Sunday, August 30, 2015


The Economist (Aug 29; "Infrastructure in the rich world ...") takes us once more through the sad lament that "infrastructure" is being short-changed.  But the catch-all aggregation "infrastructure" obscures that fact that we can over-invest and under-invest at the same time.  In California we will have miserably potholed streets (for the many) as well as high-speed trains (for the few). This is the politics we have. The cited article suggests that it is not simply a U.S. problem. Bent Flyvbjerg has been making these points for many years.

Suggested reforms are hard to take seriously because when there are mega-projects, there will be mega- dollars and mega-politics. But for starters, let's stop talking about "infrastructure" as if it were all interchangeable and malleable capital to be funded with fungible dollars. Never talk about the proposed new projects in the same reports as upkeep and maintenance of old projects. The former always nose out the latter.

There are now cities that can say "no" to hosting Olympic games because of well earned reputations for budget disasters. Perhaps there could also be progress in the "infrastructure" discussion if we clarify -- and then try to prioritize.


From the Sep 2 WSJ:  "The U.S. Olympic Committee and city of Los Angeles officially launched their bid for the 2024 Olympics on Tuesday after the City Council voted unanimously to approve an agreement that will pave the way for the city to become America’s replacement candidate for the Games."  Some cities have learned to say "no." For LA, it will be potholes all the way down.

Monday, August 24, 2015

Complementary ideas

I liked Cesar Hidalgo's Why Information Grows (but here is a dissenting view).

Information exchange is, of course, essential to any understanding of economics and cities. Cities offer transactions cost economies that facilitate networking, exchange, and growth. Hidalgo likes discussing networks. I often cite supply chains for goods and supply chains for ideas. Cities and their urban structures are collections (patterns) of supply chains.

The recognition of supply chains encompasses specialization, exchange, economizing on transactions costs, and the structure of cities. Supply chain parts are within any city, but parts may be beyond the city, in other places. All of this involves location choice. People in cities (in their roles as producers or consumers) want two things:  accessibility and space. Many complex trade-offs are in play. Cities produce floor space. If all goes well, they do so in places and configurations and at prices that make it possible for large numbers of private activities to succeed. Cities are also seen as places where we can find transaction cost economies. These facilitate the formation of any supply chain. They also influence the nature of any chain; some supply chains (or their parts) are within firms and some are beyond the firm; likewise some are nearby and some are not, all reflecting the “make or buy” challenges faced by managers and owners of firms. These choices are informed by interaction costs as well as location choice costs.

Knowledge and information are each essential. How do you get one from the other? The right networks have to emerge. Out-of-equilibrium systems are jostled. These are interacting supply chains for things and supply chains for ideas. Jane Jacobs covered all this. I do not recall that Hidalgo cited her. He does link to Granovetter, Putnam, Fukuyama and Hayek.  All of these thinkers contribute complementary ideas that add our understanding of cities. 

Thursday, August 20, 2015


Eugene Volokh asks "How many people ... would want to come to America if we had open immigration ...?
"... Say that we consider largely removing limits on immigration, as was indeed the law throughout much of the nation’s history. (Let’s set aside narrow limits, such as on people with criminal records, terrorist connections, or easily communicable diseases.) Say also that we will offer these now largely legal immigrants those social welfare benefits that are in fact politically likely — not the bare minimum that some libertarians might like, nor the vast amount that some welfare-state proponents might suggest, but those benefits that are likely: Public education for their children, some level of health care, and the like."
It's a great question. The economics are win-win. The morality is inescapable.

There has always been human misery but it is now more visible than ever. Many desperate people take huge risks and many suffer unimaginably to leave the hell-holes where the accident of birth has placed them. They want to take their chances not only by signing up for a perilous journey but also for all of the uncertainties of entering a place they know very little about. If they have contacts such as friends and family that preceded them, so much the better.

But Volokh's  "how many people" question is impossible to answer. How would a long run equilibrium look? Would increased immigration flows prompt ever greater demand for entry? Or would it be the opposite; after the most desperate have left would those who stayed behind be more reluctant to uproot?

Our political season is now revealing the extent of nativist sentiment in America: even the crazy idea of deporting millions gets traction.  Tyler Cowen reports on similar backlash in Europe.

What to do? Part of the public's antipathy is directed to the awfulness of the status quo. We often proclaim "zero tolerance" only to be overwhelmed by the impossibility of implementing it. Not having a working guest worker program inevitably gives rise to fence-jumping. The latter hardens attitudes all-around and gives us the sorry debate we are now having. How to get to Volokh's "narrow limits"?  Look for the most moderate reform. Start with a guest-worker program and build trust. Go incrementally. Forget the "comprehensive" immigration reform packages. Start small.

Sunday, August 16, 2015

Starbucks, prices, politics, life extension

People who get markets understand where prices come from and why they are essential. Many others who do not get markets are sure that prices are somehow "wrong" -- and that they know what they should be (some kind of cost mark-up) -- and who should fix them. Guess who. Much of the politics (and "policy discussion") we have is because of the latter.

Today's NY Times includes "Cheap Coffee and the Starbucks Premium ... Why Starbucks raised price on some brewed coffee even as the price of beans fell globally." That does sum it up. They raise prices because they can: the "premium". Those crazy consumers. But who better? (Figuring out when and how they can is not so simple; price adjustments happen often; they are called "sale", "clearance", etc.)

To be sure, the Times piece mentions that Starbucks announced on July 6 that its costs were rising.  Announcements like these accompany all price hikes because sellers understand the public's grasp of pricing.

We hear all the time that more and more people have gone to college -- and more have been through econ 101. But if the simplest of lessons about prices were to be taught and learned, just imagine how much of the rhetoric and how much of the politics would disappear.  Imagine how much time would be made available. It would be like life extension. Imagine.

