Friday, July 22, 2016

Who do you trust?

This week's NY Times coverage of Los Angeles ("The Capital of Car Culture Warms to Mass Transit") was 100% wrong. Wendell Cox and Tom Rubin provide the facts. LA's celebrated rail transit extensions have prompted net losses of transit ridership, the opposite of the Times lede. Elite opinion has a clear idea of how the world should work and this becomes, in their minds, a rendition of how the world does work.

But this is old news. Arnold Kling links to a remarkable essay by Walter Russel Mead here. Give it enough time, and the credibility of elites (not just mainstream media) sinks so low that Trumpism happens. Mead does not mention the candidate but rather the growing gap between "the professional class" and everyone else.

This is not just about income inequalities. It is about the antics of those who are doing well, including their opinions and pronouncements. Hillary Clinton is caught lying to the American people (over and over) and the FBI chief fancy-dances to paper it over. The attorney general just clams up. Bill Clinton escaped perjury charges because his lies to the American people were about sex and, therefore, a lesser perjury. H. Clinton's lies were more serious stuff but no big deal. Now she will save us from Trump.

I support the Johnson-Weld ticket, ably profiled by Ryan Lizza in the current New Yorker.


 More on Johnson-Weld.

Monday, July 18, 2016

Dumb idea sticking around

Wendell Cox reports that the latest data show that there are "Shorter commutes in American Suburbs and Exurbs". He means in terms of travel time, the only thing that matters. This has been known for some time but is apparently counter-intuitive to many. The old Costs of Sprawl notion still lives: spread out cities must mean longer trips -- and more uncompensated externalities. This must mean that central planning ("Smart Growth") is needed -- and will somehow make things better. Anything goes.

But think for a minute. Cities (metropolitan areas) compete for labor and capital. They must provide settings that are attractive. Locators (labor and capital) evaluate sites, contemplate many trade-offs (everyone considers commute times and access to a variety of destinations) and bid for space accordingly. Markets are always there and do not tolerate unsustainable (that word) waste.

Yes, markets also internalize many externalities. Location choice means that, among other things, locators look at local external costs and benefits.

As in all other areas (watch Cleveland this week), dumb ideas stick around. They do not stay around forever but often a very long time.

Friday, July 15, 2016

Sunk costs

I often used the Paul Heyne (now with Boettke and Prychitko) textbook for its many appealing features, one of which is end-of-chapter questions that are far superior to any I have seen in an introductory text. For their discussion of sunk costs, they ask whether casualties suffered in a war can be used to justify staying in the war. The point is that cultural norms may be up against economic thinking. The latter argues for comparing expected (future) costs with expected (future) benefits. But the culture may argue for honoring the sacrifices of the fallen by staying in the fight.

In an "overrated/underrated" discussion of sunk costs, Tyler Cowen cites the culture as a sunk cost not to be underrated. My favorite class discussion head scratcher involves couples tempted to separate but citing all they years they had "invested" in the relationship as getting in the way of a "rational" assessment of whether to stay together. What about all the years already sunk into an academic major connected to an unattractive career (life)? Is it somehow too late to switch?

Private companies shut down the losers. Even public-private ventures throw in the towel on unpromising projects. Airbus may finally cut back on production plans for the A380. Walking away from California high-speed rail will be much more difficult: once a few miles of track are laid, the sunk cost story will be the story. There are no stockholders; bondholders only exist in the promises of the High-Speed Rail Authority which is properly exposed here. (h/t Newmark's Door).

MC=MR static equilibria are standard classroom fare (wonder why do students fail to respond?). But the more plausible model involves dynamics that involve learning from mistakes and error correction. That model includes walking away from mistakes. How else could there be any progress?

Monday, July 11, 2016

Clustering with elbow room

Is it "death of distance" or is it agglomeration? It is both. False choices mislead. We keep getting clusters of complementary activities but the new clusters are at lower densities and more spread out.

Today's WSJ includes "Startups Try to Spread Outside of Silicon Valley ... The biggest, best funded companies are still being built, for the most part, in the Bay Area."  This is not surprising. All of finance was never expected to be in Manhattan; all or entertainment was never expected to in in "Hollywood"; all of the auto industry would not be in around Detroit. But these places maintain(ed) leadership. Clustering will always be attractive but clustering with elbow room is better.

