Monday, December 28, 2015

GDP misses

Leave it to economists to point to the dead-weight losses associated with giving gifts.  Here is the formal argument.  "Scrooge" catcalls usually follow. Then again, markets do help with those unwanted gifts.

What about the joy of giving? But best of all, here is Joyce Carol Oates on the joy of getting (perhaps overlooked in most economic models). This is from her excellent The Lost Landscape (2015, p. 312):

"Look, Daddy! This is for you -- my brother and I would plead with our father, who might be reading a newspaper, or involved in one or another household chore, and would barely glance at us.

"We'd thought our father so strange, not to care -- not to care about a present.

"For children, even for teenagers, nothing seems quite so exciting as a wrapped present. For days beforehand my brother and I would speculate on the contents of packages beneath our Christmas tree, ..."

Note the importance of the wrapping.  Torn open in seconds but nothing deadweight about it.

More stuff missing from the GDP tallies.

Tuesday, December 22, 2015


It's that time of year when we hear the refrain that "the consumer" is not spending enough. Consumer spending is a big chunk of GDP and there are Keynesian multipliers, etc.  But there is also the mantra that Americans are not saving enough for their retirement.  How can both be true?

They cannot. Talk is cheap -- and both choices cannot be judged by third parties. Personal time preferences are all over the place, as are personal consumption-smoothing plans and strategies. Policies designed to tweak personal plans introduce a costly wedge -- whereby some individuals are prompted to game the tweaks, which makes everything worse.

Re the mother of all wedges, in this morning's WSJ, Jeremy Siegel documents "My Sorry Social Security Return." Read the article. He does the math. "So are affluent seniors making out like bandits? Not at all. The bandit is the federal government, which provides benefits that are millions of dollars short of what anyone whose earnings are at or above the tax cap easily could have accumulated on his own."

Forced savings are counter-productive as well as wasteful.  Strictly lose-lose.

Thursday, December 17, 2015


"Waste" is one of those casually used and misleading words that economic thinking clarifies. My favorite is still Alchian and Allen's explanation from Exchange and Production. "Empty apartments per se are not waste. They are a method of production to economize on the high costs of predicting the future and also of the high cost of immediately producing whatever a person wants" (p. 155).

Fast forward to the present -- and technologies that drastically cut transactions costs and make sharing inexpensive and practical. Think Uber and AirBnB. In the Winter 2016 edition of The Independent Review, there is Michael Munger's "Tomorrow 3.0: The Sharing Economy." (Not yet online.) He writes about disruptive technologies.  "Almost everything we own will soon be a potential rental item, or we won't own it at all because we'll rent it from someone else" (p. 391) "In a short time ... many of us will have much less stuff" (p. 394).Think about that "extra" lawnmower in you and your neighbor's garages. How often are they used? How often is it a waste? In Alchian and Allen's day, it was not waste for the reasons that they explain. Search and information were much costlier and scarcer and then.

But, how times have changed! Fewer purchases! Less "waste"!

And we are much richer (thanks to markets and tech) than our GDP data suggest (than they can suggest). GDP still hangs on what we purchase. Listen to all the talk surrounding Janet Yellen's announcement yesterday.

Saturday, December 12, 2015

Growth poles

Today's WSJ includes "Burgeoning Cities Turn Into Digital Labs." (slightly different title in online version). It is about big cities and big data.  It is also Manhattan-centric -- as most U.S. media coverage of cities tends to be. Everyone knows that most of the U.S. (most U.S. cities) are very different.

The author mentions that "cities generally are more efficient than suburbs." What does that mean? In the U.S., suburban areas continue to outgrow, outdraw, the suburbs. Here is the latest from Wendell Cox. "More efficient" is also slippery unless carefully defined. Finally "city and "suburbs" -- no matter how defined -- are parts of an integrated metropolitan whole. They complement and depend on each other. Supply chains easily criss-cross imaginary boundaries.

It's about growth. Where do labor and capital go? Where do they see desirable opportunities and complementarities -- at acceptable prices? Where do the highly skilled/highly educated go?  Everyone knows, for example, that many go to Manhattan and many go to Silicon Valley.  There are many other such magnets in the U.S. but stick to the iconic two: population density varies by at least a factor of 10.

Manhattan is lovely but not at all representative. Ask yourself which one of them is more likely to be copied?  It's very hard to duplicate either one but we will not have another Manhattan; we will have many low density growth poles.

