Saturday, March 25, 2017

New exit

Perhaps the most insightful work on political economy is Albert Hirschman's Exit, Voice, and Loyalty. Staying clear of anarchy, we are stuck with governments and politics. These present problems that complicate our lives and our well-being. Perusing each day's news (newspapers) makes the case.

In any market economy there are inevitably forces that push towards the wrong capitalism, crony capitalism. What can be done? Exit and voice are two possibilities. Neither is without cost but in modern American life, exit is the more plausible option. Exhibit A is the lower schools. In most cases, real improvement is hard to achieve and parents have decided that vying for places in charter schools or competing for vouchers (where that is an option) is the best use of their time. "Fighting city hall" is far less promising.

We look to tech to disrupt monopolies. Uber and Lyft are the favorite examples but I expect that many more will soon emerge.

This morning's WSJ includes a review of Seasteading: How Floating Nations Will Restore the Environment, Enrich the Poor, Cure the Sick and Liberate Humanity from Politicians (which I have not yet read). The essay by Shlomo Angel suggests that technological advances (getting food and energy from the sea) are coming our way. These could make the seasteading idea plausible for some.

The San Francisco Bay Area is attractive to large numbers of tech workers and entrepreneurs (and many others).  But the combination of high attractiveness and local NIMBYISM has elevanted housing costs into the crazy realm.  Development is now being pushed to various corners of the Bay Area. Can seasteading in the mild waters off the California coast be another option? Can some tech (or other) firms set up shop off shore? Recall that California and Bay Area politicians get fat from the "sun tax": they get to do dumb things as long as California remains so attractive to so many. 

Off shore settlement beyond the 12-mile limit but within ferrying distance of SF Bay (there are already 15,000 commuters who ferry across the Bay) may be a check on some of the taxing and regulating. It's still a long shot but perhaps a way to get the benefits of California without all the costs. Mark Twain was wrong about land. "They're not making it any more." He should have mentioned location. There may soon be good enough substitutes for some land (at some locations).

Monday, March 13, 2017

Good old days?

Whenever someone evokes "the good old days," I answer with two words: "medical science." The ailments that we have experienced (or will experience) are best treated by today's (or tomorrow's) medical science, not that of 10, 20, 30, 50 years ago.  The long run longevity improvement trends are clear.

The other trend I celebrate is the rise in interracial and interfaith marriage. It and the mixed heritage offspring are the best antidote to ancient tribalisms that are our heritage -- and often our plague.

I'll take this year over any other.

But the arc of human progress is not easy to fathom up close. Numerous declinist essays and arguments have been floated in recent years. Nicholas Eberstadt writes about "Our Miserable 21st Century: From work to income to health to social mobility, the year 2000 marked the beginning of what has become  a distressing era for the U.S." in the recent Commentary.

Tyler Cowen makes similar arguments in his widely reviewed and well received The Complacent Class. To be sure, Cowen tempers his pessimism. 

Re Ebertstadt, be careful suggesting a uniquely U.S. predicament. Has not most of Europe also experienced a productivity and economic growth slowdown? Do not both, the U.S. and Europe, have to cope with an aging population that works and invents less? Are not both afflicted with sclerotic politics and bureaucracy?  Have not both gone through a financial crisis brought on by a concocted housing boom? Is not catch-up growth (unlike China's) no longer an option for both?

Re Cowen, its more complicated.  He cites similar outcomes as Eberstadt but he devotes his argument to the idea that Americans have lost the adventurousness that characterizes their history.  Thus the title of the book. How and why did mass complacency happen? "Ultimately America decided it didn't want a redo of the turmoil of the 1960s and 1970s, and it did what was needed to stop that from happening" (p. 11). Cowen believes in cycles.  Economic models that include demographics will give you cycles but the models are not so useful when it comes to the specifics of durations and amplitudes.

One of the many recent U.S. trends that Cowen studies involves improved matching capabilities and opportunities (including "assortative mating" which has a been written about a lot). These are mixed blessings. The author elaborates in Chapter 3 of the book, "The Reemergence of Segregation".  "Reemergence" does no suggest Jim Crow forced segregation -- and the painful efforts to overcome it; it is not I-have-a-dream integration but it is not Jim Crow either. Consider a recent LA Times report about Leimert Park, a middle-class mainly black LA neighborhood. There is apparently a backlash against "too many" white families moving in. Not that many years ago, few would have thought that any integration would be protested by blacks. The fact that people, like many in Leimert Park, prefer voluntary segregation may be an unpleasant surprise for 1960s freedom riders. Improved matching opportunities makes sorting (and segregation) in many activities easier. Mixed blessings.

