Thursday, July 31, 2014

Three or four-hundred years?

All government agencies "need" more money.  This recent report by the Los Angeles Department of Water and Power's new GM notes that the agency is working with a 300-year pipe replacement cycle.  In fact, they had seemingly been planning for a 400-year cycle very recently.

This is not my field but one has to be impressed with the pipe technology of 100 years ago. Perhaps not. This week's big break, the one that cost the region 20-million gallons of water (and counting) happened to pipes that were less than 100 years old. And there is much more rot that we can not see.  The LA Daily News reported the following (but read the whole story):

At 93 years old, the pipe that burst in Westwood on Tuesday was younger and in better condition than many of Los Angeles’s brittle, corroding water arteries.
More than 1 million feet of the city’s pipes are beyond a century old — past their intended life spans — and this segment was not a high-priority replacement, according to reports reviewed and interviews conducted on Wednesday.
While the Los Angeles Department of Water and Power has tried to ramp up water main replacements, it hasn’t met its goals. City officials and observers say the problem is money. Aging infrastructure is the largest problem here and at water utilities around the U.S., but unaware consumers are usually reluctant to pay. 
The story ends with the predictable "give us more money." More money has been going to employee pension funding -- and even then there is a reported unfunded pension fund gap. We get the gap, high prices, floods, and questionable service. There is never enough money when there is a politically influential and unionized workforce.

The pipes are not visible to the layman but the roads are. LA's potholed roads are third-world quality. This morning's LA Times includes an op-ed which notes that better use of available funds should come before new funds are sought.

California water policy has always been wrong-headed.  Gary Libecap notes that the State has been selling very cheap water to farmers growing crops that get USDA price supports. We now have reports of a "drought" but the policy reasons for it do not make it into polite discussion. Polite discussion, he notes, is informed by the plot of Chinatown.

Tuesday, July 29, 2014

History lesson

You can never know enough history. I have lived most of my life in Los Angeles and most of my professional life has been at USC. But I still know too little about each. I got some help on both fronts reading Towers of Gold: How One Jewish Immigrant Named Isaias Hellman Created California.

On the USC campus, there are occasional markers commemorating the role of a Protestant, a Catholic and a Jew in helping to establish the University.  USC's website fills in some of the details. I had always presumed that this was just politically correct and sanitized history. Just how inclusive was 1870s Los Angeles?

More than I thought.  On Page 5 author Frances Dinkelspiel (Hellman's great-great-grandaughter) notes ..." from the start, Jews were accepted and integrated into society. They were elected to public office, built homes alongside their Christian neighbors, and became the established mercantile elite ... It was not until the 1890s that intransigent anti-semitism gripped California."

The story of boom and bust, of tolerance and intolerance is carried through the book. There is, of course,  much more. So much that this book has landed on my "to re-read" (when?) pile.

But this California history shows once again that in times of boom, people were too busy to fall into the hole of zero-sum hatreds. Its the old story. Prosperous people or people who take seriously the prospect of prosperity are nicer and more tolerant. It's a point documented many times by Benjamin Friedman in The Moral Consequences of Economic Growth.
Economic growth--meaning a rising standard of living for the clear majority of its citizens -- more often than not fosters greater opportunity, tolerance of diversity, social mobility, commitment to fairness and dedication to democracy ... Even societies that have already made great advances in these very dimensions, for example today's Western democracies make still further progress when their standards of living rise. But when living standards decline, most societies make little if any progress towards any of these these goals, and in many places plainly retrogress. (p. 4)
Very sad that economic growth is suspect or misunderstood by those who talk the most or the loudest about tolerance, diversity, fairness, etc.

Thursday, July 24, 2014


GDP (in some form such as per capita, real per capita, real per capita change, etc.) is the widely used proxy for an area's well-offness. But standard textbook discussions note all the reasons that it is a poor proxy.  There are even experiments with the alternatives such as Bhutan's  Gross National Happiness.

Economists have been doing "happiness" research for some years and report (gasp) that (i) more material wealth does not easily map to more happiness; (ii) happiness is elusive; (iii) happiness is hard to measure.  A good friend remarked, "don't economists take freshman philosophy"?

