Thursday, January 26, 2017

No escaping Downs' Law

Take pricing off the table and the alternatives are not promising, much worse than tying just one hand behind your back. This is true for almost any public service.

Some years ago, Anthony Downs elaborated and popularized the idea with his "Law of Peak Hour Congestion."  Here is a nice summary. Without pricing, extra road capacity will simply attract traffic from other sources (other modes, other routes, other times of day, new trips, etc.). Congestion will not be "solved." The idea is simple -- and the lesson has been ignored a thousand times. Officials are loathe to price but love building things. This is "bi-partisan". Crony capitalism is non-denominational.

Elon Musk has now made another media splash by promising to "solve" LA's traffic problems (which have eluded all of the previous "solutions" for the same reasons) by promising new capacity via a tunnel under the Hollywood Hills. It's big, it's splashy and it's Elon Musk. What could go wrong?

Subways are thought to "work" in NYC for historic reasons. But even there, the costs (in light of U.S. construction practices) have escalated enough to make the whole idea questionable. Would a Musk super subway be any different. There is nothing there that addresses Downs' Law.

Thursday, January 19, 2017


There is cringe-worthy economics coming out of Washington on a regular basis. This morning, one reporter without a hint of irony referred to the Trump trade agenda as an "America-first trade agenda." Trade is not about winning but (once more) good politics is often bad economics.

In my fantasies, the know-nothings would learn from some of my favorite books. When it comes to money, start with Money Changes Everything: How Finance Made Civilization Possible by William Goetzmann.  As the title states, the author tells us about history while he tells us about economics. (Should we ever have one without the other?)

Try to explain money. These days, I try to explain Bitcoin (any crypto-currency) to friends and family. What "backs" these? What backs any fiat money? The trust in and the credibility of the issuer. When I shop with "Peter Gordon IOU's" I don't get very far.

Economic historians like Goetzmann have the real goods. Consider this from page 450:

“Having repudiated its foreign debt and fought off the attempts by the world’s leading investor nations to reverse the October Revolution, Russia still needed to raise money.  In the Yale collection of historical financial documents is a printed bill, about twice the size of a modern dollar. On the front of the bill is a picture of a farmer sowing a field. The inscription on the bill identifies it as a short-term loan from 1923:  an obligation of the government.  Oddly enough it does not promise payment in rubles but instead it can be redeemed for one sack of rye flour.  Karl Marx would have been proud.  The young Soviet government had bravely dispensed with the object of money fetishism – the veil that concealed the true value and encouraged capitalist monetary accumulation.  Instead, the idealistic Bolsheviks introduced a more fundamental source of value as a medium of investment and exchange.  Lest Russians imagine that the grain itself held value, the romantic pastoral image of the farmer sowing the grain pictured the labor theory of value.  The commodity was worth the amount of honest labor used in planting and harvesting it.  What is not clear from the document is whether the bill represented fiat money or whether it was truly redeemable.  If it were actually a short-term note used to redeem a sack of rye, there is missing information.  The bill does not state when and where the sack can be collected.  Perhaps it was really a manifestation of the labor theory of value.  Alternatively, it could have been a manifestation of the weakness of the young Soviet state.  Russia was in the throes of hyperinflation in the early 1920s as the needs of the state outstripped its resources.  Perhaps the rye bond was an inflation-protected currency.  Then again, who knows how many sacks of rye the government had to deliver on such promises – or indeed, whether they ever did.  The fact that you can buy one of these bills today for less than $50 suggests that many of them were left unredeemed.”
 There are many more gems like this one. Enjoy.

Saturday, January 14, 2017


Many of us are overwhelmed by reality and retreat to "bubbles".  Charles Murray deserves great credit for popularizing the idea. Most of the people I know who took his "bubble test" did not fare so well. My own favorite bubble is the optimist bubble.

There is so much not to be optimistic about but my comfort zone (an admitted weakness) is the one that sees the glass as half-full.  But there is a case for the optimist view.  I recently read the manuscript of Ake and David Andersson's forthcoming Time, Space and Capital. They reiterate the story of humankind's amazing material progress over the last several hundred years (as do do Deirdre McCloskey and many others) and they make the case that the economic theory we have helps us to understand it.

To their great credit, the Anderssons go further and break new ground on how capital theory can be broadened so that we can gain an even better grasp. They elaborate concepts of capital. “Land may consist of scarce natural resources such as gold or oil, and then it takes on all the characteristics of physical capital. Access to natural resources – including land formations that are valuable because of their beauty – is yet another physical capital attribute. But land is also valuable for the access is provides to other people, in which case land should be conceptualized as a bundle of social capital attributes. Thus, the traditional definition of capital corresponds to a bundle of physical capital attributes, ‘land’ is a bundle of physical and social capital attributes, and labor similarly consists of a bundle of human and social capital attributes.” (p. xx).

Simply referring to “capital” is vague. The same applies to “land”. It’s really all about key attributes. A street address, for example, denotes a substantial set of productive attributes because it says a lot about the plausibility of operating in a variety of networks. Of course. This is how we can better understand cities.

Back to bubbles. Innovation and technology are a great boon to people in some very poor places. Today's WSJ includes "Mobile Banking Gives a Big Boost to Kenya's Poor: Benefits to to women particularly ..." It's not just Bitcoin for billionaires evading capital controls (bless them for that). It's not about Europe's Great Enrichment. It's not about the UN or the IMF or foreign aid. It's better.

Saturday, January 07, 2017

No utopians

Experimentation is a wonderful thing -- as long as it is coupled with private risk-taking.  Here is The Economist's report of the state of the Disneys' new urbanist Celebration, Florida. A little too utopian to meet its promises. Read the whole thing.

Here is Wendell Cox's report of urbanization in the U.S. It is mostly suburban and exurban. Within that large swath there is, to be sure, experimentation and variety. None of it is "unplanned." The questions are always: (1) who does the planning?; and (2) is the top-down part light-touch enough to allow bottom-up responses to what consumers want?

Developers (private planners) want to succeed. To do so, they must fathom and decode consumers' wants -- and supply and price the package in ways that attract buyers and satisfy investors. Not simple. Are the people who can do actually this "visionaries"? By definition, yes. But not utopians.

"If you want to make God laugh, tell him about your plans." This is mentioned by a character in Amores Perros. It has also been credited to Woody Allen.