Friday, December 04, 2015

Slow learners

The Economist reports "Demand, meet supply: Most Americans would get married, if only they could find someone suitable." This is a very old story. Finding Mr or Ms Right is not easy or simple.

Why then do planners and politicians think that they can somehow succeed at jobs and people matching? They believe in land use planning that prompts some kind of local area "jobs-housing balance" -- to reduce big-city unemployment, reduce commuting, highway congestion and air quality problems?

Officials around the world under-price most modes of transportation. This is why we have so much crowding and traffic. Having created the problem, they then propose "solutions." One could stop there and wonder. But there is more. International comparisons (below) show that U.S. urban traffic is some of the best in the world. Why? Because we use more cars and highways and less transit.

The recently passed five-year federal transportation bill contains the usual 4:1 allocation for highways vs transit. But transit use (for commuting purposes) has been knocking about 5% for some years. Auto use in 2013 was about the same in 2013 and 1980. Look at Fig 3 here. Lopsided funding allocations have not budged mode choice. Error correction is slow to non-existent in our democracy.

Monday, November 30, 2015

Cities and economic growth

Frank Rose reviews Matt Ridley's The Evolution of Everything: How New Ideas Emerge in yesterday's NY Times. I am enjoying the book. I'm a huge fan of Ridley so all of this is great fun.

In the review, Rose mentions "Highways are designed; traffic happens." Of course. The world we have is the upshot of top-down as well as bottom-up actions. The latter is much better at error correction and learning from feedback.

A la Ridley, consider the big picture. Prosperity and economic growth require robust specialization and exchange. This means the formation and maintenance of numerous complex supply chains. These include supply chains for things and supply chains for ideas.

All supply chains have a geographic dimension. Firms carefully choose what to make vs what to buy and also where to buy it, from near or far. The whole system tends to a pattern of locations that denote realized transactions (and transactions costs) as well as realized externalities. The city remains a competitive producer if these costs are contained.

Cities have been seen as “engines of growth.” This means they offer attractive supply chain formation and management opportunities. Networking and location opportunities are significant as these choices are made. Flexible land markets, if we can have them, denote more such opportunities. 


Tuesday, November 24, 2015

Smart Planning

Here is the new LA Mobility Plan -- and LA Times coverage. Here is yesterday's L.A. Times report that some of the nation's worst traffic bottlenecks are in the LA area. A case can be made that the two are not from the same universe.

Here are 2010-2014 commuting trends by mode. One day it may dawn on planners and politicians (and their friends) that most people like their cars. If that day ever arrives, then accommodating to autos via a clever blend of facility expansion and management will be seen as the best policy.  Reason's Mobility Plan just released hits nail on head in this regard.  (Full disclosure: I read and commented on early drafts).

What is to be done. Don Shoup has hit on the obvious (but not obvious until someone points it out).  Return some of the parking as well as time-of-day pricing road toll revenues to the locals -- and watch them line up as advocates for the policy.

Serious transportation planning as well as the political implementation are within our reach. What else? Call it "Smart Planning."

Friday, November 20, 2015

The "all of the above" energy fantasy

An "all-of-the-above" energy policy has been a political dodge, recently promoted by the White House.  The authors of this report are smart economists and they well understand that we live in a world of scarcity and must choose among various tough trade-offs.

Take away the recent U.S. energy boom and the report collapses. Yes, relatively clean natural gas production and usage are up but this has not exactly been a policy success. The White House loves to be seen as opposing anything having to do with fossil fuels. The Keystone pipeline project was deep-sixed after years of political hide-seek-dodge.

Yes, renewables are up but spend enough money and you can put a man on the moon. There are no cost-benefit studies in the WH report. In the world of serious policy analysis, cost-benefit studies are essential.  For a while, it was fashionable to cite the many poor cost-benefit studies done over the years. I forgot who said it but it is fundamental that the antidote for poor cost-benefit studies is good cost-benefit studies.

The antidote is surely not the pretense that scarcity and trade-offs are not relevant -- and that we can live the "all of the above" fantasy. I mention all this because I just read Matt Ridley's post on the topic. "By preventing investment in gas, the dash for wind has done real harm ..." Read the whole thing.

