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.