My other caveat re Cowen is over his treatment of upward mobility. He writes that it has been been "outsourced": most of it is now by the immigrants. "Any country with a lot of immigration will have much more upward mobility than its published numbers indicate" (p.150). Of course. The original status of immigrants is by definition absent form the data that mobility researchers rely on. But you can also put this in the good news column. Ambitious people (to the extent that they can get here) have the U.S. as a place to go and thrive.  We get external benefits -- and economic growth prospects. Much has been written about the entrepreneurial spirit of immigrants -- high tech as well as low tech. Cowen would like to see more upward mobility by the U.S.-born. While we wait for that, the more that can come here, the more upward mobility in the U.S. (however measured) and the world.

We cannot have open borders but we can work to discover how to do better vetting to reduce the Type I and Type II errors. Make that a priority. Let more people in and get more of that "outsourced" upward mobility.  This may seem like a stretch but so are Cowen's favorite fixes (p. 194-196).

Back to Eberstadt who makes much of the shock that many felt at the Trump win in November. Many blue-state residents were indeed comfortable inside their own bubble -- from which they could not grasp the world view of the left-behind. Eight years of Obama-Clinton elitist moralizing hardly assured these people. But (pace Middlebury College hoodlums) Charles Murray deserves all the credit here. He did great work in his Coming Apart -- and the "bubble test" he included. All this was written well before the Trump election. Murray showed that most of us spend too much time inside comfortable bubbles.  Murray wants us to get out more -- even beyond our comfort zone(s).

Diversity of thoughts and ideas, amicably and thoughtfully exchanged, are the ideals. All three of the cited writers want that.  Many more of us, including  "The resistance", ought to take up the banner.

Wednesday, March 08, 2017

Sausage factory rules

Conor Dougherty writes abut NYC street traffic in today's NY Times. "Self-Driving Cars Can't Cure Traffic but Economics Can."  There is congestion because there is no pricing. Take one rationing method off the table and another becomes the default. This has been the relevant economic insight for as many years as economists have looked at the problem. While textbooks speak of congestion as a "market failure," the failure to price is actually a failing of policy makers and politicians.  Transactions costs have been removed as an obstacle by modern technology and the arrival of easy, fast and cheap scanning and billing.  These have been implemented and tested in various parts of the world, in particular where there are bottlenecks such as at bridges and tunnels.  The remaining objection has been over the regressivity ("fairness") of pricing. But Uber's "surge pricing" has been seen as entirely sensible by most people.  Matinee pricing, early bird specials and similar time-of-day or season-of-the year demand-responsive pricing have been around for a long time. It's when prices emerge via the political sausage factory that the predictable positions are wheeled out.

Sausage factory rules also explain why the regressivity of taxing people (often via sales taxes) to pay for enormously expensive and often underused subways and similar transit is usually ignored.

Tuesday, February 21, 2017

Game-changers

Here is the L.A. Times noting that LA Metro ridership is still falling -- even though billions have been (mis)spent on extra capacity over the last 30+ years. By my count that's the second time this year that the Times has broached this tender topic. As a member in good standing of the LA "good government" (googoo) establishment, the paper had for many years chosen to tip-toe around the bad news.

Readers of this blog may know that some of us began flogging the dead horse in the mid-1970s. Go to the attached proceedings and read the contribution by the late UCLA Prof. George Hilton. He was among the first to write sensibly and clearly that LA is not NY -- and trying to make it so would be a phenomenal waste. But even LA Times coverage will be for naught. Billions more will be spent. Pouring good money after bad is what the great and the good in city hall do for a living.

We are in the the early years Uber/Lyft and all manner of ICT information sharing.  These are the game-changers. For the past two months, my wife and I have graduated from a two-car household to a one-car-plus-Uber-plus-walkable-neighborhood HH. The game-changers are here. Conventional transit was never a game-changer.

Monday, February 20, 2017

Why have economists in the room?

