Friday, April 21, 2017

Let it be

The New Yorker's Adam Davidson writes about the "Sweet Smell of Success", in this case the cluster of firms involving cosmetics that project (or counter) odors, located in New Jersey (in and around I-95 "the stink highway").  Many other industries seek and find the clustering that serves them.

Economics is obviously spatial but this truism (still) gets surprisingly little attention from most economists. Economic growth (and how to get it) is all the rage. But cities are rightly called “engines of growth.” Advanced economies are urbanized because cities facilitate innovation and efficient production. Agglomeration economies and productive clusters of activities are often cited. There is a spatial dimension to explain how and why cities succeed. Densities matter but densities can also impose costs. Complex trade-offs are involved. Many densities emerge.
In market economies complex supply chains emerge. Each firm (each link in the chain) processes decisions regarding what to make vs what to buy. But this involves questions of producing where and also buying from where? Supply chain emergence has a spatial dimension and involves evaluations of the costs and benefits of locating at various sites. 

Innovation is key. But less studied but also essential are supply chains for ideas. Producers and consumers are keen on acquiring useful knowledge (Mokyr, 2002). From where? How? Location choice bears on this also. Most of us also seek to add value in the supply chains for ideas that we are involved with.

All of this is further complicated by the fact that while there is mode choice involved in the emergence of supply chains for things (deliveries by land, sea or air?). Information also comes at us in many ways. Face-to-face or electronic is an obvious contrast. Most of us utilize both. Again, the mix we choose and the site we choose are co-determined.

Many things and many ideas come and go via multiple modes to and from many places. Adamson cites Pontus Braunerhjelm of Sweden's Royal Institute, "it is all but impossible for government to create a cluster."  The complexity is beyond even (especially) the best and the brightest. But they all want the next Silicon Valley. 

Where is the original plan for Silicon Valley?  Emergence beats planning. The trick is to stand back as much as possible -- and let emergence happen where and how it may.


Labor and capital (many kinds in each case) are each mobile. But degrees of mobility differ. They each land somewhere.  The places they leave from as well as the places they go to define the ambit and the range of their relationships.  Social relationships? Economic relationships? Surely both. Supply chains for things and supply chains for ideas each have geographic dimensions (opportunities, constraints).

Friday, April 14, 2017

Friendlier skies

It is a cliche to say that where transacting does not occur there will be conflict -- even violence. Everyone has now seen the United Airlines thugs doing their thing on a recent domestic flight. Economists (notably Julian Simon) have long suggested that silent auctions would be much better.  ("Please go to our website and ..." ) The usual suspects however want more and better regulations (oxymoron?) -- such as a ban on overbooking.

A better antidote (also from Econ 101) is more competition.  That can easily be accomplished. International airlines that have already landed at a U.S. airport are banned from picking up passengers and ferrying them to the next U.S. destination. The ban is pure crony capitalism and should be lifted. Most other countries have no such ban.

Part of the stand-up comedy by airline attendants is when they say "we know you have a choice ...". How about many more choices?


"Thugs" was the wrong descriptor. Uniformed law enforcement people find themselves in impossible cluster situations (such as the one described) all the time.


Timothy Taylor has a short discussion of Julian Simon's thoughts on using auctions to clear an overbooking problem.

Sunday, April 09, 2017

Cities and markets

The fundamental insight of economics is that choices based on market prices give us the best allocations of scarce resources.  It follows that prices that come to us from any other sources can be problematic. The fundamental insight of urban economics is that good and bad things can happen when people crowd into cities. It follows that cities will grow and prosper if and when the costs of crowding are somehow mitigated. Prof Don Shoup put both of these insights together some years ago and made the case for wiser pricing of parking.

The Economist of April 8 has come around. "Sacred Spaces: Never mind public transport, bicycle lanes or elegant architecture. What really determines how cities look and move is their parking rules" and "Aparkalypse now: The average car moves just 5% of the time. The improve transport and cities, focus on the other 95%."  Print and electronic headlines not the same but these guys do know how to write.

The third relevant insight is from Hayek. Prices set without the benefit of market discovery are likely to be wrong -- and problematic. What then are we to do with all of the Pigouvian ideas re somehow getting the prices right in cases of external costs?

One approach is to let land markets be. (Not planners' favorite idea.) Land markets can help to arrange land uses in ways that reduce the likelihood that potential negative externalities become realized externalities. The hard-of-hearing will bid for residential space near places like airports -- if we let them.  So here we have it again. Rely more on markets.

For cities, the market failure theme was thoroughly embraced while the potential for policy failure was thoroughly ignored.

Thursday, April 06, 2017


The End of History was nice while it lasted. There are only cycles (a truism) but we never know the their timing (another truism). Mercantilism, nationalism and xenophobia are apparently back. When it comes to trade, we may get less when more would be better. The same is true of immigration.

"Fairness" is always a daunting concept. But here is the easy part: the accident of birth is unambiguously unfair. This recent New Yorker story helps to make the point. The only serious antidote is immigration. But this is where the hard part, political troubles, comes in. Are there models of applicant vetting that have a chance of influencing the debate? I would say that finding these is job #1. Philanthropists may consider seeding efforts along these lines.

We also know that economic success depends on entrepreneurs. Here is one more study that documents the fact that we get more entrepreneurs when we get more immigrants. Always recall that these great people want badly to come here.

So the current retreat from win-win liberal ideas leaves us where? First, we look for occasional bright-side evidence on people's attitudes towards immigration -- wherever we may find it. Second, we recall that the pendulum will swing back. It always has. As always, we do not know when.