Tuesday, August 30, 2016

Climate news

The climate news most likely to make it into the popular discourse tends to be one-sided. Matt Ridley ("An Ice-Free Arctic Ocean Has Happened Before ... When the Arctic loses all it sea ice one summer, will it matter?") reminds us once again that the real story is quite complex -- and not easily amenable to the kind of posturing that is so popular in politics, media -- and beyond.

Wringing of hands over distant climate change is required of all right-thinking people. We can thank Bjorn Lomborg for reminding us that in a world of scarcity, it is important to prioritize. The only tool we have is serious cost-benefit analysis -- with all the proper caveats about inevitable uncertainties. Large numbers of people face awful conditions right now that are remediable sooner rather than later. High on the list are toilets for the millions that do not have them. The health and dignity benefits are clear. This is about the plight of people now.

The important point is that technological change does not cease. Timothy Taylor cites research on making fuel from carbon dioxide.  Russ Roberts and Chuck Klosterman discuss the almost inevitability of being wrong -- and  perhaps prompting those who come after us to someday roll their eyes? "They used x-ray?!"

Who most likes doomsday scenarios? There is always a Bootleggers and Baptists coalition with a keen interest to "do something." Included among the spiritual seekers are those with an attachment to the idea of state action.


The WSJ's Holman Jenkins is blunter than I was.

Friday, August 26, 2016

Mal-investing as policy

The revised second-quarter GDP numbers are here -- and again dismal. What to do? "Janet Yellen is calling for investment in public infrastructure ... monetary policy tools have reached their limit .."

But here is a more plausible view: The Perils of Public Capital. Read the whole thing. It cites the many bridges to nowhere and other similar missteps. Are all of these failures invisible to Yellen and Summers -- and the many others of their persuasion?

The blinders seem to come on when the old-time religion, more public spending, is evoked. One can excuse the pandering and posturing Clinton and Trump, but the smart people are another story.

Here are two thoughts. First, for many academics, their intellectual capital is their whole being. Hold on to it at all costs. If nearly $1 trillion of spending on "shovel-ready" projects did nothing, suggest to spend even more. The model says so. Second, and related, many smart people have a strong need for closure. Ambiguity and open-endedness are no fun. The theory has to work.

So why all this sidewalk psychiatry? Because it is bizarre that our best and brightest will say anything on behalf of good old-fashioned public spending. And convenient for you-know-who.

Econ 101 says that capital markets are essential so that scarce resources not go into mal-investments. But we are in the unfortunate situation where public infrastructure and mal-investment have become almost synonymous.

Monday, August 22, 2016

"Youthful safety and adult immaturity"

There are few if any unmixed blessings. Almost everyone likes and uses the internet. But there are obvious downsides. Ross Douthat takes up that theme in Sunday's NY Times, "The Virtues of Reality ... Online realms can make us safer, but stunted." Virtual sex and computer game violence mean that young people have been less likely to get in trouble. But neither are many of the young ready to get out, join the workforce and sample non-virtual reality. Many stay with parents, stay home,  and make do with not much of what we can call a life. 
"... I want to advance a technology-driven hypothesis: This mix of youthful safety and adult immaturity may be a feature of life in a society increasingly shaped by the internet’s virtual realities.
Douthat moves the discussion away from the standard (boring) talking-heads litany of political errors and political opportunities. And the young people least equipped are most likely to use internet addictions to avoid getting a real life. "The poor spend more time online than the rich ..." There was a time, of course, when class warriors embraced the "digital divide" concern. They were apparently wrong.

Read Douthat's whole piece on this. When I get the Sunday Times, I look at his column first.

Friday, August 19, 2016

What would they do all day?

There are many pithy ways economists use to make important points ("no free lunch", "compared to what?" etc.). Among the most useful is Thomas Sowell's "and then what?".

Today's WSJ cites a short piece from Esquire on some of the consequences of marijuana legalization. The "War on Drugs" has been a disaster on many fronts and legalization is the way to go. But partial legalization also has consequences. These were harder to anticipate. Here is the story:

... The heroin epidemic was caused by the legalization of marijuana.
We wanted legal weed, and for the most part, we got it. Four states have legalized it outright, others have decriminalized it, and in many jurisdictions police refuse to enforce the laws that are on the books, creating a de facto street legalization.

