Wednesday, April 17, 2019

Where's the cronyism?

I enjoyed Tyler Cowen's BigBusiness: A Love Letter to an American Anti-Hero.  Indeed, I have not yet come across a negative review. There is a chapter on crony capitalism ("How Much Does Big Business Control the American Government"?)  Corporations are cited as spending about $3 billion a year lobbying the federal government but they spend $200 billion advertising (p. 171).

Sad to say, perhaps these corporations get the job done with more leverage and fewer dollars. That, of course refers to the "Bootleggers and Baptists" model developed by Bruce Yandle. Unmentioned in Cowen's chapter but perhaps the most powerful model in public choice. In politics, assembling winning coalitions matters most. In a world where many voters are rationally (and irrationally) ignorant, assembling such coalitions is quite doable and perhaps even inexpensive. Hence, "only" $3 billion.

But perhaps the worst cronyism involves the public schools. Politicians dare not cross the unions involved. Poor performance is routinely ascribed to "underfunding."  But two scholars who know of what they speak reported this a few years ago: "Nor is money the answer. The U.S. spends $12,000 per pupil in grades K-12, one of the highest in the world. Among U.S. states, increments in spending per pupil between 1990 ad 2010 show no correlation with changes in student performance." (P.E. Peterson and E.A. Hanushek, WSJ, Sep 12, 2013).

This morning's WSJ includes a story on charter schools in New York.
Most children at urban public schools aren’t learning what they should. So it’s encouraging to see New York Governor Andrew Cuomo ask fellow Democrats who run Albany to lift the cap on the number of charter schools allowed in New York. 
The state now caps the total number of charters statewide at 460. But in New York City, where the demand is greatest and where 235 charters are now teaching 123,000 students, the subcap has already been reached. New York public schools teach about 1.14 million students overall with a budget of some $25 billion. 
Why cap the number of good schools? The most recent state test results for grades 3-8 show that while the majority of New York students attending traditional public schools are not proficient in either math or English language arts (ELA), a majority of charter school students are. 
For New York City, the charter performance is even more impressive when broken down by race. At city charters, 57% of black students and 54% of Hispanic students pass ELA, compared with 52% of white students statewide. It’s the same in math, with 59% of black students and 57% of Hispanics at city charters passing, against 54% of white students statewide.

The Economist (April 13, 2019) notes "Governments should stop regarding private education as the enemy." Who are "governments" in this case? They are the shameless coalition of cronies who are doing great harm to some of our poorest children and families.

Sunday, March 31, 2019

Time horizons

Robert Shiller writes “Modern Monetary Theory Makes Sense, to a Point” (MMT) in today’s NYT.  What is MMT?  It comes out of the Bernie Sanders campaign (among others) and seems to say “print all the money you want -- because you can.”  Sound silly? 

The printing must be for “good causes.” But aren’t they all? 

And increased national debt is not a problem “because we owe it to ourselves.” But who is “us”?  Mercantilism (you would have thought) was disposed of many years ago.  Are nations meaningful economic entities?  Most people are interested in with whom they trade insofar as whether they trust them enough to arrange a mutually attractive deal. Nationality only enters the discussion when political economy becomes tribalist crazy. There is way too much tribalism in the world without this.

I have been driving Japanese cars almost my whole (driving) life.  The national origins of the product are irrelevant.  So it is with most purchases – unless politicians seize on national origins of product for their own jingoist reasons.

But say this for the MMT people. They have three things going for them. (1) Americans (for the most part) have stopped caring about the national debt. (2) And – to this point – they have been right. The world continues to want U.S. securities in their portfolios.  (3) And politicians love to spend but hate to tax.

So go for it? Political time horizons are what they are. Reason #995 for small government.


Arnold Kling calls it Modern Ponzi Theory

Wednesday, March 27, 2019

Planners and policy makers, call your office

People who talk about macroeconomics are captivated by the Philips curve trade-off between unemployment and inflation.  The thinking has been re-packaged many times but the idea seems not to go away.  When there is economic growth, there is the possibility of "overheating" and inflation. So, do something! Trouble is that the theory tells us nothing about timing.  So mistakes are made and policy-induced business cycles follow.

