Thursday, September 18, 2014

Writing about cities

The City by Deborah Stevenson is reviewed here by three not-so-sympathetic reviewers. Perhaps that's for the best and I hope Stevenson agrees.

I am beginning to think that most of us write for (and are only heard by) others in our own bubble. The odds are slim that I would have read the book had there not been the request for a review. Her's to "reaching across the aisle."

What is our biggest economic problem? In my view, it is growth. I am interested in cities insofar as they are an essential part of the growth riddle. In Deborah Stevenson's view, the big problem is class warfare. Her task was to show the role of cities in pitting the haves against the have-nots. Future work will have to get all this under one cover.

Food nuttiness

Did someone say that the rich are different? Here is Pierre Desrocher's review of "The latest culinary fad: famine food ... Middle-class foodies are paying a fortune to eat what peasants once lived on." I know nothing about psychiatry so I can only chuckle. One of Pierre's interests is food nuttiness; he and his wife wrote about it in The Locavore's Dilemma.

On a related note, here is the PBS NewsHour's coverage of the "GMO debate". In the producers' quest to be even handed, they gave equal time to serious people concerned with the science of health and nutrition and, on the other side, lunatic luddites shown gleefully destroying crop on an experimental farm in the Philippines.


Saturday, September 13, 2014

Too crazy

Today's WSJ includes Peter Thiel's "Competition is for losers ... Only one thing can allow a business to transcend the daily brute struggle for survival: brute profits."  He also notes "Economists use two simplified models ... perfect competition and monopoly." Ugh!

Too many economists (and their textbooks and their other writings) are guilty of all this. But are serious people (in our out of the field)? To be sure, some economics texts, beginning with Alchian and Allen to Paul Heyne (later Heyne, Boettke and Prychitko), were much more careful. "Monopoly" (just one seller or source) exists where it is protected by law (public schools for people too poor to send kids to private schools or to home-school). Otherwise any market-power (successful product differentiation) and any profits are fleeting and must be maintained via steady hard work. Surely Thiel knows that this is what business people do all day.

Apple was pressed to introduce new product last week; they could not rest on any "monopoly" advantage -- and they were surely not "perfect competitors." Advertising and clever merchandising are never enough; the buyers are not that stupid. Consumers' tastes are subjective and formed in mysterious ways. They constantly consider possible substitutes; there are no "perfect" substitutes, only good ones and not so good ones. That distinction is again a complex and personal one ("in the eye of the beholder").

Were any of this not so, staying  in business would be pretty simple.

Economists and others have been turning people off for much to long by belaboring implausible models and approaches. Economic thinking is actually indispensable; bizarre claims too numerous to count are made all over the place by people who remain innocent of economic thinking. But many remain in this state because the models and textbooks they had been exposed to were too crazy to take seriously.

Tuesday, September 09, 2014

Alpha cities

People like to choose and join teams. There are many examples. Nationalisms and regionalisms are just two of many. Among the latter, there are city vs country-cousin rivalries which probably exist in most cultures -- with each side claiming peculiar wisdom by which assert their superiority over their rivals. There are also the peculiar distinctions between any country's "alpha city" vs the rest of that country's folk.

Think New Yorkers vs the rest of America. Each side is pretty sure of its own superiority and the awfulness of the other side. I imagine that the same holds for Londoners vs all other Brits, Parisians vs the rest of France, Shanghaiers vs the rest of China, Muscovites vs all other Russians, etc.

This Alpha list is one man's opinion and is not quite right because he lists more than just one city for some countries. The U.S., for example, has many cities where one can find interesting things to do. But in how many of them can the general tourist spend more than two or three days and nights?  Let's be honest, for the U.S., New York (where I do not live and where I was not born) is special. One can spend weeks (or more there) and not be bored.  I suppose the same distinction applies to Paris, London, Tokyo, Berlin, etc.

Urban economists celebrate agglomeration economies. Nothing succeeds like success. There are agglomeration economies (net positive externalities realized via proptitious location) in all cities. But the non-linearities are breathtaking.  The outsized presence of the arts, intellectual variety, fine food, great architecture, etc. in New York stands out. In other words, the real alpha city in each country outdraws the rest by leaps and bounds. 