Joseph Epstein's Envy is a delightful antidote. In fact, it is better than the philosophy 101 I recall. Open to almost any page and enjoy. "... consider envy as less a sin than as very poor mental hygiene. It blocks out clarity, both about oneself and the people one envies, and it ends by giving one a poor opinion of oneself." (Location 781 on my Kindle download.)

Epstein thinks that envy is the worst of the seven deadly sins. He does not nominate those who stoke envy for political gain as engaging in a worse (and eighth) sin. But he comes close. "... the doctrine of Marxism is many things, but one among them is a plan of revenge for the envious. How else can one view Karl Marx's central idea, the perpetual class struggle ..." Location 470. Stoking envy, then, is the same as stoking fantasies of revenge.

Here is up-to-date revenge: "You didn't build that." So you don't really own it. We all do. So fork over.

Sunday, July 20, 2014

We do not know

What do we know about cities? To simplify shamelessly,

1. The canonical model of urban economics predicts that cities will spread out as communications and transportation costs fall.  This has been the experience -- from pedestrian to streetcar to automobile city.

2. But the model leaves out many things. Nate Baum-Snow writes about these and suggests that outward expansion will stop or even reverse. Average densities will rise.

3. But we are now networked as never before, suggesting that the forces cited in #1 will pick up steam.

So which will it be?

Wendell Cox has recently posted results from his work on redefining metropolitan sub-areas. Adapting an approach similar to one developed by David L.A. Gordon and associates at Kingston University in Ontario, (and using zip code data re urban characteristics), Cox moves us beyond the very inadequate use of "central city" vs. "suburbs". These have relied on municipal boundary definitions of the "central city" and defining  the rest of the metropolitan area as the "suburbs".  But municipal boundaries have no functional usefulness and vary considerably in terms of the extent of their "footprint."  There is also room for confusion because some people construe "central city" as the downtown. Note also that any binary classification falls way short.

Using the refined definitions of "urban core," Cox calculates recent U.S. urban core population trends this way:
1990-2000   -1.164%
2000-2010   -1.110%
1990-2010   -1.137%
We know that the last two decades have seen the revival of many major U.S. downtowns (explained in large part by less crime); the most recent decade includes the extraordinary increase of electronic networking. But the data show no change. Have the two effects cancelled each other?  We do not know.

In this conversation, Russ Roberts and Mike Munger discuss the impacts of Uber, AirBnB, Monkey Parking and similar advances. Listen especially to the last segment. Just as Amazon went from selling books to selling everything, Roberts and Munger say "we ain't seen nothing yet."  The three technologies (and others on the way) help us to make much better use of the capacity we have.  Add driverless cars, and why own a car? or a garage? or a parking lost?  The word "transformative" is used in the conversation.

The years 2000-2010 are very early in the game. What will iPhone City look like? We do not yet know. 

Friday, July 18, 2014

Pray for "gridlock"

I recently did some teaching in China. What did my students hear from me?  Among other things, there is Good Capitalism and Bad Capitalism (to borrow the title of a fine book on the subject).  The bad is crony capitalism. What did I learn from my students? China's big problem is corruption which is rooted in what we call crony capitalism. There are huge differences between the two countries (will China ever have a Silicon Valley?) but they share a common plague.

Some years ago, Virginia Postrel (The Future and Its Enemies) suggested that our traditional left-right distinctions in politics ("liberal" vs. "conservative") mean very little. She argued for the more interesting distinction is between those who are comfortable vs uncomfortable with change.  Rapid change is here to stay and she makes a good case.  She begins the book by citing areas of agreement between "left-wing" Ralph Nader and "right-wing" Pat Buchanan. Both preferred protectionism to free trade.