Sunday, November 15, 2015

The democracy we have

Prof Adam Grant writes about "The Virtue of Contradicting Ourselves ... We don't like flip-floppers, but we should consider voting for them." (today's NY Times.) A good way to test our views is to see how they stand up against other views we hold dear. But we should be open to attaching some weight and some importance to views we hold that are not consistent with the otherd. Do we abhor war? Do we resist military adventures abroad? Do we recoil at the idea of taking no action against the Paris bombers and their ilk?

Grant also writes, "Using neuroscience to track activation in different brain regions, Professor [Eddie] Harmon-Jones and his colleagues found that inconsistent beliefs really bother us only when we have conflicting implications for action. People have little trouble favoring both abortion rights and tax cuts. But when it comes time to vote, they confront a two-party system that forces them to align with Democrats who are abortion rights advocates but against tax cuts or Republicans who are anti-abortion but for tax cuts. ..."

The democracy we have forces us to live with binary choices. Some people complain about too many toothpastes and detergents at the super-market, but shelf space is scarce and products that do not sell are quickly pulled (and sent to the 99-cent store). Fewer choices does not make things simple. If we choose to vote, we have just two options. The winner of the binary-choice election will make many appointments (judges, commissioners, others) and promote many causes and policies. We cannot fine tune to match our preferences; we are obliged to "purchase" vast bundles.

Place this next to the Adam Grant comment and notice that the problem grows as the scope and size of government (run by the people we elect) expand. The binary choice problem is less onerous where a smaller set of policies is involved. The problem grows as the scope and size of government grow.

Tuesday, November 10, 2015

Bad inequality, good inequality

I often cite Baumol, et al's Good Capitalism, Bad Capitalism, and the Economics of Growth and Prosperity for the simple reason that many critics see only the Bad and suggest that this is all there is. Some writers cite crony capitalism. The irony is that many of the prescribed "fixes" open the door to more cronyism. Why is the IRS tax code, lengthy, bulky, complex, always growing and likely to remain so? Because it is chock-full of special treatments.

Increasing (reported) inequality is everywhere red meat for demagogues. It is time for a companion volume that describes "good" vs. "bad" inequality.  First, the big three: (1) Not all gains or riches are ill-gotten; entrepreneurial success must be rewarded; it is indispensable because it assembles new ideas and new products that enrich others; the rule of law means that ill-gotten (and only those) gains are pursued at great risk; (2) We do not live in a zero-sum world; the gains by some are not at the expense of others; (3) Increasing poverty is not equivalent to increasing inequality; magically double all incomes and poverty declines while inequality increases.

And three more: (4) Most reports of increasing inequality are flawed; comparing statistical groups over time is meaningless; the key measure is economic mobility as seen via panel data; the rare panel data we have are inadequate; the most upwardly mobile, the immigrants, are excluded; (5) It's a safe conjecture that more Americans aspire than envy; economic growth provides more upward mobility possibilities; redistributionist interventions are likely to stunt growth -- and create more cronies and more inequality; (6) All of the acknowledged national income measurement problems and shortcomings make their way into the inequality discussion; not everything that counts can be counted; the greatest inequalities involve longevity, health, general well-being -- all beyond the scope of traditional national income accounts.

There are surely more. The problem we have is that the mere waving of the "inequality" flag often ends the discussion.

Sunday, November 01, 2015


The Economist has a very nice cover story on blockchains and trust ("The trust machine: How the technology behind bitcoin could change the world"). Technology helps people find ways to reduce transactions costs, promote trust and enhance productivity and wealth. The story begins where Hernando de Soto leaves off: there is "dead capital" when and where people do not have clear title to their property. So they remain poor. But better record keeping is expensive. It appears that that proper record keeping and all that follows is now within the reach of many via the application blockchain technology.

Economic growth is natural (people want to make money) but it's movers have to contend with an army crony capitalists and redistributiuonists. (Even now the latter have not grasped the fact that the harder they work, the less there is to redistribute.) The U.S. economy usually grows impressively after a downturn. But after the Great Recession, we got the Great Regulation -- and growth that's less than half what it should be, still hovering at near just 1.5% annual GDP growth.