Good politics makes bad economics and vice versa. The Trump administration's ideas on trade prove it. In today's WSJ, we see that "Trump eyes change in counting U.S. exports that could make trade gap look bigger."

Adam Smith pointed out many years ago "Nothing can be more absurd than the balance of trade." This "balance" (current account deficit) is reported and fretted over regularly. But less noticed is the simple fact that the deficit is necessarily mirrored by an equal and opposite surplus on the capital account.

Currency exchange rates reflect the supply and demand for any and all currencies. Supply and demand for any nation's goods and services as well as supply and demand for any nation's capital goods determine supply and demand for any nation's currency.  At the end of the day, currency values price and prompt all of these trades. 

Put it another way: Americans get to consume more than they produce because the world wants to invest in American capital goods. This also means that American taxpayers (and politicians) can consume more than they produce. Sweet deal all around.

What are the lessons? The world wants to invest in the U.S. Good news. The "trade gap" proves it.

It would be even better if the federal government (politicians) did not reap the benefits. These "investment opportunities" though attractive abroad (for the most part) do little good.  Far better if foreigners used their U.S. dollars to make productive U.S. investments.

Gains form trade are fundamental and beneficial.  Double-entry booking is also fundamental and beneficial.  I understand the politics. But why have economists in the room if they simply parrot the politics?

Wednesday, February 15, 2017

Practicalities, reputations, gossip

Dan Klein has a forthcoming paper (Independent Review) on "The Joys of Yiddish and Economics." Dan looks at the Leo Rosten classic as well as the essentials of Smithian-Hayekian economics and finds various parallel insights. Smith-Hayek famously noted the information content of prices and the useful embellishments of reputations -- whenever we buy or sell.

The characters that Rosten described were practical men and women. Survival was job #1. They could not afford to neglect practicalities. As such gathering information was fundamental. Where and when they could get it at low cost was part of survival. The humor is usually from the joy of recognition.

Thanks to the web, we now live in a sea of information. But we still engage in gossip (in person and on social media) because trust is always being tested. We network electronically as well as the old fashioned way. We seek (and find) the blend of networking opportunities (face-to-face as well as electronic) that works best for us in light of our personal situations.

It's really not so different from Rosten's characters and their situations.

Wednesday, February 08, 2017

The public (politicized) schools

Here is Eric Hanushek, arguably the most astute scholar on U.S. lower school performance (and what can be done about it), commenting on flat and dismal Pisa scores for U.S. students.  Note that he says U.S. scores have been "stagnant for the last decade". He also addresses and deflects the standard criticisms (excuses) for the status quo that are traditionally offered. Read the whole thing.

Below are data compiled by AEI's Mark Perry on what we pay for this tragedy.  All of this is poignant because the most contentious Trump cabinet appointment to date has been the confirmation of Betsy DeVos. It's telling that her critics charge that she is not from the education establishment. Revealing. They are unaware that they cite her most distinguishing qualification.


Vouchers would not destroy the public schools.  Rather, all schools would be incentivized to earn their public subsidies rather than receive them as an entitlement. There is nothing like competition and innovation. Both have been missing. This is why we have the sorry mess we are in.  Let 100 (actually many more) flowers bloom.

Here is the WSJ's Daniel Henninger explaining how and why those who live and breathe "social justice" are obliged to show their true colors on this issue.

ADDED From a Feb 10 Ed Glaeser WSJ book review: "My preferred course would be a single-minded devotion to skills—learned in charter schools and on the job and at the breakfast table and while sitting patiently in a house of worship ..."  From Edward Conrad's The Upside of Inequality: "Today U.S. growth demands properly trained talent ..." (p. 13). 

As always, how we we get from here to there?

Wednesday, February 01, 2017

Consequences

Globalization, immigration, and trade hit some Americans hard and many turned to Trumpian populism.

Here Russ Roberts interviews George Borjas to discuss Borjas' We Wanted Workers (which I have not yet read). Early in the conversation, Borjas explains "we wanted workers but we got people" is closer to the real experience and complicates the story way beyond the simple economic models.

