Sunday, March 31, 2013


Greg Mankiw has trouble with President Obama's use of "sustainability" when referring to the federal budget and deficits.  Of course. The s-word has always been a weasel word.  The N-gram plot of the word's appearance only takes us to 2008 but shows the steady climb. (Cue to the old joke about that kind of growth not being "sustainable.")

All the old doomsday stories have been wrong because we are not able to make long run forecasts -- let alone policies based on such.  But that stops no one.  California is only one of many places making dumb "green" energy policies based on feel-good notions about what is "sustainable."

This week's Economist reports that the most recent 15 years of temperature readings cast doubt on the models that the "warming" people had been relying on.  "A sensitive matter ... The climate may be heating up less in response to greenhouse-gas emissions than was once thought. But that does not mean the problem is going away."

Bjorn Lomborg has been imploring us for years to think before we act.  "First, Make Green Energy Cheap."  It will be used widely once we have figured out how to make it cheaply.  There are opportunity costs to mandating its use while it is expensive; we would be doing less trying to figure out how to make it cheap. The other s-word, scarcity, is always in play. 


Thursday, March 28, 2013

Public transit in LA (again)

I have for many years been pessimistic about rail transit -- especially for LA.  There have been many others.  Baum-Snow and Kahn (Brookings, 2005) studied 1970-2000 public transit trends for major U.S. cities.  They found that the seven U.S. cities with rail in 1970 experienced average transit use decline of 5% (over 30 years); the fourteen U.S. cities that added rail in 1970-2000 experienced average change of zero (30 years); all U.S. MSAs with no rail experienced average decline of 1% (30 years); all U.S. MSAs also experienced average decline of 1% (30 years).

But Paul Kruman blogs that "Subways Pay".  He points readers to a new paper by Michael L. Anderson.  Here is the abstract:
Public transit accounts for only 1% of U.S. passenger miles traveled but nevertheless attracts strong public support. Using a simple choice model, we predict that transit riders are likely to be individuals who commute along routes with the most severe roadway delays. These individuals’ choices thus have very high marginal impacts on congestion. We test this prediction with data from a sudden strike in 2003 by Los Angeles transit workers. Estimating a regression discontinuity design, we find that average highway delay increases 47% when transit service ceases. This effect is consistent with our model’s predictions and many times larger than earlier estimates, which have generally concluded that public transit provides minimal congestion relief. We find that the net benefits of transit systems appear to be much larger than previously believed.
In light of this evidence, LA rail transit, Anderson suggests, is actually cost-effective. The important part of the paper, in my view, is at the end where the author takes a long run view. Reactions to sudden strikes by transit workers are anomalous because people make it their business to find ways to adjust.  To model the longer run, Anderson relies on annual rail transit ridership growth of 0.9 million - 1.7 million.  I doubt it.  As my recent post (above) mentions, we just recently got back to 1985 transit use levels in LA.


NHTS 2009 reports that nationally 8.7% of U.S. households did not own a car (Table 17).  But the Los Angeles MTA reports that, of its rail riders, 35.6% came from households with no cars (Fig. 3.5).  That should cause us to wonder whether a transit strike can dump many rail users onto "routes with the most severe roadway delays."

Monday, March 25, 2013

Political economy

There was political economy before the divorce that gave us "economic science" and "political science."  Perhaps we are now getting back to political economy.  Fittingly, yesterday's WSJ included Roger Lowenstein's essay on Albert Hirschman's Exit Voice and Loyalty ("The Choice: To Squawk or to Go ... A refugee economist created an irresistibly useful approach to understanding how dissent shapes organizations.")

Human dignity is enhanced by the range of choices that people have. Choices are complex, as the title of Hirschman's book makes clear. They vary by place (many New Yorkers can shop in NYC or cross the river to New Jersey but many of us have fewer options) and by circumstance. They are relevant in how we evaluate and choose in our "public" as well as our "private" lives. Lowenstein mentions the lower schools. Once a family has the resources, the idea of fighting city hall (the school board) is trumped by enrolling in a private school (or home schooling).  As transactions and mobilization costs fall because of apps and such, voice becomes more plausible in many situations.

It is hard to imagine a more profound contribution to political economy than found in Hirschman's very short (126 pages) volume.

Saturday, March 23, 2013

Who plans what?