Thursday, September 04, 2014

NBTO, nothing but trade-offs

Those who favor higher mandated minimum wages argue that the affected workers "need" and/or "deserve" the extra money. The claims are rhetorical but makes sense when made by those low-wage workers who expect to be covered. But Bastiat's distinction between what is seen and what remains unseen is also relevant. The businesses never started, the jobs never created, the promotions that never come are necessarily unseen -- and harder to measure. We have to rely on the law of demand which does slope downward.  In fact, the great man was more specific.
There is only one difference between a bad economist and a good one: the bad economist confines himself to the visible effect; the good economist takes into account both the effect that can be seen and those effects that must be foreseen.
Yet this difference is tremendous; for it almost always happens that when the immediate consequence is favorable, the later consequences are disastrous, and vice versa. Whence it follows that the bad economist pursues a small present good that will be followed by a great evil to come, while the good economist pursues a great good to come, at the risk of a small present evil.
Los Angeles Mayor Garcetti wants the L.A. minimum wage to go to $13.75 by 2017. The Great and the Good of L.A. have lined up in support. Here is Eli Broad's op-ed. Broad and others cite a UC Berkeley study which adds that a higher minimum wage is a local economic stimulus; lower income people spend a greater share of their income and multiplier effects kick in.

Free lunch. Those who write and who repeat this stuff are likely to have 401k plans and other links to "corporate America."  Some may even check their accumulated balances on occasion. They have probably noticed that share prices are volatile and responsive to earnings and earnings prospects. In other words it is not simply about digging into other people's deep pockets.

TANSTAAFL is a mouthful.  NBTO, nothing but trade-offs, is much more manageable.

Sunday, August 31, 2014

Transactions cost

It seems strange but for most of its life, economics was a field of study that did not recognize transaction costs. Look at the 200-year Ngram results, below. Ronald Coase changed things. Without him, we would be stuck with Nirvana economics, still teaching things that students could easily see are not terribly useful or linked to the world they know. Today's NY Times includes "Is Owning Overrated? The Rental Economy Rises." The report speculates about cultural shifts in attitudes and the effects of the recession. But it also mentions, "... technology has made borrowing possible on a broader scale, and between strangers. Social networking profiles and rating systems offer a level of trust and verification, and mobile phones equipped with GPS take much of the work out of matching people with nearby services." It is the money, and the trust, and the attitudes, and the possibilities. Tech is changing the world in profound ways. And in ways that conventional measures, including GDP, cannot be counted on to capture. We get better use of the resources and capacities we have. This can go a long way.


ADDED: Here is the econtalk discussion of AirBnB. Listen to the story -- and hear about the numbers.

Monday, August 25, 2014

More cost-benefit? Better cost-benefit?

In this morning's WSJ, Edward Glaeser and Cass Sunstein write on "How to Deregulate Cities and States ... Cost-benefit analysis and 'lookbacks' could lift unnecessary burdens of occupational licensing." You bet. But who will do these studies?  I think that's the real challenge.

Some years ago, Robert Hahn and Paul Tetlock published. "Has Economic Analysis Improved Regulatory Decisions?" They found, "... there is not strong support for the view that economic analysis has had a significant general impact."  What to do?
Given these unimpressive results, where should we go from here? Perhaps what is needed is a more disciplined and formal commitment to benefit-cost balancing, led by the president and Congress, along with comparable officials abroad. As noted above, such a commitment could entail mandating benefit-cost analysis of important regulations in statutes. Congress could also codify a version of the current executive order requiring benefit-cost analysis. It may also want to consider subjecting some proposed laws to at least a crude benefit-cost analysis prior to voting on them. Already, Congress often asks for estimates of the budgetary impacts of laws and proposed laws.
But Congress' record on this is, to be polite, mixed. Pork first. Even when studies are done, they are all over the place. Here is an apparently serious cost-benefit analysis of California's high-speed rail plan.

Many years ago, Charles Lave suggested that consultants be required to bond their forecasts. If taxpayers are asked to accept huge risks into the indefinite future, why should those who grease the wheels accept none of the risk?

What would the specifics of such a consulting contract look like?  This discussion should occur before we simply demand more cost-benefit studies.

Thursday, August 21, 2014

Ferguson

Dan Henninger writes about Ferguson in this morning's WSJ.  He cites horrific unemployment rates among young black men. Part of the problem is their lack of education.  Here is the punch line.
The decline of inner-city public schools is the greatest, most bitterly ironic social tragedy in the 50 years since passage of the liberating civil-rights acts. But what works here is no longer an unsolvable mystery. It is the alternatives that emerged to the defunct public system—charters schools and voucher-supported parochial schools. Over the past 20 years, these options, born in desperation, have forced their way into the schools mix. Freed of politicized, sludge-like central bureaucracies, they've proven they can teach kids and send them into the workforce.

