Sunday, May 21, 2017

Supply and demand for favors

In Today's NY Times, Robert Shiller writes "How Tales of  'Flippers' Led to a Housing Bubble ... Conventional data aside, narratives show a shifting mentality for quick profits."

In 2008, the explanation was a sudden epidemic of "greed". Now it is "shifting mentality."  So who needs economics? Who needs political economy?

Led by a politicized Fannie and Freddie, lending standards were relaxed in the late 1990s and early 2000s. Low-FICO scores were acceptable. Twenty percent down payments were put aside. Fan/Fred may have been conceived as a way to tap international capital markets to help Americans become home owners.  But why extend this benefit to the purchase and/or guarantee of 2nd and 3rd homes? Were politics involved? This ground has been covered many times.  See, for example, this paper by Calabria.

To be sure, there are always mood swings among buyers, sellers, bankers, etc.  And these interact with the political economy involved.  Let's not ignore supply and demand -- in this case, supply and demand for favors. What passes for housing policy and monetary policy in modern American involves a good dose of supply and demand for favors.

Monday, May 15, 2017

Urban land use

The WSJ includes an interesting piece about urban land use, "A Farm Grow in the City: Startups are leading the way to a future in which more food is grown closer to where people live."

Is it land? Is it capital?  Neither? Aggregation is a problem.

In Conceptualizing Capitalism, Geoffrey Hodgson describe economists' post-1960s scramble to elaborate the idea of capital. "Health capital", "religious capital", etc. He cites 23 variants (p. 191-192). The author wonders which ones are actually alienable -- and therefore analytically useful?

In a previous post, I cited Ake and David Andersson's approach to the problem. Here, I repeat the key passage from their discussion.

 “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).

Two thoughts: (1) Modeling provides clarity of thought and requires clear definitions. But these can cause problems. The urban economists' textbook model of land use suggested concentric rings around the center -- with the outermost ring being agriculture. The new hybrid land-capital-agriculture land use vastly complicates the idea of a "ring". (2) Change accelerates and we will have to rely on market signals more than ever. Those top-down land use plans are going to be less useful than ever.

Saturday, May 06, 2017

Health politics U.S. style

Minimally politicized health care would be best. But it is an ideal that we are drifting ever further away from.  What would minimally politicized health care include?  Here are five pillars: (1) A light-touch FDA that tests for safety and lets efficacy be judged by doctors as they consider the complexities of the cases before them; (2) Light-touch insurance regulations that focus on the solvency of health insurers; let competing insurers disrupt and innovate; (3) A mandate that everyone open a health savings account; (4) A mandate that everyone purchase catastrophic care policies; (5) Subsidize the catastrophic insurance purchases of the poorest.

Can anyone assemble a winning political coalition for this approach?  Unlikely.

Obama-care mustered a winning coalition the day it was signed into law. But Democrats have lost four straight elections since then -- probably because the coalition fizzled after the real thing was up and running.

The replacement is not yet  known -- and will have to work its way through the sausage factory. The WSJ's Holman Jenkins writes "GOP Health-care Sausage is Good for You". But what could possibly emerge?

Health care politics is big in the U.S. -- and has been for a long time. As many have pointed out, World War II price controls spawned non-wage competition among employers, including employer-provided tax-sheltered health care. Add Medicare and Medicaid and today most medical procedures are paid for by third parties. This means ever less scrutiny and ever more politics. It also means unsustainable expectations.

On top of that, there are now too many health care "insiders" with "skin on the game" who have set up shop in Washington. After all of the disappointments and all the "sausage," what can enough of them possibly agree on?  Not the 5-part approach mentioned above. Unfortunately, it might be universal single-payer.

Will that solve anything? We are not Denmark. U.S.-style single-payer is likely be VA medical care for everyone.  Note that every incoming administration coming to Washington promises to "fix" VA medical care. None has yet been able to do so.