Re the previous post, Paul Romer and David Miller discuss city layout and growth in this conversation.  They mention the long-term advantages of a laying out plans for a street grid.  For the cases of New York and Toronto, there were advantages such as better bus routing options. But how many central cities of big metros are now being planned -- with the plausible exception of Third World cities?

I alluded to a division of labor whereby land use planning as well as complementary infrastructure planning are private.  Somewhere up the line, the private infrastructure can hook up with a larger, perhaps public, system.

Randy Holcombe has suggested another division of labor whereby public planners take care of infrastructure and private planners take care of the land use plans.

Planning is very hard work and can be overwhelming.  Let's not overburden anyone.  Let's discover divisions of labor that work best.  Let's not simply suppose that it can all be done by the same public agencies. 

Thursday, March 21, 2013

Stuck wth two old problems

I often use the following from The Economist (March 1, 1997) as a classroom conversation starter:  “In many economics textbooks, the presence of externalities is invoked as a justification for government intervention in the marketplace. Yet the private sector often finds its own solutions to externality problems. This is the secret of the shopping mall’s success. Because a property developer owns the entire shopping complex, its profits depend on the entire mall, not on any particular shop. By choosing the right mix of tenants and charging rents that reflect each store’s contribution to the mall’s overall revenues – including the business it brings to other stores – the developer can ‘internalize’ the externality and maximize its profits.” 

There are no uncompensated externalities and profit-seeking mall owners will act quickly to rectify mistakes in terms of what is located where. 

The question is: How scalable is this approach?  The development cited here probably provides its own infrastructure but hooks up to traditional infrastructure providers somewhere up-stream.

Today's WSJ includes a description of conventional urban planning in NYC ("Not Visionary Enough").  Whose visions?  The article mentions various stakeholders and interest groups.  Those who object to privatized land use planning are stuck with two old (and daunting) problems. (1) the politics, as noted in the NYC story; and (2) the riddle of how NYC planners and politicians could possibly know enough to somehow discover the best land use arrangements.

Tuesday, March 19, 2013


We are supposed to start by identifying the top-ten unsolved problems in our field.  Satisfactorily measuring and using entrpreneurship surely belongs in the top-ten.

William Baumol (among others) has long worked to upgrade the idea of entreneurship in economic analysis.  The fact that entrepreneurs are key players is self-evident.  But we have trouble defining and measuring their essential nature and work.  So most economic models move on, omitting what could be the heart of economic thinking.  In all of the hand-wringing over how most economists did not see the Great Recession coming, overreliance on incomplete models is a good place to start.

I saw Sonia Sousa present her work (published here) on measuring entrepreneurship (and using her derived variable in a regional economics model) at last year's meetings of the Western Regional Science Association.  It takes some cleverness to use the data we have to solve the problem of a key missing variable.  I think that Sousa has moved us forward.  Read the whole thing.

Saturday, March 16, 2013

Many networks

Cars connect (almost) every place to (almost) every place and are a universally popular expression of personal freedom.  Private autos are also scorned by many who are uncomfortable with all that freedom -- but who dress up their displeasure with externalities concerns.  Never mind that externalities are a necessary but not a sufficient conditions for tough policies.  And never mind that policy makers who claim to be right-thinking on these matters have been leery of tolling even as it has been getting easier and cheaper.

But the phone also connects every place to every place.  This brings back the question of whether electronic connection is a substitute or a complement to face-to-face interactions.  But most of these discussions have centered on workplace vs telecommuting.  But most of our trips are not worktrips. Today's LA Times includes "Who needs a car? Smartphones are driving teens' social lives ... Fewer 16-year-olds are rushing to get their driver's licenses today than 30 years ago as smartphones and computers keep adolescents connected to one another."

Policy makers have long placed their hopes of "getting people out of their cars" on old-tech public transit.  That has not worked.  But new-tech seemingly has a shot.

As always, people manage many networks.  They constantly adjust the uses of the many networks at their disposal.  It is always bigger than a question of substitutes or complements.    

Wednesday, March 13, 2013

Policy makers vs real world

Attempts to suppress markets often impose costs but achieve little else. The "War on Drugs" and restrictions on immigration are the two prominent examples these days. But "black markets" are everywhere. Some people still believe that prostitution can be suppressed by making it illegal.