Here is the map of the many shapes, sizes and densities of the many Bay Area clusters.

Sunday, July 10, 2016

Another cost disease

Baumol's cost disease famously calls attention to the fact that when there are reasons to expect steady productivity divergence between sectors, the associated product prices will diverge and this will impact consumption patterns. The fine arts sector, for example, cannot expect productivity improvements to match those in manufacturing. Fine arts prices will rise in comparison to manufactured goods as will their relative importance in people's budgets.

The July 10 NY Times Magazine includes Marie Kondo's Stuff Of Nightmares ... and the ruthless war on clutter". Look at all the garage and yard sales, the rise of the self-storage industry -- as well as the relentless accumulations of stuff in our own homes and offices. A la Baumol, the relative costs of accumulating stuff and the space to house it are systematically diverging and there is no relief in sight.  Easy on-line shopping and delivery only make it worse (cheaper in terms of time). There is even now a National Association of Professional Organizers. The problem is that  city and state governments make it increasingly difficult to build.  Growing housing affordability is a result. But so is the growing problem of organizing and storing all of our stuff.

This is another first-world problem, one that we have inflicted on ourselves.

Friday, July 08, 2016

You have to be quick

"Studies show" that raising the minimum wage has no (or very few) unemployment consequences. This is an approximate version of the free-lunch mantra that some in the dirigiste community have adopted. So, have at it. This is, of course, just convenient rhetoric. There are an uncountable number of everyday substitutions in light of price differences. Their timing is always peculiar.

But anything-goes rhetoric is not a problem. Look at who the two major U.S. political parties are about to nominate for president. Anything goes.

Now it also appears that "A Robot-Run Burger Joint is Coming to San Francisco" (h/t Scott Alexander). "Substitutes always and everywhere" is a truism. The interesting question is how many see the substitute as a good one or a bad one. Demand is wonderfully subjective and market tests are all we have. Fortunately, there are market tests all around -- until and unless some make it their project to outlaw them. Then its a race between the innovators and the controllers (see Uber/Lyft, drones that deliver packages, etc.). Staying one step ahead of the controllers is how progress is accomplished

Wednesday, July 06, 2016

China food

Deng Xiaoping was probably China’s greatest 20th century leader. He turned a very large and very poor country into a very large country that is among the world’s richest (measured by GDP, not GDP per capita). Economic freedom expanded but political freedom not so much. How are the two linked? Is there a “night watchman state” standard for fast-growing large Asian countries that have no western liberal tradition? No one knows.

How to build on Deng’s magic? Land and agricultural policies, not so long ago, were so misguided that millions starved. That was then. But even today, China’s poorest are still in the countryside.  Food has to be imported.

Farmland cannot be owned; it can only be leased for up to 30 years. Here is some land policy history.
Crop plantings that require many years to mature, as well as farm sizes that reap scale economies, are foregone. A recent FT (gated) includes Lucy Hornby’s “Losing the plot … For decades, the country has wrestled with modernizing its agricultural industry, sometimes with tragic results. But as long as the sale of rural land remains illegal, how realistic is it to expect radical reforms?”  Policymakers are trying to import food and even buy land abroad to feed the population. Taking a page from Deng's playbook, more land policy liberalization would help to solve a bunch of problems.

I have no idea about the domestic politics of further reform.  In any political system, reform encounters resistance. How did Deng Xiaoping do it? He started small. First Shenzhen, then the rest of the country. That's the way to go here as well as there.

Monday, June 27, 2016

Many ifs

I think it was Arnold Kling (I cannot find the post right now) who noted that one can only have any two of the following three: privacy, security, immigration. In that case, he says, he'll surrender privacy. Perhaps we lost privacy long ago anyway. So it's simpler than we think.

Not really. Brexit and Trump (it can happen here) suggest it's more complicated. Immigration can have a nasty populist backlash. This is why the immigration policy (actually non-policy) default status quo now in effect in the US is such a disaster. We must find orderly ways to expand the talent pool. Not simple. Quotas must be lifted. Applicants most be screened, scored and vetted. Are we (our political class and our civil service) up to it? Knock some heads? Is there another LBJ in the wings?