Economic growth is nonpartisan. But inner-city public education is totally partisan. Democratic politicians made a Faustian bargain with the teachers unions, and the souls carried away have been the black children in those doomed schools.
This is the part of the Ferguson problem that can be addressed. It does not come up as the popular tropes and the usual political players (from Holder to Sharpton) are paraded before media. Those from the education status quo establishment are not interviewed. I still wonder how they sleep at night. 

Romances

I cannot be certain that this marks the end of Vladimir Putin but the man is apparently closing some of the Moscow McDonald's.

I walk by the local Whole Food's on my daily trek and see how they proudly display their "locally grown" and "from farm to table" credentials.  Many other markets and restaurants do the same. From Moscow to LA, the romance is apparently easier to grasp than comparative advantage and gains from trade. But Marco Polo and all those European explorers celebrated in grade school history were paid to find trade routes.

It is more than gains from trade comparative advantage. Economizing on transport and emissions is not enough.  All resources are to varying degrees scarce. How do we trade these off against the personal preference orderings that each of us value? 
The story of how markets have allocated scarce resource in such a manner that there are more people than ever on Earth and most of them live better and longer than their ancestors sounds pretty romantic too. "In France, at the start of the industrial revolution, one-fifth of the population only had sufficient energy to beg." (Dora Costa, JEL, Dec 2013). Untold classroom hours spent teaching about markets seemingly  missed transmitting the big story.

Monday, August 18, 2014

George Hilton

George Hilton has died.  Here is the post at the UCLA Economics Department's website.

George contributed "What Did We Give Up With the Big Red Cars?" to a symposium that Ross Eckert and I put together at USC in 1976.  LA did not lose its streetcars, he showed, because of a any corporate conspiracy. The conspiracy story, however, survives. It is just too sweet for some people to give up.

Hilton called attention to the fact that Los Angeles and other modern cities are built for auto use. Adding rail lines will not change that. Many years later, we have found out that George was correct. But we did it the hard way -- by wasting billions of dollars on rail projects.

These crony capitalist projects have almost nothing to do with transportation. Tom Rubin recently reported that the Los Angeles MTA provided 497.2 million transit rides in 1985 but remained stuck at 495.3 million rides in 2014. The LA area had grown considerably in the intervening years. Here is one of Tom's recent studies.

Ross Eckert (also deceased) was George Hilton's student at UCLA. Together, they wrote about "The Jitney's" in 1972. Door-to-door service that might compete with the private auto had been regulated out of existence by you-know-who. But it is now 2014 and the cronies in the taxi industry and city hall have finally met their match. Here is the intro to Gordon Crovitz's column on Silicon Valley's interest in a regulated internet, from this morning's WSJ.
The only thing better for consumers than a disruptive innovator breaking up a monopoly is competition among multiple innovators. The race to upend the taxi industry by providing cheaper, more convenient rides ordered via smartphones is accelerating, leaving regulators in the dust. The challenge led by upstarts Uber and Lyft goes beyond new choices for rides. It's also a reminder that regulators are the enemy of innovation.
The innovators will win but only after much has been lost in time and treasure. Had people only listened to George Hilton in 1976.

Friday, August 15, 2014

Long shot

Those writing about cities focus on overall performance or on urban structure. I claim that these are closely linked. We get growth if urban structure is congenial.  But consider the three dominant conversations in the study of urban structure.

The canonical model of urban economics develops the idea that land uses arrange themselves in terms of how users value accessibility -- actually plural; many destinations matter. We get the prediction that ever cheaper access causes ever more city spread. The evolution from pedestrian city to streetcar city to automobile city corroborates this. I suggest that smart-phone city will continue the trend.

There is also the visionary planning approach, based on architecture-high-modernism-urban design traditions. "Garden city" and "smart growth" designs are examples.  These approaches are static and popular in many circles -- but  have not had any discernible real world impact.

Finally, there is the Jane Jacobs-F.A. Hayek complex self-ordering arrangements view. Locators evaluate complex trade-offs as they seek propitious locations -- to exchange and form new ideas and to produce new things. If enough of them succeed in finding propitious locations, we get city growth.