That aside, in the derby between the forces for growth and the redistributionists, I remain optimistic that growth will win. Blockchain technology powers Bitcoin electronic currency but could just as well advance all of the other transactions that require record-keeping and verification -- and therefore trust. Here is how The Economist's Leader for the story concludes:
The notion of shared public ledgers may not sound revolutionary or sexy. Neither did double-entry book-keeping or joint-stock companies. Yet, like them, the blockchain is an apparently mundane process that has the potential to transform how people and businesses co-operate. Bitcoin fanatics are enthralled by the libertarian ideal of a pure, digital currency beyond the reach of any central bank. The real innovation is not the digital coins themselves, but the trust machine that mints them—and which promises much more besides
Many have experienced Uber and they quickly get it. But this is just the start. The winners will be not just be the smart and inventive people but the rest of us who too.

Monday, October 26, 2015

What a question?

When Richard Nixon's lies were revealed via his telephone transcripts, he realized that he had to resign. When Hillary Clinton's lies were revealed via her emails, at U.S. House of Representatives hearings last week, her support (among true believers) grew. Here is today's Washington Post: "October has been very good to Clinton, who dominated the first Democratic debate and emerged unscathed from a pressure-laden congressional hearing on the terrorist attacks in Benghazi, Libya."  They do revert to the t-word.

Clinton's emails reveal that she did not believe what she was saying in public -- that the events at Benghazi were a "demonstration" prompted by an offensive video. It was in fact, she admitted privately but not off-line, a terrorist attack. An even bigger lie had to be promoted to re-elect Barack Obama -- that he was the leader who ends wars and that Al Qaeda was on the run.

Would the Clinton apologists have given Nixon a pass?  The Washington Post exposed Nixon and stayed on the case until his helicopter took off from the White House lawn. The Post's attention to the Clinton matter is pretty much as the story above indicates.

Sunday, October 25, 2015

Going limp

Bjorn Lomborg ("Trade-Offs for Global Do-Gooders ... To cut world poverty, focus on free trade, and pre-school while ending fossil fuel-subsidies") often reminds us (especially those on the religious left) that in a world of scarcity, we have to make hard choices -- even when it challenges pillars of the faith.
But consider this: The World Health Organization estimates that the effects of climate change are currently responsible for 141,000 deaths annually. If we look far ahead, to 2050, the death toll is expected to climb to 250,000. By contrast, some 4.3 million people will die this year from indoor air pollution. That is the direct result of poverty, of almost three billion people using dung and wood to heat and cook. Another 3.7 million people will die this year from outdoor air pollution.
Sentiments like this -- that try hard to consider costs and benefits -- have to be repeated again and again.

Even then, we are not in the world where bad ideas die. Here is an ice-water shower. This morning's LA Times takes us to real world California politics -- and about as far from sober cost-benefit analysis as one wants to contemplate. "$68-billion California bullet train project likely to overshoot budget and deadline targets." This is neither the first nor the last time that we'll see reports like this. But hitch the waste and the theft to the cause of "climate change" and the critical functions go limp.

Thursday, October 22, 2015

Agglomeration, choices, actions

I want to elaborate my previous post. This is what Wikipedia says about agglomeration economies:
In urban economics, economies of agglomeration are the benefits that firms obtain by locating near each other ('agglomerating'). This concept relates to the idea of economies of scale and network effects. As more firms in related fields of business cluster together, their costs of production may decline significantly (firms have competing multiple suppliers; greater specialization and division of labor result). Even when competing firms in the same sector cluster, there may be advantages because the cluster attracts more suppliers and customers than a single firm could achieve alone. Cities form and grow to exploit economies of agglomeration.
'Diseconomies of agglomeration' is the opposite case. Additional competition drives down pricing power. For example, spatially concentrated growth in automobile-oriented fields may create problems of crowding and traffic congestion. It is this tension between economies and dis-economies that allows cities to grow while keeping them from becoming too large.
Agglomeration economies are closely associated with economies of scale and the network effects mentioned above. A positive outcome, agglomeration economies, will only be achieved if the benefits outweigh the disadvantages. The ultimate result of agglomeration economies is the formation and growth of a city.
The basic concept of agglomeration economies is that production is facilitated when there is a clustering of economic activity. The existence of agglomeration economies is central to the explanation of how cities increase in size and population, which places this phenomenon on a larger scale. This concentration of economic activity in cities is the reason for their existence, and they can persist and grow throughout time only if their advantages outweigh the disadvantages.
Left unsaid is how we measure all this. Agglomeration could be the residual in a Solow growth regression -- if we had adequate and plausible data for metropolitan areas.