I still expect the Trump and Hillary negatives to pile up. Johnson-Weld could win a small state or two. The election could go to the House of Reps. They might select an adult. Many ifs.

Tuesday, June 21, 2016


We know about confirmation bias. It is all too easy (even fun) to look for evidence that confirms our priors. Psychologists (and others) can explain. I guess.

Knowing all this, what can be done?  We can make an honest effort to consider the positions of those who are not like-minded. I have a lot of respect for Arnold Kling who wants to take "the most charitable view of those who disagree."

I have several times cited the LA Times' (30-plus-years late)  realization that the data on actual ridership undermine that newspapers' attachment to rail transit for Los Angeles. Hallelujah.

Not so fast. This morning's lead editorial regresses.  "Nearly 50 years ago, Los Angeles County voters rejected a half-cent sales tax proposal that would have built an 89-mile rail and bus network between downtown, Long Beach, the San Fernando Valley and Westwood, the San Gabriel Valley, and even a route to LAX. The Times Editorial Board at that time urged a no vote, saying “we are an automotive people, unlikely to change our habits.” Imagine if voters had said yes? How many hours of congestion might have been avoided? How much pollution might have been prevented? Now, five decades later, our habits will have to change, one way or another." Once again, here is what some of my friends said about that proposal at the time.

My previous post on "Not just the toadies" notes that many smart people resist evidence that does not satisfy them even if they found (and reported) that evidence. Confirmation bias is not so easily turned off. So can psychologists explain? Or are they subject to the same demons?


The usual suspects want more from the taxpayers.  The usual suspects spin the usual stories.  Here Moore and Rubin respond.

Tuesday, June 14, 2016

Passions and interests

I had heard about "tiny homes" but we are seeing more discussions, suggesting that there is a serious (still tiny)audience. The WSJ includes "West Texas Town Finds 'Tiny House' a Bit Too Earthy ... Luring eco-conscious builders to 120-square foot homes seemed like a great idea until plans for yurts, straw dwellings popped up; no anarchists, please."

Americans consume more living space than others. People like space and many policies and programs (no surprise) cater for that preference. But it seems that there are also some who want to go the other way. They want less space. This preference my be influenced by beliefs that we are running out of space. Cities, certainly and by definition, are places where we see various degrees of crowding. Some of these folk may be just plain old ascetic.

But where there is crowding of any sort, there are externalities, some of which may never be transacted. We get conflicts and the demand for rules. This may be zoning. Some find a way to come up with zoning codes. No politics without conflict; no conflict without some semblance of politics.

This is why the brief "tiny homes" story illustrates, that we are all environmentalists. The ambit and the scope of our environmentalism differs from person to person. Neighborhood externalities and the consequent environmental interests are universal. We even get NIMBY.

I care more about the block I live on than I do about a coal burning utility in India. I suspect many others feel the same way. But we are not very good at sorting out our sensibilities. Can we untangle our passions from out interests (Hirschman)?  It is easy (tempting) to wrap our own interests in a "greater good" story. Some of the Tiny House people are learning all about this.

Thursday, June 09, 2016

Not just the toadies

There used to be political economy. Then they split into political science and economic science (official title of the Nobel in economics). Scientism is the problem. Economics without the political context sounds pointless, as does politics without the economic context. Ask any historian.

The U.S. presidency looks like a lose-lose deal. Both major party candidates, polls show, have unusually high "negatives". So why have the markets not panicked? The U.S. dollar and the stock market remain strong. The explanation I like best is that U.S. institutions are strong enough to withstand whatever politics throws at them.

But riddle me this. How do intellectuals keep the faith keep the faith in spite of evidence they have assembled and published? This is the topic that James L. Payne tackles brilliantly in "Government Fails, Long Live Government!: The Rise of 'Failurism'" in the current Independent Review. This is gated for a few months but do get it, even buy the app.(!)