Here is a passage from The Economist's obit for Peter Hall:
He soon changed his mind. Wherever that [top-down, rational] approach was tried—in Birmingham, or Glasgow, or around the elevated Westway in north-west London—it caused exactly the sort of ugliness and alienation he had hoped to banish. In the 1970s he began arguing that one way to deal with urban decay might be a bonfire of regulations; the idea, he said, was to “recreate the Hong Kong of the 1950s and 1960s inside inner Liverpool or inner Glasgow”. That sort of fertile chaos, he came to believe, was exactly what made cities so important, and such exciting places to live. He was an early advocate of the view—these days the received wisdom—that by allowing people to form connections with like-minded colleagues, cities are the engines of a country’s economic, cultural and artistic life.
I am not sure that this is the "received view."

But let locators form connections. Let them locate where they get the connections that work for them. But getting to that state requires flexible land markets and overcoming the efforts of those wedded to the second approach. It means a light touch from planners. Given that the mainline view favors the visionary planning approach, that would be a long shot.

ADDED

There is lots that is easy to find re the first two perspectives.  Sandy Ikeda has been most influential describing the less known Jacobs-Hayek view of cities.

Monday, August 11, 2014

Water: markets or cops?

The economics of water has typically been divided into the problem of water quality and the related problem of quantity; once water is of acceptable quality, who gets it and how much and on what terms? In both instances, there is considerable discussion of how (when) to use market mechanisms.

For the water quality problem, Karen Fisher-Vanden and Sheila Olmstead survey the state of water pollution trading in the U.S. The clean water allocation problem -- treating water as the scarce resource that it obviously is and enlisting markets to fulfill the dual functions of rationing demand and eliciting supply -- is treated in just about any principles textbook.  But instead many countries' national governments guarantee "The rights to water and sanitation in national law." In most cases, this has amounted to a tragic case of simply posturing. Many millions die every year. The problems of rationing and eliciting are not easily addressed via political and administrative means.

At the same time, the simple economic rationale for market provision has not made a lot of headway either. I recently (July 31) blogged about water policy and waste in my own neighborhood.  This morning's LA Times reports on the "water cops" that are now on the case:
It's a daunting task — just four people, full time, policing an area of about 460 square miles. For that reason, they mostly respond to calls or emails from people who report their neighbors watering lawns on the wrong days, spraying down sidewalks or allowing street runoff. The agency does not reveal the identity of the tipsters.
Laugh or cry? Pricing water and deputizing every consumer as his or her own water cop is beyond the pale. Instead, we get silliness piled on silliness.

Saturday, August 09, 2014

Wrong cure, wrong disease

There will always be business cycles. Even the wisest and best intentioned investors will make mistakes. The open question is whether the know-how and the tools we have to manage macro-economic ups and downs make things better or worse.  There is no slam-dunk answer to the question but I lean to the "worse."  Would the recent downturn have been less severe without the monetary and fiscal and housing and countless other interest-group inspired policies in place before 2008? The slow recovery is now explained (more macro-economic know-how) by "stagnationist" explanations. We last saw those during another period of abysmal recovery, the New Deal years.

Joel Mokyr's op-ed ("What Today's Economic Gloomsayers Are Missing") in today's WSJ is on point. (1) Our welfare is all about growth, so get the growth right; (2) Its all about the new technologies that prompt growth; (3) We do a poor job measuring and identifying the effects because they are mainly about increased consumer surplus; we cannot accurately measure improved productivity.

Mokyr offers this example: "If telecommuting or driverless cars were to cut the average time Americans spend commuting in half, it would not show up in the national income accounts--but it would make millions of Americans substantially better off." Even worse, some would point to how few jobs will have been created by these innovations.

Finally, there is the big irony: we would probably get more growth if we backed off from the many policies now aimed at dampening business cycles. Growth is natural. Investors and savers seek each other -- and find each other because their plans mesh with the plans of credit market middlemen. But again this is where ham-fisted policy interventions (Dodd-Frank, etc.) can cause real damage. 

ADDED

Timothy Taylor and Arnold Kling re Dodd-Frank: it's a work in progress.

Tuesday, August 05, 2014

Self control

Given the choice of looking after assets on-hand vs. initiating high-profile flashy new projects, the latter always wins. My previous post noted the 20-million gallon L.A. water pipe break (cited in today's WSJ). But every day there is a new chapter. Today's LA Times cites L.A. street repair shortcomings -- and the bizarre LA City Hall bungling behind it (see the whole story). They seemingly cannot find ways to spend earmarked street repairs money they have. The City Council had cancelled plans for a ballot measure that would have increased the local sales tax for street repairs just in time.