Likewise, when it comes to cities, there is usually just one (old) idea. Spread and "sprawl" are costly and must be avoided.  Contain "sprawl" and do "containment," "clustering," urban "growth boundaries," etc. Evidence that this is misbegotten arrives almost daily. Look at  Also look at this morning's WSJ which includes "A Decade After the Housing Bust, the Exurbs Are Back."

Rank the top ten U.S. urbanized areas for all of the recent census years. In 1950, the top ten (in order of population) were New York, Chicago, Los Angeles, Philadelphia, Detroit, Boston, San Francisco, Pittsburgh, Knoxville, St. Louis. For the 2010, it was New York, Los Angeles, Chicago, Miami, Philadelphia, Dallas, Houston, Washington, D.C., Atlanta, Boston. Gordon and Lee report the ranking for all of the seven intervening census years.

Here are number of intercensal rank changes (from the top): 0,1,1,1,2,2,4,4,6,6.  New York was always #1 but there is natural churn.  More churn as you move down from New York. Stability towards the top.

Growth happens when net agglomeration economies prevail. How do the bigger places retain a net agglomeration advantage? By growing at the edges. No costs of sprawl. Quite the opposite.

Planners and policy makers, call your office. And do read Alain Bertaud's Order without Design.

A Decade After the Housing Bust, the Exurbs Are Back

Tuesday, March 12, 2019


There are probably good medical definitions of overweight and underweight. There are many other serious examples. But many other casually used overs- and unders- are hard to define.  They are rhetoric. We hear many complaints about things "overpriced." More that I want to pay? Or the popular "I am underpaid," even "underappreciated?" Many more.

In private life there are bankruptcies and business failures. In public life, these are rare. Instead, many agencies or services are "underfunded." There is seldom recognition that something is wrong and the outfit should re-group and leave us alone.  Perhaps some private businesses on the verge of bankruptcy entertain thoughts of being underfunded. But if capital markets do not come to the rescue, there are probably good reasons. (Seeking cronies in government is another unfortunate approach.)

At the local level, is there an excuse for potholed streets? Why do the folks with clear responsibilities for the basic duties of local government fail?  One would think that fixing the potholes is non-partisan. One would think that the things that really matter to most people are the purview of local governments. One would think. (And that may be the case for smaller jurisdictions. The Homevoter analysis suggests the same.)

One would be wrong. Big cities are different. By all means, pay attention to this when referring to "local government".  This is not a simply defined sector. At the large-city level, instead of the basics there is preoccupation with social justice and climate change programs. Why fix the roads? Big-city politicians secure election by looking after a coalition of labor unions (their pay and their pensions) plus the fans of "good causes." Bootleggers and Baptists is powerful as always.

Non-partisan suppliers of public services indeed.


The people who cannot fix the potholes do embark on transit projects that cost huge amounts but serve very few people. In fact, net ridership increases are negligible (in a good year) but usually negative. Here is the latest for L.A.  Again, stop talking about "local government". Big-city local government is special and not in a good way.

More on "underfunded".

Monday, February 25, 2019


Socialism and Capitalism are fraught labels that many people will define in their own convenient way. Crony capitalism is surely the wrong capitalism but perhaps defines our unstoppable drift. Both political parties inevitably find cronies with whom they would like to do business: special dispensation in return for political support. Too many businesses sign up for the deal.

Millennial voters are supposedly prompting a shift to the left among would-be candidates for the Democrat Party's nomination for President. Interesting political footwork will be on display for some months. Democrat Party Chair Tom Perez was on one of the news shows this AM showing off some of his dance steps.  Many of the things that many voters seemingly enjoy, he mentioned, were once deemed "socialist." He cited Social Security and minimum wage laws. Others add the modifier "democratic" socialism to distance themselves from the well known socialist catastrophes; Venezuela's Maduro and the plight of his nation are in the news daily. Others prefer current European examples. Arnold Kling notes that they get the story less than half-right.