Good news, right?

Not for the Sinaloa Cartel, which by the time Colorado passed Amendment 64 in 2012 had become the dominant cartel in Mexico. Weed was a major profit center for them, but suddenly they couldn’t compete against a superior American product that also had drastically lower transportation and security costs.
In a single year, the cartel suffered a 40 percent drop in marijuana sales, representing billions of dollars. Mexican marijuana became an almost worthless product. . . . Once-vast fields in Durango now lie fallow.
More good news, right?

Yeah, no. Guzmán and his boys are businessmen. They’re not going to take a forty-point hit and not do something about it. They had to make up those profits somewhere.

Looking at the American drug market as it existed, Guzmán and his partners saw an opportunity. An increasing number of Americans were addicted to prescription opioids such as Oxycontin.

And their addiction was expensive. One capsule of Oxy might sell on the street for thirty dollars, and an addict might need ten hits a day.

Well, s—, they thought. We have some of the best poppy fields in the world. Opium, morphine, Oxy, heroin—they’re basically the same drug, so . . .

The Sinaloa Cartel decided to undercut the pharmaceutical companies. They increased the production of Mexican heroin by almost 70 percent, and also raised the purity level, bringing in Colombian cooks to create “cinnamon” heroin as strong as the East Asian product. They had been selling a product that was about 46 percent pure, now they improved it to 90 percent.

Their third move was classic market economics—they dropped the price. A kilo of heroin went for as much as $200,000 in New York City a few years ago, cost $80,000 in 2013, and now has dropped to around $50,000. More of a better product for less money: You can’t beat it.

At the same time, American drug and law-enforcement officials, concerned about the dramatic surge in overdose deaths from pharmaceutical opioids (165,000 from 1999 to 2014), cracked down on both legal and illegal distribution, opening the door for Mexican heroin, which sold for five to ten bucks a dose. ...
Partial legalization is the problem. People's capacity to discover (and supply) substitutes is vast. To avoid messes like the one described, go back to principles. Prohibit nothing that has the potential to only harm the individual exercizing his or her free choice.

Freedom is inherently attractive and also so practical. But the freedom idea also places a lot off-limits to the state. What would politicians do all day?

Tuesday, August 16, 2016

Urge to mandate updated and cleaned up

Ironies make us think. And there are plenty of them. We know that in U.S. politics, "liberal" is now the opposite of its original meaning. We also know that people who would have claimed that label as recently as 20 years ago now prefer to be called "progressives." People who see themselves as "liberal" in the old fashioned sense now prefer the label "libertarian".

But, on examination, the original progressives of the Progressive Era were not the congenial folks we learn about in high school. Fred Siegel covers this ground in his The Revolt Against the Masses: How Liberalism Has Undermined the Middle Class.  Thomas C. Leonard does much the same in his Illiberal Reformers: Race, Eugenics & American Economics in the Progressive Era. Most disturbing is the fact that, in the great desire to be be modern and scientific, the Progressives embraced eugenics. We now know how badly that ended.

Almost all of polite company these days favors raising the minimum wage in the service of "helping people." But the original Progressives were quite explicit about their motives. They also got their econ 101 right. Here is Leonard (on page 130): "Thus did many observers accuse inferiors of accepting low wages and undercutting the American workingman. Sometimes inferior workers were portrayed as explicit dupes of the capitalist. At other times they were portrayed as the capitalists' accomplices. Often they were made out to be both. In all events, the threat was the same: the low standards of inferior workers."

That sort of candor has been updated and cleaned up. It is now about "helping people." Trouble with that is it just ain't so. The Law of Demand, as they say, "takes no prisoners."

Don Boudreaux makes a similar point.

Thursday, August 11, 2016

"Have you no sense of decency?"

Here is the Malcolm Gladwell podcast re Toyota's "sudden acceleration" problem. Listen to all of Episode 8. Here is Gladwell's abstract:
In the summer and fall of 2009, hundreds of Toyota owners came forward with an alarming allegation: Their cars were suddenly and uncontrollably accelerating. Toyota was forced to recall 10 million vehicles, pay a fine of more than $1 billion, and settle countless lawsuits. The consensus was that there was something badly wrong with the world’s most popular cars. Except that there wasn’t.
Politician-lawyer-media frenzy are almost inevitable when a "big corporation" can be blamed. Most of the rest of us are happy that Toyota manufactures and sells great product -- and we prove it with our purchases of the company's product year after year.