Today's WSJ includes a review of Nader's Unstoppable (which I have not read) by David Asman. Look at what the reviewer says:
Mr. Nader, the consumer crusader who ran for president to the left of Al Gore, is perhaps the last person one would expect to admire a libertarian critique of the corporate state. But in "Unstoppable" he respectfully describes the views of Ludwig Von Mises, Friedrich von Hayek, Milton Friedman, George Stigler and other free-market economists. He praises their distrust of politicians, lobbyists and businessmen who seek to put government power in the service of corporate profit.
Strange bedfellows again. Both of the major U.S. political parties have become dominant because each have achieved their own crony capitalist coalitions. Each has also created a formidable infrastructure that assures survival. What is to be done? Avoid "feel good" voting for attractive but unelectable candidates, split your votes between the parties, split any financial support, never vote for an incumbent, pray for "gridlock".

My hotel room television showed well over a hundred government network channels. One channel was all-English language. What did it play? Twenty-four hours continuous episodes of House of Cards. My students reported  that people love it.

Sunday, July 13, 2014


Neil Irwin (at Economix, July 11) tell us the latest from Uber and Lyft (still unable to link from you-know-where but source is easy to find). Two things bear repeating. First, one cannot recognize enough the simple fact that sellers learn about demand (elasticities) via trial-and-error pricing (as Uber is apparently doing) if we let them -- if prohibitions against "gouging" are relaxed. I have no idea whether the companies hire econometricians to estimate elasticities but I suspect that trial-and-error is better. This type of essential learning is full-time work. Second, while the old man-vs-machine question has given way to humans-vs-computing, we see that complementarity is more accurate. How do they integrate? Not,how do they compete? It is now hand-held apps plus automobiles. Along these lines, it is not a question about "the end of cities" (George Gilder, 1995, and many others) or not -- now that we are smart-phone-tethered-communicating-continuously-at-near-zero-marginal-cost. Rather how will cities change? The complements-rather-than-substitutes questions points to complements. Cities will not disappear (no signs of that since 1995) but they will continue to spread out -- as always and perhaps a little more and a little faster.

Thursday, July 10, 2014

Long way around is better

Joseph Epstein wrote a moving tribute to his friend Edward Shils "My Friend Edward" (in his Narcissus Leaves the Pool; unable to link using behind-the-Chinese-Wall connections). Epstein notes, "He [Shils] admired the economists of the University of Chicago, trained under Jacob Viner and Frank Knight; and he spent more than half a century in the company of Milton Friedman and George Stigler and found both to be men of superior intelligence. But he felt the Chicago economists, brilliant though they could be, were insufficiently impressed with the mysteries of life." (p. 309). But Arnold Kling writes "Neoclassical economics is obsessed with the concept of equilibrium, and in turn it pays little attention to innovation. I believe that one of the biggest lessons of economics is the value of trial-and-error learning through entrepreneurial activity." (askblog post, July 9). Now we're starting to get somewhere. Equilibrium is just a modeling convenience. But many smart people take it much too seriously. Google Scholar shows 2170 citations for "benevolent social planner." Many modelers rely on this unicorn to make their model work. In his undergrad text, Greg Mankiw properly uses the mythical BSP to demonstrate to students the idea that markets face a huge task. But this is way different from inventing a BSP to satisfy journal editors and referees that they are seeing a real model. Modeling trial-and-error may seem like the long way around.

