates.

Frank wants federal aid to colleges to be tied to restraint on their tuition hikes.  He also adds this punchline: "We might consider taking more direct aim at the component of tuition inflation that is attributable to growing salary gaps.  Raising taxes on top salaries would be a good idea for Amercan society in general, and not just for higher education.  It would not only shrink the effect of salary disparities but would also generate some much-needed revenue." Italics mine; I always find it weird when economists assert "needs." What happened to trade-offs?

What else is missing?  The perceived possibility of upward mobility (and the rush to brand-name schools) is a wonderful thing.  One does not stay on top (or reserve a spot at an Ivy college) as a matter of birthright anymore.

Colleges are in an arms race to provide amenities because there are enough affluent families able to encourage demands for these among their kids.

Markets are never perfect and Frank has certainly noticed that.  But who fixes this?  Frank wants better policy to replace the policies now in place.  Does he think that the faulty tuition subsidy programs now in place came about via some oversight?  Reform is a wonderful thing, but how would it come to pass?  New and improved federal programs still come about the old fashioned way.

Inisting on federal involvement but wanting it to be "objective" is a little like want to have one's cake and eating it too.

Thursday, March 08, 2012

Human design with and without a market test

Today's LA Times includes one more effort to make the California bullet train proposal look like a serious idea. "A collision of visions on bullet train ... The high-speed rail line would transform California lifestyles for the better, backers say. Opponents see a costly social-engineering folly."

Serious journalism gives equal billing to both sides.  "Is the Moon made of Blue Cheese?  Let's listen to both sides."

I have the highest regard for engineers and designers.  Almost all of the wonderful things within reach are the products of human design.  We feel safe at 30,000 feet; we marvel at the amazing things that surgeons and medical doctors using their new instruments can accomplish these days.

But just about all of the underlying designs (by humans) are subject to a market test.  Some fail and some survive.

One would think that "social engineering" and "transform lifestyles" says it all.  Unintended self-parody? 

Some designers want to go where no market test is possible.  This is where we get the "visions" and the "mega-projects" -- and usually a lot of trouble (see Peter Hall's Great Planning Disasters).

Monday, March 05, 2012

The "platoon" thing

Quite a few people have now chimed in on how much we will miss James Q. Wilson's voice of reason.  Among other things, he well understood modern urban life and how it is wrapped up with automobiles.  In 1997, he wrote this:
The European experience should explain why this is so: if people can afford it, they will want to purchase convenience, flexibility, and privacy. These facts are as close to a Law of Nature as one can get in the transportation business. When the industrial world became prosperous, people bought cars. It is unstoppable.
Read the whole thing.  It is remarkably clear.

This morning's WSJ includes an opinion piece by Gordon Crovitz, "The Car of the Future Will Drive You ... A truly auto-mobile is coming if liability laws don't stop it."

The piece cites Bill Ford saying this:
This will limit the human error that accounts for 90% of accidents. Radar-based cruise control will stop cars from hitting each other, with cars by 2025 driving themselves in tight formations Mr. Ford describes as "platoons," cutting congestion as the space between cars is reduced safely.
It's the "platoon" thing that makes me wonder.  A huge part of the private auto's charm is freedom (ask any teenager).  Is that lost when we ride in platoons?  More time to fiddle with smart phones.  But at some point, we would no longer be driving.  Leather driving gloves would really look silly.

Saturday, March 03, 2012

Chevy Volt

"GM to Idle Volt Output as Sales Slow" should not surprise anyone.  But it seemingly does.  Congress and much of the public (as well as a famously "cerebral" President as well as a "dream team" of economists) had put common sense on hold through the current bout of industrial policy.  Combine promises of "stimulus" and "jobs" and "green" and that's what they do. 

In the real world, bribe buyers to the tune of $7,500 to buy a package they do not want and most take a pass.  It takes a market to discover the sweet spot of price and quality that works for producers as well as consumers.  This is much too complex to accomplish via politics.  And, as if that were not enough, the political way is subject to politicization (rent-seeking).

James Q. Wilson, whose passing we mourn, had a lot to say about the latter.

Thursday, March 01, 2012

What do they mean?

Paul Solman of the Jim Lehrer PBS News Hour reported "Benefit Corporations Aim to Make a Profit -- and a Positive Impact" on last evening's broadcast.  Just after viewing that, I came across The Economist's Special Report on "Financial Innovation:  Playing with fire".  The latter highlights "social impact" bonds.

"Social" means different things to different people.  I had thought that passing the market test indicates "social" success.  Absent force and fraud, all parties (shoppers, owners, workers) willingly assent to mutually acceptable contracts.

But as the two cited reports confirm, many others use a much broader definition of "social" success.  There may be external costs (who will fix them?); there may be distributional consequences that do not match some people's dreams (who will measure them?); there may be all sorts of irksome qualities ("tacky" products and services; who will decide?). 

The answer to all three of these questions that many are seemingly comfortable with is politics.  The political process will resolve all three.  But is that what the people who are comfortable with the free and easy use of "social" really have in mind?


Perhaps many critics are not comfortable with the choice sets available (as for low-income workers).   Again, who will fix that?


Politicization in action.  (H/T Jenny S.)