This morning's LA Times reports, "Idea is floated for a start-up colony anchored in the Pacific Ocean ... Two Silicon Valley entrepreneurs, frustrated by the limits on high-tech visas, have hatched a plan to build a start-up colony in the middle of the Pacific Ocean." Actually, the story mentions doing business just beyond the 12-mile limit. Seasteading is an idea promoted by Patri Friedman and his backers and has been around for some years. It is entirely plausible and may be simpler and sooner than many had expected.  Meanwhile "immigration reform" is being debated in Congress.

Globalization is deep and strong.  Here is a recent report that tries to describe the "complexity" (ECI, economic complexity index) of the various nations involved as they are linked by knowledge and goods exchange.  But here are John Deutch and Edward Steinfeld exposing an exactly opposing tack by the President: "Made in America, and Everywhere Else ... Obama's plans to revive U.S. manufacturing run counter to the reality of global supply chains.. ."

Tuesday, March 12, 2013

From the annals of industrial policy (green ed.)

Today's LA Times reports "Nissan shakes up Leaf division with new electric-vehicle chief".  And so it goes for industrial policy.

Bjorn Lomborg recently wrote that "Green Cars Have a Dirty Little Secret."  Actually, he describes more than one.  They produce a lot of carbon emissions in production.  Their electric power comes from carbon-burning plants.  And any net savings do not accrue until they are driven many miles.  Driving them many miles has its perils.  There will be few payoffs as long as so few Leafs are bought.  Very few are bought (in spite of subsidies) because consumers are rightly wary, etc. Read the whole thing.

Lomborg did not speculate how a new chief at Leaf might help.  

Monday, March 11, 2013

One speech, two results

It appears that Rand Paul's filibuster last week may have been a clarifying moment.  As the loyal opposition, Republicans have to get their act together re post-9/11 defense policy.  Ross Douthat ("What Hath Rand Paul Wrought?") thinks that Paul gave his colleagues a way to move in that direction.
... the lesson of Paul’s ascent is that being a policy entrepreneur carries rewards as well as risks — and that if you know how to speak the language of the party’s base, it’s possible to be a different kind of Republican without forfeiting your conservative bona fides.
Jennifer Rubin has the same idea, writing in today's Washington Post:
The reaction of some hawks on the right to Kentucky Sen. Rand Paul’s filibuster suggests a refusal to recognize why Paul was so successful in garnering praise. They are seemingly unable to recognize the deeply held perception of many, if not most, of the American people that Iraq and Afghanistan were unsuccessful and that enthusiasm for the Arab Spring is misplaced. They have lost credibility with the American people and they need to both acknowledge that and strive to get it back.
And Anthony Gregory reminds us that Paul got the administration to back down and clarify policy on drone use.

It is not often that one Senate speech is as far reaching.   

Thursday, March 07, 2013

Two Americas

Yesterday's WSJ included "More Americans Working Remotely ... Some 13.4 million people, or 9.4% of U.S. workers, labored at least one day at home per week in 2010, compared with 9.2 million people, or 7% of U.S. workers in 1997 ..."  But The Economist (and some others) editorialized against Yahoo's CEO, Marissa Mayer, and her policy inisting that employees come to the office ("Corralling The Yahoos").

"Creative destruction" is never simple.  There has to be trial and error and learning.  This is why we have markets and private enterprise.  We lose the learning opportunity when we politicize.  Cutting hundreds of federal programs by 2+% -- from a moving (undefined) "baseline" over many years -- was going to be disaster.

Talk about "Two Americas." The contrasts will only get sharper.  There are now approximately 700,000 smartphone apps and people are just discovering the possibilities. "Apps Are Creating New Jobs ... A year ago, Ashley Diedrich worked 12-hour shifts at a psychiatric hospital near her home in Hot Springs, Ark., making $1,700 to $2,000 a month. Today she makes as much as $3,000 a month peddling women's clothing from home. The career change was spurred by an iPhone app...." (WSJ, March 6).

What direction it will take?  No one knows. This is why shake-out and trial-and-error learning are essential.  This is why the politicized part of the economy should shrink.