The Wikipedia rendition is similar to what is found in urban econ literature. To get over the generalities and vagueness, ask what it is that real people do to make cities what they are. People engage in specialization and exchange. This means they form supply chains. Expand the idea by noting that there are supply chains for things as well as supply chains for ideas.  Supply chains for things involve transactions. Supply chains for ideas may or may not involve transactions. I may pay to take a class. I may choose to simply hang out in museums or cafes or among friends or at conferences to soak up the doings -- and thereby energize my thinking. Some people label this as "externalities." Others note "consumer" cities. The latter surely involves expanding one's outlook.

All people in all cities participate in many such supply chains. They do this as suppliers as well as demanders. They seek the locations that work best for them in light of these roles. It is understood that in evaluating and bidding (forming bids) for sites, they have to compete on urban land markets. The results are the cities we know. (Traditional urban economics derives whole cities from one supply chain, how people get to work.)

Site evaluation -- and eventually ending up at a place that facilitates success -- involves assessing the transactions costs, in light of all of the relevant supply chains, to be incurred by being at that site as well as the positive externalities realized and the negative ones avoided.

What difference does it make? Growth is essential. Cities are engines of growth.  What does that mean?  People have to form and manage the many supply chains in their lives.  They are most likely to do this if they can assess and choose sites with minimal interference.  Call it smart growth.  It is the polar opposite of the Smart Growth that so many planners and policy makers love.

My point is that, unlike the Wikipedia definition of agglomeration, mine emphasizes actions and choices of people.

Monday, October 19, 2015

Many densities

Glaseser, Ponzetto and Zou posted "Urban Networks: Spreading the Flow of Goods, People and Ideas." Great title. Here is the abstract:
Should China build mega-cities or a network of linked middle-sized metropolises? Can Europe's mid-sized cities compete with global agglomeration by forging stronger inter-urban links? This paper examines these questions within a model of recombinant growth and endogenous local amenities. Three primary factors determine the trade-o⁄ between networks and big cities: local returns to scale in innovation, the elasticity of housing supply, and the importance of local amenities. Even if there are global increasing returns, the returns to local scale in innovation may be decreasing, and that makes networks more appealing than mega-cities. Inelastic housing supply makes it harder to supply more space in dense confines, which perhaps explains why networks are more popular in regulated Europe than in the American Sunbelt. Larger cities can dominate networks because of amenities, as long as the benefits of scale overwhelm the downsides of density. In our framework, the skilled are more likely to prefer mega-cities than the less skilled, and the long-run benefits of either mega-cities or networks may be quite different from the short-run benefits.
Here are some thoughts: 1. There are supply chains for things and supply chains for ideas; 2. Large portions of many chains choose locations in urbanized areas; 3. The "what to make vs what to buy" choice involves where to buy what; 4. Everyone participates in many supply chains (as buyer and/or as seller) and chooses a location that works best in light of these various roles. 5. The policy choices (Glaeser et al ask [paraphrasing] "what should Europe or China build"?) are misleading; supply chains are too complex to be planned top-down; flexible land markets are the reasonable policy choice. 6. Which are clusters, cities, networks, agglomerations?

Below is an example of how software firms are located in the Greater San Francisco Bay area. Many densities are apparent. Glaeser et al (and many others) give the impression that it is a matter of density-on or density-off. The people whose jobs are dots on the map below are surely networked electronically but many are also available for occasional face-time. The interaction blend and trade-offs involved (along with many others) influenced their choice of locations. It is unclear that any policy besides one that encourages regulatory flexibility would do any good.