The conversation is, as always, useful and enlightening, but the two economists hit what are in my view two dead ends. First, they wonder whether rather than limiting immigration, can native workers be better prepared to compete? Both men favor "better education." But how will that happen?  American kids have been posting lousy Pisa scores for as long as I can remember - no matter what is done or what is spent on the schools. And which Trump cabinet choice is in trouble at this moment? Betsy DeVos who promises to be the first Secretary of Education not in the pocket of the education establishment -- which is why she is in trouble. So much for the education fix.

Elsewhere in the conversation, Borjas and Roberts note that immigrant assimilation was once the choice of most immigrants as well as of most Americans. But no more. "Melting pot" is now a microaggression on some college campuses. Yes! Not a bad joke.

Tribalism around the world accounts for countless deaths and wars.  Coming to America as way out of tribalism was the great American achievement. It never meant that ethnic ties would be lost.

But identity politics and confusion now reign and we have lost something notable and precious.

Those still puzzling over the Trump win might reflect on political correctness jammed down our throats for years. The Ft Hood shootings were simply "workplace violence". Yup, and we're all stupid. And the geniuses who came up with this tactic knew what they were doing. Not really. What we do know is that they will be puzzling over (and writing about) the Trump (who I did not support) phenomenon for many years.

Arrogant cluelessness (just like elections) has consequences.

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

Money

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

Bubbles

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.

Friday, December 30, 2016

An economist goes to Washington

Here is Trump economist Peter Navarro explaining the benefits of protectionism to Paul Solman and the PBS NewsHour audience. The best (worst) part is where they go to a display board and write down the textbook components of final demand that define GDP.

GDP=C+I+G+(X-M). The "chalk talk" quickly gets pretty awful. Trump wants more "I" but "Keynesians" want more "G". Trump-Navarro want to boost GDP by reducing the "trade deficit" (reduce gap between U.S. imports and exports). There follows a discussion of China's trade abuses, including selling their stuff to us at low cost.

Where to start?
1. Trade is a good thing; specialization and exchange are the fundamental insight of market economics; they explain our prosperity.
2.  The "trade deficit" is a meaningless idea left over from the days when mercantilism was a serious idea, embraced by royals seeking ways to pay for their perennial war making. They were perhaps blind to the idea that currency exchange rates are always in flux, responding to the demand and supply for goods and services as well as the demand and supply for assets.  These flows respond to prices (exchange rates). At the end of the day, there are trade flows and capital flows that exactly balance.
3. The international demand for U.S. assets signals confidence in the U.S. economy -- we are still the "tallest pygmy." I would feel better if the U.S. Treasury borrowed less. Tallest pygmy status feeds a bad habit (addiction) by U.S. taxpayers (and Congress). More capital flows would go into U.S. productive projects were there less competition from U.S. unproductive (government) projects.
4. Going back to the textbook definition of GDP, the items on the right-hand-side are not independent of each other. A trade war, for example, could tank "I" as well as "C".
5. If any government anywhere does "manipulate" anything to make their exports (my imports) cheap, thank you very much.

U.S voters have spoken but the conversation never stops. If economists invoke textbook discussions of GDP, they should at least do so without all of the errors that Navarro promotes.


Wednesday, December 21, 2016

Out with the old; in with the new

The NY Times notes: "L.A. Drivers on the 405 Ask: Was $1.6 Billion Worth It?"

Good question. Also interesting amid the clamor for a "big infrastructure push". Also interesting after billions have been spent in L.A. and other U.S. cities on rail transit with nothing to show.  Perhaps people who make (and talk about) public policy operate by their own set of rules; losses are not the usual impetus to re-think. Learning from mistakes (the way to progress) are no big deal.

What are the substitute rules? Do more of the same. Stick to your emotionally-based beliefs. Stick with your crony capitalist partners; it's a beautiful friendship (Bootleggers and Baptists). Fudge the numbers when it's convenient.

In the fairy tale version, there would come a point when people get fed up and throw the rascals out. The fairy tale has no room for a populist reaction. Some of the bootleggers get the drift and catch the wave of discontent.

You get a Bernie Sanders and a Donald Trump.  Poor Hillary Clinton and team Podesta. They were busy so prepping for the coronation that they thought the old politics would work just fine.

Trouble is that the new politics may be as awful as the old politics.

ADDED

Learning from our mistakes is our only hope.  Here is more: http://www.nationalaffairs.com/publications/detail/cultural-intelligence