Tuesday, March 05, 2013

Public choice and anti-trust

I was critical of the Justice Department's worry over a possible beer duopoly in this recent post. The NY Times', Adam Davidson is way ahead of me in this story from last Sunday. Here are his numbers:
Every day, the Web site BeerPulse tries to list every single new beer available in the United States. And that’s harder than you might imagine. Recently, the site posted Cigar City’s Jamonera Belgian-style Porter, Odell Tree Shaker Imperial Peach IPA, as well as a rye lager, a cherry blossom lager and a barley wine. And the list goes on, and on. In 1978, there were 89 breweries in the United States; at the beginning of this year, there were 2,336, with an average of one new brewery per day. Most of them are tiny, but a handful, like Sam Adams and Sierra Nevada, have become large national brands. At the same time, sales of Budweiser in the United States have dropped for 25 consecutive years.
But we have to be careful. Luigi Zingales, in his very enjoyable Capitalism for the People, makes a public choice argument in favor of anti-trust.  It is part of his attack on crony capitalism.  He writes, "Yet the most powerful argument in favor of anti-trust law is one that is rarely made: anti-trust law reduces the political power of firms" (p. 38).  The big merged units more easily have their way in Washington, DC.

This is surely not the motivation of the Department of Justice, but it is also worth thinking about.

Sunday, March 03, 2013

Over the top

Alain Bertaud has famously compared Atlanta to Barcelona. They are similar in population size but vastly different in the way of spatial settlement patterns. He finds that Atlanta can never achieve the kind of transit service that Barcelona has.
Barcelona’s metro network is 99 kilometers long and 60% of the population lives at less than 600 meters from a metro station. Atlanta’s metro network is 74 km long – not so different from Barcelona – but only 4% of the population live within 800 meters from a metro station! Predictably, in Atlanta only 4.5% of trips are made by transit vs. 30% in metropolitan Barcelona.
Suppose that the city of Atlanta would want to provide its population with the same metro accessibility as Barcelona does (60% of the population within 600 meter from a metro station), it would then have to build an additional 3,400 kilometers of metro tracks and about 2,800 new metro stations. This enormous new investment will allow Atlanta metro to potentially transport the same number of people that Barcelona does with only 99 kilometers of tracks and 136 stations!

The example above illustrates the constraint that low density imposes on the
operation of transit. I have been comparing metro track length and stations but a comparison between bus lines length and number of bus stops in Barcelona and Atlanta would have given the same results. With its low density of 6 people per hectare – compared to Barcelona 171 p/ha – Atlanta would have difficulties developing a viable form of transit, i.e. a transit system that is convenient for the consumer and financially viable for the operator.

In the case of Atlanta, the very low density precludes developing transit as an alternative transport to the automobile. “Encouraging” higher density, as many reports are fond of recommending, is not feasible either. To reach the 30 p/ha threshold over a period of 20 years, assuming that the historical population growth rate of 2.7% per year continues uninterrupted, the current built- up area would have to shrink by 67 %. In other words, about 67% of the existing real estate stock would has to be destroyed, the land over which it lays has to revert to nature and its population and jobs have to be moved into the 33% of the city which would remain.

The example of Atlanta shows how existing spatial structure constrain the number of alternative strategies available to guide a city development. The lack of spatial analysis often leads to recommending unfeasible strategies.
The Los Angeles urbanized area (according to the 2000 U.S census) covers 1668 square miles, a little less than Atlanta's 1963 square miles. But Bertrand's analysis should confirm that, like Atlanta, LA is not a transit city. Thousands of miles of new track and thousands of new transit stations are not in our future.  A rump system is pointless.

But the dream persists. Today's LA Times includes "Los Angeles' major public spaces remain broken works in progress."  Among the writer's big concerns is the worry that we may never get the famous "subway to the sea" (from downtown LA, west).  "When it comes to transportation in Los Angeles, no dream has remained as stubbornly out of reach as a subway to the sea along Wilshire Boulevard."  In fact all the complaints in the article involve the theme that Angelenos have been slow to make progress becoming Paris-like or NYC-like. Not kidding.  Here is the writer: "If the subway to the sea is an expensive dream worth sticking with, the same can't be said of the city's fantasies of turning Grand Avenue into our Fifth Avenue or Champs-Élysées." New York-envy or Paris-envy as public policy.
The front-page story is part of the Times' contribution to the current mayoral race. Not many people read the LA Times these days, but the sentiment is strong among those who talk and vote in LA.

And some of us thought that sequester-doomsday talk was over-the-top.