Tuesday, October 13, 2015

Nobelist Angus Deaton

Market antipathies and neo-Malthusian doomsday talk are widespread and go hand-in-hand. There is much that they miss. Deirdre McCloskey celebrated the Great Fact.  And the world now knows that Nobelist Angus Deaton celebrated The Great Escape.  Deaton notes in his Preface that, The Great Escape is a movie about men escaping from a prisoner-of-war camp in WW II. The Great Escape in this book is the story of mankinds escape from deprivation and early death, how people have managed to make their lives better and led the way for others to follow. (p. ix) Read the book.
Note Deaton's last phrase. One can say that there is good inequality and bad inequality. The former refers to earned success and is enlightening; the latter refers to entrenched and sclerotic rent-seeking, the bread and butter of our political class.
Here is much more on Deaton.  Even more at Marginal Revolution,
Back to Facts and Escapes. Steven Landsburg put it this way:
Modern humans first emerged about 100,000 years ago. For the next 99,800 years or so, nothing happened. Well, not quite nothing. There were wars, political intrigue, the invention or agriculture but none of that stuff had much effect on the quality of peoples lives.  Almost everyone lived on the modern equivalent of $400 to $600 a year, just above the subsistence level.  True there were always aristocracies who lived far better, but numerically, they were quite insignificant …” Steven Landsburg (WSJ, 2007)
William Baumol and his colleagues wrote:
 The most astonishing thing about the extraordinary growth and innovation that the U.S. and other economies have achieved over the past two centuries is that it does not astonish us. (W.J. Baumol, R.E. Litan and C.J. Schramm, Good Capitalism, Bad Capitalism, and the Economics of Growth andProsperity, 2007)
There is more shouting from many rooftops left to do. Great that the relevant Nobel Committee is on the case.

Saturday, October 10, 2015


Clueless CEOs, opportunistic politicians, tough regulators. Which two do you want?  Unfortunately, we check all three boxes.

The New Yorker's James Surowiecki writes about "Taking on the Drug Profiteers." But what is a "profiteer"? We supposedly have a profit-loss economy but profits are routinely denounced and losses too often bailed out.

Surowiecki refers to Turing Pharmaceuticals and its mammoth price hike of a life-saving drug for which it had sole regulatory approval. Surowiecki notes that the price hike was entirely legal but not smart because politicians pounced, denounced "gouging", and threatened price controls. Stocks across the pharmaceutical sector and beyond fell steeply.
A good way to explain supply and demand is to note that the prices we observe are there because the seller can charge them.  If not, there is a "sale" and a new price is soon discovered. Likewise, the profits reported are the ones that sellers can earn in the political context we have. In this case, that context is heavily regulated and heavily politicized. Turing's actions were entirely legal but "... even with a generic drug, regulatory barriers and a lack of competition can make big price hikes possible." Well, not really.

Wednesday, October 07, 2015

The ears have walls

The PBS NewsHour last night included a brief piece on the Dalai Lama. They titled it "Dalai Lama urges universal teaching of compassion." In the interview, he defined himself as a "Buddhist-Marxist."

There have been similar remarks about compassion from the Pope. In fact, many among the high-minded see themselves as other-regarding -- and therefore Marxist.  If not openly Marxist, then eager to involve the state (politics) in various redistribution programs.

They turn a blind eye to some very ugly (and well documented) history. But these are, for the most part, smart and well educated people so I can only speculate on what motivates them.

Arthur Brooks, in The Conservative Heart: How to Build a Fairer, Happier, and More Prosperous America, addresses a similar conundrum. The moral high ground, he argues, belongs to those who emphasize that freedom as well as prosperity emanate from the anti-statist platform. He believes that conservative politicians have dropped the ball, having been unable to make a case, inexplicably surrendering their strong suit. Poverty in America declined steadily before the onset of the War on Poverty (chart on page 62). Since then, all there has been to show has been a flat-lined poverty trend and about $1 trillion per year spent on 80 or so ineffectual anti-poverty programs.

Despite a mountain of evidence on their side, and aside from Ronald Reagan, American conservatives have been unable to craft a convincing happy warrior-inclusive-big-tent platform. Brooks sees this as ironic because the evidence is wholly on their side. (The book was written before unhappy-warrior Donald Trump captured so many Republican hearts and became a godsend to the statists.)

Read Brooks' happy warrior book. But do not forget that there are also Jonathan Haidt's moral taste buds in play. The ears have walls.

Sunday, October 04, 2015

Let the people bet

In casual conversations, some people will say, "I bet ....." usually revealing they have no clue. But betting is serious stuff. Forecasts with and without something on the line make all the difference in the world.

All assets held, bought or sold reveal serious forecasting because the individuals involved have a serious stake running on the outcome. This is why expanding the ambit of betting markets is a good idea. Alex Tabarrok at MR updates this thought in a recent post ("Corporate Prediction Markets Work Well"). It is the best way to get those with "inside information" (or insight) share their wisdom with the rest of us.

Philip Tetlock and Peter Scoblic write about this in today's NY Times ("The Power of Precise Predictions ... Making specific forecasts is the key to improving our nation's policies.")  Prohibitions against private betting are precisely the wrong policy.