Friday, August 14, 2015

Has it gotten to this?

When they hold the "Smartest Man Alive" contest, I plan to nominate Matt Ridley. We are lucky that he is prolific.  In this morning's WSJ, he writes about "The Green Scare Problem ... Raising constant alarms -- about fracking, pesticides, GMO food -- in the name of safety is a dangerous game ... Indoor air pollution, caused mainly by cooking over wood fires indoors, is the world's biggest cause of environmental death. It kills an estimated four million people every year ... Getting fossil fueled electricity and gas to them is the cheapest and quickest way to save their lives. To argue that the increasingly small risk of dangerous climate change many decades hence is something they should be more worried about is obscene."

This is not the first time that the high-minded cheapen the lives of others -- in this case, the most defenseless others. Popular revulsion against political elites dominates our news. Trouble is that the pendulum swings all the way towards vulgar populism. Peggy Noonan goes so far as to say this: "I don’t know what happens with Mr. Trump, but Trumpism? That’s here now—outlandish candidates backed by indignant, enraptured people who’ve lost their judgment. Congratulations to the leaders of both parties: The past 20 years you’ve taken us far. We’re entering Weimar, baby. The swamp figure is up from the depths." Weimar!

Tuesday, August 11, 2015

"Love Gov" once more

Election campaigns require a strong stomach. What to do? Voting, like purchasing a lottery ticket, is unlikely to make a difference; accepting the perils of crossing the street to do either has a negative expected benefit. Trying to impact ideas is the best investment. My friends at the Independent Institute do that with these videos. I have posted on this before, but it bears repeating. ADDED These kind people want to make college "affordable." They have experience and expertise making housing, health care and much else "affordable." A whole world of free lunches.

Sunday, August 09, 2015

Answer a question with another question?

Is there progress?  Material well being and longevity are better than ever for most people on Earth except for the Bottom Billion. Getting those left out on board is the biggest problem and some of us favor open borders as the way to go.

Aside from material well being, Benjamin Friedman reminds us that more prosperous people are nicer to each other. Steven Pinker shows (convincingly, I think) that we are more peaceful. The Flynn effect suggests (suggests) we may be getting smarter. Killing lions and other big game used to be great sport but that has turned around in the relatively short space of about fifty years.

But is bottomless boorishness on the rise?  Donald Trump is still regarded seriously as a contender for U.S. President by many people.  Politics was always "a dirty business" but the Trump phenomenon is not about that. His style is of our time.

Today's popular culture causes concern. Consider what you hear in The Great American Songbook -- the popular culture of a recent era. The lyrics and the melodies are actually charming and witty. Compare that with today's rappers and their followers. In film, many of today's blockbusters are enjoyed by people who used to enjoy "comic books".  Yes, the industry is very good at special effects. To be fair, there is plenty of better-than-ever TV fare (The Wire, Breaking Bad, etc.).

Nevertheless, (contra B. Friedman) boorishness is on the rise. Is this the inevitable by-product of the positive trends I cited?  Nothing like ending with a very complicated question. 

Wednesday, August 05, 2015

Car story

Public transit in America is a hard sell -- outside a few 'transit legacy' cities, most notably New York. Private autos are the overwhelming favorite wherever (in the whole world) people can afford them; nothing surpasses the promise of  personal freedom of private mobility. Public transit, in contrast, can be seen as collective mobility.

Almost everyone knows the Volkswagen label, especially its iconic Bug and Beetle models. Many people also know that the original VW idea was pushed by Adolf Hitler and the Nazis.  For more on the story, look at "The People's Car." in Richard J. Evans's The Third Reich in History and Memory.

Even dictators look for ways to please crowds.  Nevertheless Evan's story seemingly challenges the libertarian narrative I describe above. "In the early 1930s, Germany was one of Western Europe's least motorised societies.  This was partly because its public transport even then was second to none -- smoothly efficient, quick, omnipresent and all-encompassing. Germans mostly felt they didn't really need cars" (p. 181).  It was Hitler and the Nazis who pursued construction of the Autobahnen as well as the development of an affordable car. "The automobile, Hitler declared, responded to the individual will, unlike the railway, which had brought 'individual liberty in transport to an end.'" (p. 182).

Evans notes that Hitler's VW project never amounted to much.  The Beetle's huge success, first in Germany and then abroad, was a post-war phenomenon.

Sunday, August 02, 2015

Taking bows for what?

From Barack Obama to Ben Bernanke to Dodd and Frank, and on down throughout much of Washington DC, politicians and economists are taking deep bows for "saving" the world economy in 2008-09. But bailing out cronies ("Who benefits from bailouts") with taxpayer's money is actually pretty simple.

The morning after is the hard part. The latest GDP growth numbers are still awful. Also here and here.

But it's even worse. We lose the essentials of capital markets. Writing in today's NY Times, Adam Davidson reminds readers that, "Rather than condemn Greece for unwise borrowing, we should worry about why our economic system refuses to punish unwise lending ... We need the market to reward bets that are economically wise, instead of those that are politically savvy."

Capital markets are there to resolve an essential (and huge) coordination problem. How does society provision itself for the future? Not actually "society" but decentralized capital markets that coordinate an uncountable number of savers' and investors' consumption-smoothing plans.  Scarce resources must somehow be channeled to the most worthy projects.  That is how we grow.

To get it done, there is only one option: capital markets without political manipulation.

The investors who bet on Greek sovereign debt were betting on the bailouts they are now getting.  Investors in U.S. mortgage-backed securities were also betting on implicit (soon to become explicit) loan guarantees, first to Fannie Mae and Freddie Mac and then to much of Wall Street. As Davidson suggests, bad GDP numbers are just the parts that are most easily seen.