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.