The betting idea only applies to situations where outcomes within a specific time horizon can be clearly specified. Tetlock and Scoblic mention that they are currently sponsoring a betting tournament on the Iran deal. I am not sure what people are betting on in this case? A nuclear strike by Israel on Iran's nuclear plants in the next five years? Listen to this speech by Israel's Netanyau before you bet. Recall that the deal was sold with "peace in our time" gusto.

Thursday, October 01, 2015

Another "sun tax"

Voting with feet is a core benefit of federal systems. People can choose exit over voice; the power of politicians to do nutty things is thereby checked.

But there is also the "sun tax".  This means that natural (and other) amenities draw labor and capital -- and weigh on the exit option; bad policies can not simply survive but also multiply.

A quick Google Scholar search turns up only a handful of relevant scholarly studies. But the idea is simple enough. West coast and New York City taxes and regulations are known to be in a league of their own -- and very unlikely in lower amenities places.

Today's WSJ includesSarah Ketterer's "The 'Wage Gap' Myth That Won't Die. ... You have to ignore many variables to think women are paid less than men. California is happy to try"  The op-ed cites various studies that test the obvious statistical controls that narrow the observable gap (career choices, college major choices, different hours, etc.). But here is the author's key point:
The Fair Pay Act will prohibit employers from paying men and women different wages for “substantially similar work.” ... The Bureau of Labor Statistics (BLS) notes that its analysis of wages by gender does “not control for many factors that can be significant in explaining earnings differences.” 
What factors? Start with hours worked. Full-time employment is technically defined as more than 35 hours. This raises an obvious problem: A simple side-by-side comparison of all men and all women includes people who work 35 hours a week, and others who work 45. Men are significantly more likely than women to work longer hours, according to the BLS. And if we compare only people who work 40 hours a week, BLS data show that women then earn on average 90 cents for every dollar earned by men.
So 35 hours worked vs. 45 hours worked are "substantially similar"? Sound like lawsuit heaven. This means litigation costs and diminished economic growth and opportunity.

But there is that California sun. Lawmakers get to take bows for being on the side of the angels. They can roll the dice with better odds that the California economy will somehow survive. 

Saturday, September 26, 2015

No clue

I have not yet read Philip Tetlock's Superforecasting: The Art and Science of Prediction but the buzz suggests a great read so I have pre-ordered from Amazon. In today's WSJ, Jason Zweig offers amazing praise:
Three-quarters of all U.S. stock mutual funds have failed to beat the market over the past decade. Last year, 98% of economists expected interest rates to rise; they fell instead. Most energy analysts didn’t foresee oil’s collapse from $145 a barrel in 2008 to $38 this summer — or its 15% rebound since.

A new book suggests that amateurs might well be less-hapless forecasters than the experts — so long as they go about it the right way.

I think Philip Tetlock’s “Superforecasting: The Art and Science of Prediction,” co-written with the journalist Dan Gardner, is the most important book on decision making since Daniel Kahneman’s “Thinking, Fast and Slow.”
Humans are understandably eager to identify narratives (in their own lives, in market swings, in the universe, to name a few).  To be sure, most people cheer whenever there is progress by scientists working the "Standard Model" of physics.

It's a little strange. Some forecasting ability is indispensable (it is generally safe to cross the street on a green light) but skepticism is also essential.  Witness Zweig and Tetlock. Hard-to-find wisdom and perspective are essential. What else? Let us not-so-fast "go boldly where no man has gone before." Tetlock and Zweig seemingly say that we usually have no clue where it is that we are going.

Tuesday, September 22, 2015

Three poles, not two

We owe our prosperity to non-zero sum behavior and the institutions and cultures that encourage it. We get NZSB in markets functioning under the rule of law. (Don Boudreaux points us to James Pethokoukis who points us to Deirdre McCloskey for some explanations.) With Pope Francis here for a few days and political campaigns everywhere heating up, this is all worth recalling.

Binary distinctions get us into trouble. Many critics seemingly (unwittingly?) equate markets with crony capitalism. But try a three-way distinction: markets under the rule of law vs crony capitalism vs collectivism. The third has at long last been discredited but the critics are not able to distinguish between the first two. They see just one type of capitalism and many don't like what they see. That's a serious error.

Is it a tax? Is it a mandate? The Supreme Court says it's whatever the ruling party wants it to be. Not exactly the rule of law.