Some years ago, I had occasion to work with then-East-bloc colleagues. It was best to tippy-toe around all sorts of issues and episodes that might embarrass them. When there was embarrassment, they would shrug and smile and simply say "that's politics." Move on. Nothing can be done.

I am happy to live in a better place. But "that's politics" also comes across in Gladwell's piece. Two cabinet secretaries are shown to be part of the extortion mob. And we now have an "historic" nominee for president who lies until the paint peals. But the toadies still cheer. "Have you no sense of decency?" was once a powerful statement. Directed at either major party candidate, it would be (sadly) laughable today.

Friday, August 05, 2016

Waste and debt

The mantra used to be that the antidote for bad cost-benefit studies is good (properly done) cost-benefit studies. But Bob Higgs remains skeptical. He invokes the "first do no harm" principle and notes how hard it is to meet that standard -- no matter what the estimated costs and benefits are.

But we now live in another world. Whether it is Clinton, Trump, Sanders or Obama, they are fond of discovering (and championing) free lunches (trade protectionism, free college, banning immigration, overtime for everyone, free child care, energy independence, etc., etc., etc.).

The locals in my part of the world are not to be undone. Friend Brad H. notes that the Los Angeles Economic Development Corporation has discovered the best deal yet: Raise the sales tax by one-half cent and "put billions back into the economy". How does that really work? There are no opportunity costs. In fact, costs are benefits. Spending is a benefit.
Light rail, subway and bus rapid transit construction projects that would be funded by the tax plan would result in $51.1 billion of economic output, while another $28.2 billion would be generated through freeway and highway projects during the first 50 years, according to LAEDC analysts.
But even high authority (in this case J.M. Keynes) said that "whenever you save five shillings, you put a man out of work for a day."  The spending sentiment still resonates. Spin it with talk of less traffic, less carbon, etc. and it's off to the races.

The great two-fer these days involves public projects that denote more waste and more debt. Debt is justified if and when the projects funded contribute to growth. But these are not the sorts of projects that politicians place on the ballot these days. Quite the opposite


The list of free-lunch fairy tales is long and growing. This one surely belongs: "The All-Time Regulation Record."  The slowest post-war economic recovery speaks for itself. 


The NY Times includes "A Low-Growth World ..." on this Sunday's front page.  No mention of the elephant-in-the-room-all-time-regulation-record. This goes on here and abroad and explains low growth here and abroad. Some years ago, Mancur Olson published The Rise and Decline of Nations: Economic Growth, Stagflation and Social Rigidities.  The "mystery" was solved by Olson some years ago.

Tuesday, August 02, 2016

Be careful

Here is the always wise Matt Ridley talking about experts and their forecasting skills (lack of). He cites the Philip Tetlock project.

We have a natural human interest in the future; we have to reconcile this with the fact that we have no clue (can have no clue) about the distant future. We are routinely asked to make large sacrifices to avoid the consequences of climate change in as many as 100 years in the future. There has never been a serious 100-year technology forecast. I doubt that there will ever be one. (I just made a safe forecast.)

It is an entirely different matter if private parties make bets with their own time and money. If they choose to putter around laboratories, pursuing wild ideas, good for them. It is a different matter when they hector others to do so with their time and money -- or via their influence on those with the power to tax.

One can never know enough history. It's also good to know a lot of economic history; my taste runs to Deirdre McCloskey's way of combining the two fields. But do these oceans of scholarship allow one to make forecasts? For the short run and in terms of broad patterns only. And even then, be careful.

If cities were to implement one-stop developer approval processes in place of the drawn out and expensive mess we now have, there would be more housing, greater affordability and also more mobility. These are all to the good. But my forecast lacks a "when" and a "where".

In the run-up to 2008, most economists were still celebrating the Great Moderation. Were any of them in the room when Queen Elizabeth asked the obvious question? Be careful.