Call it a public choice story (public sector unions first; citizens last); call it a "squeaky wheel" story (public sector unions first; citizens last).

But the inept "leaders" are also the people eager to involve themselves in the cosmic issues -- "sustainability", "climate change", all sorts of private behavior (restaurant menus, e-cigarettes) or private contracts (employer-employee, renter-tenant, etc.). The hidden-true-cost-but-feel-good policies are always high on the agenda. It is beside the point that those who lead the charge have no special expertise in the cosmic issues. Why not show that you have mastered the basics and only then indulge in the fun stuff?  The fun-first impulses are what we try to teach the very young ones to control.

Thursday, July 31, 2014

Three or four-hundred years?

All government agencies "need" more money.  This recent report by the Los Angeles Department of Water and Power's new GM notes that the agency is working with a 300-year pipe replacement cycle.  In fact, they had seemingly been planning for a 400-year cycle very recently.

This is not my field but one has to be impressed with the pipe technology of 100 years ago. Perhaps not. This week's big break, the one that cost the region 20-million gallons of water (and counting) happened to pipes that were less than 100 years old. And there is much more rot that we can not see.  The LA Daily News reported the following (but read the whole story):

At 93 years old, the pipe that burst in Westwood on Tuesday was younger and in better condition than many of Los Angeles’s brittle, corroding water arteries.
More than 1 million feet of the city’s pipes are beyond a century old — past their intended life spans — and this segment was not a high-priority replacement, according to reports reviewed and interviews conducted on Wednesday.
While the Los Angeles Department of Water and Power has tried to ramp up water main replacements, it hasn’t met its goals. City officials and observers say the problem is money. Aging infrastructure is the largest problem here and at water utilities around the U.S., but unaware consumers are usually reluctant to pay. 
The story ends with the predictable "give us more money." More money has been going to employee pension funding -- and even then there is a reported unfunded pension fund gap. We get the gap, high prices, floods, and questionable service. There is never enough money when there is a politically influential and unionized workforce.

The pipes are not visible to the layman but the roads are. LA's potholed roads are third-world quality. This morning's LA Times includes an op-ed which notes that better use of available funds should come before new funds are sought.

California water policy has always been wrong-headed.  Gary Libecap notes that the State has been selling very cheap water to farmers growing crops that get USDA price supports. We now have reports of a "drought" but the policy reasons for it do not make it into polite discussion. Polite discussion, he notes, is informed by the plot of Chinatown.

Tuesday, July 29, 2014

History lesson

You can never know enough history. I have lived most of my life in Los Angeles and most of my professional life has been at USC. But I still know too little about each. I got some help on both fronts reading Towers of Gold: How One Jewish Immigrant Named Isaias Hellman Created California.

On the USC campus, there are occasional markers commemorating the role of a Protestant, a Catholic and a Jew in helping to establish the University.  USC's website fills in some of the details. I had always presumed that this was just politically correct and sanitized history. Just how inclusive was 1870s Los Angeles?

More than I thought.  On Page 5 author Frances Dinkelspiel (Hellman's great-great-grandaughter) notes ..." from the start, Jews were accepted and integrated into society. They were elected to public office, built homes alongside their Christian neighbors, and became the established mercantile elite ... It was not until the 1890s that intransigent anti-semitism gripped California."

The story of boom and bust, of tolerance and intolerance is carried through the book. There is, of course,  much more. So much that this book has landed on my "to re-read" (when?) pile.

But this California history shows once again that in times of boom, people were too busy to fall into the hole of zero-sum hatreds. Its the old story. Prosperous people or people who take seriously the prospect of prosperity are nicer and more tolerant. It's a point documented many times by Benjamin Friedman in The Moral Consequences of Economic Growth.
Economic growth--meaning a rising standard of living for the clear majority of its citizens -- more often than not fosters greater opportunity, tolerance of diversity, social mobility, commitment to fairness and dedication to democracy ... Even societies that have already made great advances in these very dimensions, for example today's Western democracies make still further progress when their standards of living rise. But when living standards decline, most societies make little if any progress towards any of these these goals, and in many places plainly retrogress. (p. 4)
Very sad that economic growth is suspect or misunderstood by those who talk the most or the loudest about tolerance, diversity, fairness, etc.