I am reminded of all this in reading Yuval Noah Harari's excellent Sapiens, A Brief History of Humankind. The author is very smart and an engagingly clear writer. He covers a lot, including history, biology, anthropology and economics -- and much more. He excels at discussions of how we have learned to tell ourselves stories, e.g. "imagined orders" -- all the isms -- to create the grounds for large-group cooperation.

Some of Harari's best chapters link credit, trust and economic growth. He gets it about economic freedom and prosperity. Strangely the book is also riddled with shots at markets. Harari sees ill-gotten gains all around. It's as though crony capitalism were the only kind. And he wants more supervision to fix things.  But supervision by which clan of wise men and wise women? Would not that mean more crony capitalism and a move in the wrong direction?

In one paragraph (page 328), he writes, "But in its extreme form, the belief in the free market is as naive as belief in Santa Claus. There simply is no such thing  as a market free of political bias." And "When kings fail to do their jobs and regulate markets properly, it leads to loss of trust, dwindling credit and economic depression."  I have no idea how he squares that circle. Nevertheless, it's a great book

Wednesday, September 16, 2015

Imagination needed

Milton Friedman famously argued for immigration -- on economic as well as liberty grounds. "Humanitarian" sounds good too but the essence involves giving people economic opportunity as well as greater political freedom. Friedman did warn, however, that his suggestion is complicated by welfare state policies that can add to the attraction of the destination countries. Receiving country backlash would increase,

But it is also true that large-scale immigration and the welfare state are both here to stay. What can be done? Massive vetting efforts are required.  Marginal Revolution cites a "markets in everything" private vetting service solution.

Expensive? Yes, but so are the alternatives. "Trillions" could be left on the sidewalk. Terror attacks are also expensive and so is homeland security. This may be one of the most important conversations of our day. I would put it ahead of climate change because what we see on Europe's borders right now is, I believe, just the start. Holman Jenkins sees the European status quo as just another Greek-debt approach, e.g.,  "Extend and Pretend."

It's not pretty that the shrillest (and least imaginative) view from the U.S. (somehow build a wall and have Mexico pay for it) is the one getting the most attention.

Sunday, September 13, 2015

Big history and big fears

I once (very briefly) thought that the likes of Julian Simon, Bjorn Lomborg and Matt Ridley had delivered knock-out blows to the neo-Malthusians. But that could never be.

Nevertheless, I greatly enjoyed Ronald Bailey's The End of Doom. It is well researched and nicely written. Baily, for example, gives no quarter to the anti-GMOers in his Chapter 5 "The Attack of the Killer Tomatoes."

On climate change, Bailey writes that he had changed his mind and that the balance of research he has seen persuades him that man-made global warming poses a significant problem. The chapter is wide-ranging and (as far as I can tell) well balanced. Long-run forecasts that involve climate as well as economics bring on a range of intellectual challenges that the author manages to introduce us to in just 68 pages. Is there a warming hiatus? How do we (will we) know? What are the costs and benefits of "doing something"? Is there a related severe weather uptick?  How can governments that subsidize waste in farming and water use be expected to make wise climate change policies? Solar energy? Nuclear?

Bailey seems to like the view of the Information Technology Innovation Fund view which he cites on page 234, "The paramount goal of climate change policy should be to make the unsubsidized cost of clean energy cheaper than fossil fuels ..." But I am not sure how policies in this field can remain entirely unsubsidized. At least the research could be subsidized. But will that be sealed off from politics? How?

I bring all this up because today's NY Times includes an essay by Timothy Snyder "The Next Genocide" which is apparently from his new book Black Earth: The Holocaust as History and Warning (which I have not yet read). First, let me say that Snyder's Bloodlands: Europe Between Hitler and Stalin is invaluable as we continue to try and make sense of 20th-century European history. But in today's essay Snyder recounts how an unhinged Adolf Hitler managed to link German nationalism and memories of food shortages to extreme neo-Malthusianism to crackpot euthenasia -- to bring on a world war and a holocaust. The author fears that the "Ecological panic, central to Hitler, could happen again."

Yes, the worst can always happen. But we are in the era of Deirdre McCloskey's Great Fact, the post-Enlightenment-post-1700 unheard of rise in human well-being. Unlike post-WW I Germans, many fewer people now alive harbor memories or fears of hunger or famine. Bailey reminds us that we are in the age of Norman Borlaug and that we can feed the peak population that is not far off.