Russ Roberts and Mike Munger discuss crony capitalism in this week's Econtalk. Is crony capitalism inevitable? Does our Constitution protect us?  Does our culture protect us? Are both layers of protection fraying? Did both political parties (and most economists) wrongly embrace bail-outs in 2008? Did they give away the store? Did they provide ammunition to the left that will be used to challenge defenders of market economics for many years?

I enjoyed the conversation and encourage others to listen to it. I did not come away with the feeling that the drift to cronyism can be arrested. I do not see a modern-day Churchill with the rhetorical and intellectual skills to turn the tide and make the case that "democratic socialism" or cronyism are slippery slopes to avoid. Far from it.

Monday, February 18, 2019

Sunk costs

In recent weeks, California’s new governor canceled (actually scaled back) California’s high-speed rail (previous post), Airbus canceled further work on the A-380, and Amazon has second thoughts about New York city. Is it the end of the sunk cost fallacy? Not really. The sunk cost fallacy results from the natural human tendency to not admit mistakes – and to somehow strive to redeem mistakes. Gamblers seldom walk away from a losing streak (casinos make a lot of money).  Couples and friends with relationships gone sour often stick with them for many years. (We seemingly have no data on this).

Throwing good money after bad has limits. More than half of new business fail within five years. But this is less clear when other people’s money is involved. It is also less pronounced when Bootleggers and Baptists coalitions are in play. Finally, when (especially) vain politicians think of their legacy (and “legacy projects”, e.g. Jerry Brown and the bullet train) the plot thickens. Amazon walked away from a bad prospect way earlier than California did.

I expect that many more economists teaching intro courses talk about market failure than government failure.  I will never know why.


Sunday, February 03, 2019


Pharaohs, popes and politicians like(d) mega-projects. Peter Hall has documented Great PlanningDisasters. Bent Flyvjberg and his colleagues have that shown such failures are endemic.

Nevertheless, China’s economic accomplishments over the last 30 years, including all those bullet trains, have garnered fans for this-time-is-different central planning.  

Today’s New York Times Magazine includes “The Trillion-Dollar Nowhere”.  It’s about China’s Belt and Road Initiative. The project “will link China’s coastal factories and rising consumer class with Central, Southeast and South Asia, with the Gulf States and the Middle East; with Africa; and with Russia and all of Europe, all by way of lattice and land and sea routes whose collective ambition boggles the mind.” 

The article does a good job evoking some on-the-ground realities. These include nationalisms, politics, ethnic antagonisms and suspicions, historical grievances, etc. The original Silk Road(s) were no picnic – and was eventually by-passed in favor of improved sea transport. It is only now being revisited, about 2,000 years later, because of modern Chinese planning hubris.

What do we know? Grandiose projects attract a natural Bottleggers-and-Baptists constituency. Politicians and planners overreach. One-off projects are naturally difficult and risky. Rational ignorance-plus-politics is easy prey for sunk-cost fallacy thinking.

Almost everyone laughs or scoffs at the California BulletTrain but who cares? It will go forward.


I was wrong. Gov Newsom stopped this turkey in its tracks (oops). Nixon-goes-to-China moment? 

Saturday, January 19, 2019


"Fatal conceit" is precious.  How much wisdom can be crammed into a two-word phrase!

It is amazing (but not surprising) that those who are largely ignorant presume to manipulate a system they cannot really understand.  Knowledge is dispersed and complexity is the rule. Again, Hayek said it best: "The curious task of economics is to demonstrate to men now little they really know about what they imagine they can design."

This morning's WSJ includes a brief discussion of how ignorance kills. People in Los Angeles (and other big cities) moan and groan about traffic congestion.  They do not rue un-priced access because pricing is exotic and/or nefarious. But "solve" they must.  Today's WSJ includes "Vision Zero, a 'Road Diet' Fad, is Proving Deadly ... Emergency vehicles get stuck on streets that have been narrowed to promote walking and bicycling."  How could it be otherwise?

What else do we know? The people who  bring us crackpot ideas and policies keep getting re-elected. In the extreme, when elites tell Little Sisters of the Poor that they must get behind contraception, there is revolt and revulsion.  We get Trump and Trumpism. Problem solved?