Sunday, July 06, 2014

Cities and organs

It's a simple but profound point made by Hayek in The Fatal Conceit: there are two ways to get to non-zerosumness, markets and love; do not expect one to do the work of the other; each one has its place; confusing one for the other can be fatal. A simple example is opposition to markets in organs; opponents want all donations to be based on altruism, ignoring the simple fact that altruism alone is never enough; many would-be recipients are left to suffer and die. What about cities? Many who write (and talk) about cities eschew market mechanisms; they are loathe to price parking and access; they want land uses to be administered -- in response to some "vision" or fad (and the usual cronyism). We get politicized awfulness in many places. Congestion on the roads and expensive housing are two obvious outcomes. The complainers then demand even more of the restrictions and rules and plans that created the mess. In San Francisco, there is the current Plan Bay Area (unable to link at the moment; but look for "Judge rejects challenge to Bay Area land-use, transit plan" (SFGate, July 3) which is a case in point (f.d., I have been associated with the challenge). The proposed plan is more of the same: more restrictions, more whining about "affordability" (too few free lunches); more proposed mandates, etc. The current New Yorker, includes Nathan Heller's "California Screaming: The tech industry made the Bay Area rich. Why do so many residents hate it?" (gated). The report includes coverage of Bay Area activists and their rage at the techies. Protests and chants includes "Rents are too damn high, right?" The writer gets on board via a story about the Costanoan tribe's Coyote legend: he professes to nurture but he hoards! Bingo! Not enough nurturing by the area's tech wealthy. None of the protesters chanted and crowded the Bay Area plan hearings. It's not about markets stymied but too much hoarding and not enough nurturing by successful people -- who create a local industry that many around the world would kill to have nearby. But this is just one example. Cities (like economies) are vast and complex. Presuming that any good can come from avoiding or suppressing market mechanisms can be fatal. Think about our organ donor laws.

Wednesday, July 02, 2014

A very simple point

I have been resisting any impulse to pick up and get into my copy of Thomas Piketty's Capital.  One reason is that it has been reviewed more than any (new) book I know. Having digested many of these reviews, I fear that I have been compromised.

One review that I found exceptionally well done is by Jonah Goldberg in the recent Commentary. Here is a passage that I would have placed at the beginning (but do read the whole thing):
Nor are the poor and the middle class static. As a statistical artifice, there will always be a bottom 1 percent, just as there will always be a top 1 percent. But that doesn’t mean that if you are born in the bottom 1 percent, you will stay there. Some of Piketty’s fans seem confused about this, appearing to believe that economic inequality is synonymous with low economic mobility. There may indeed be a link between inequality and low economic mobility. After all, rich people by definition have advantages poor people do not. But there is no iron law that says any individual person must stay in his narrow economic bracket for life; the Morlocks can become Eloi. Indeed, there remains an enormous amount of churn in our economy; 61 percent of households will find themselves in the top quintile of income for at least two years, according to data compiled by economists Mark Rank and Thomas Hirschl. Just under 40 percent will reach the top 10 percent, and 5 percent will be one-percenters, at least for a while.

Piketty himself offers an extensive analysis of the Forbes list of the wealthiest people in the world in an attempt to prove that today’s richest people are much richer than they were in 1987 and that the “largest fortunes grew much more rapidly than average wealth.” He says the data show that wealth grew by an inflation-adjusted 7 percent, even higher than the normal 4-to-5 percent return implicit in r > g. In what seems a generous nod, Piketty even concedes that if you jigger the timespan—starting from, say, 1990 instead of 1987—the rate of return might drop a bit. But one problem remains: Piketty leaves out that the people on the list are almost all different people.3 The economist Stan Veuger, writing for U.S. News & World Report, looked at the same list and found that the top 10 individuals collectively earned about 0.5 percent on their capital during the period Piketty says “the rich” got richer. And, Vueger notes: “If it weren’t for Walmart, the wealthiest people in the world would actually have lost about half of their wealth in the last 25 years.”
The point has been made many times but remains an often ignored "inconvenient fact."  We are not living in feudal times but in a very dynamic age.  There is great flux.  There is mobility between strata.  Perhaps not enough but not insignificant either. Yet, there are studies and opinion pieces that compare a distribution snapshot in Year A with another distribution snapshot in Year B -- and infer that inequality has worsened. Unless we have a way to track individuals (panel data), this approach is meaningless.

It is also clear that the most mobile are those who cross the border into the U.S. They are necessarily missing from the much of the data and analysis.

Is wealth accumulation mainly via ill-gotten gains? Is this what incites the redistributionists? Inevitably, there is some of that and the place to start is to rein in the crony capitalists (be they in government or in business). But go back to the mobility stats.  The new rich are likely to be associated with successful start-ups and innovation. I do not begrudge them anything.

We cannot magically delete all of the "worsening inequality" studies that are not based on mobility data. Pikkety's Fig 1.1 shows the share on U.S. income going to the top decile in each census year 1910-2010. That decile changed membership many times over the last 100 years.