The evidence against the efficacy of government policies and programs has been piling up for some years. Payne cites the writings of E.J. Dionne, Philip K. Howard, Jonathan Rauch, Steven M. Gillon, Derek Bok, Thomas E. Mann, Norma J. Ornstein, Richard A. Clark, Paul C. Light, Lawrence Lessig, John J. DiIullio, Peter H. Schuck. All of them report government failures -- and go on embracing the idea that government can and will "solve" problems. Payne notes that, "[t]hese works of censure are remarkable in one odd respect, however: the authors remain steadfastly loyal to big government and suggest no significant reduction in its scope."

That old-time religion. Yes, the evidence has been piling up as never before but we still get Clinton-Sanders-Trump. It is not just the cheering toadies seen on the evening news but also some of our best and brightest.

Tuesday, June 07, 2016

Hope for change

It appears that Gary Johnson is on the ballot in all 50 states.

And when the major parties have seemingly settled on two unpopular/unsavory candidates, polls (same Wiki link) show that he is doing well for a third-party candidate. But the polls that matter are for the states (some at same Wiki link). If Johnson can keep just a few electoral votes from the Clinton-Trump combine, and neither one of them gets an Electoral College majority, the selection of the next president goes to the U.S. House of Representatives -- where each state has one vote.

The House might actually select an adult. I do not have high standards these days. Almost anyone but Clinton or Trump sounds pretty good.

This is not crazy. Clinton is being investigated by the FBI. Trump will not show his tax returns, torpedoes himself every chance he has, and has the national press corps on his case. What a time to be an investigative reporter. Two candidates with many skeletons in many closets.

A small number of voters in a small number of small states could then make a very big difference.

Thursday, June 02, 2016

View from The New Yorker

My friend Andrew K sends me to the New Yorker for their latest coverage of LA transit. Here is the bottom line:
If Angelenos are willing to give up the sanctity of their own four doors for a stranger’s Prius, it stands to reason that they would be open to trading the mobility of four wheels for the pleasures of public transit. And there are pleasures, despite the length of travel, the stops and starts, and the chewing gum caked into the ridges of the train’s linoleum floor. Foremost among them is the romance of boarding a train in the gritty underground and stepping off on a newly paved, sun-bathed platform, the Pacific glimmering in the distance.
Comparing Uber and transit is unfortunate. Uber raises billions of dollars from willing investors. Metro raises billions of dollars at the point of a gun (the power to tax). Uber offers door-to-door service with amazing reliability, etc. The list goes on.

Perhaps the writer is kidding about the "chewing gum caked to the ridges.. " and all the other lovable "gritty" stuff. It is the New Yorker. Look at all the movies that depict life in the big city, notably New York. All the people are pretty, the sidewalks are swept and the cars are all shiny. Gritty and all that may be very cool to a New Yorker writer but not so much for the rest of us.

The "democratization of luxury" is a very big deal in our lives. Uber's door-to-door service approximates what was once available to the wealthy. The charm of "grit" belongs in another universe.

Tuesday, May 31, 2016

What will you believe

This morning's WSJ includes "Nuns with Guns: The Strange Day-to-Day Struggles Between Bankers and Regulators ... Lenders are awash with new regulations, and growing armies of enforcers are forcing striking changes on bank's internal cultures ..." This type of thing, we are told many times, has little or no effect on the economy nor does it explain the slow recovery. But the accompanying graphic shows (corrected) near-25,000 pages of new Dodd-Frank rules.

I know that the free-lunch myth is a favorite among politicians and acolytes but it takes a special kind of willful blindness to wish away the costs of complying with near-25,000 pages of new rules. And this is just one law.

The 2016 Papers and Proceedings of the American Economic Review includes a helpful analysis by Ryan Decker and colleagues, "Declining Business Dynamism: What We Know and the Way Forward."  They report that "The evidence is consistent with the presence of adjustment frictions that are changing the payoff to business scale adjustments." Twenty-five thousand pages of new rules surely feed these adjustment frictions.

Why does Washington DC tilt towards the lower end of housing affordability? On the supply side, there is evidence of restrictive policies (Pendall, 2006). On the demand side, the no evidence for great weather is but there is evidence for job opportunities. Dodd-Frank is just one of many such opportunities. Trouble is that these are not the jobs that contribute to economic dynamism. In fact, they do the opposite.