Monday, August 24, 2015

Complementary ideas

I liked Cesar Hidalgo's Why Information Grows (but here is a dissenting view).

Information exchange is, of course, essential to any understanding of economics and cities. Cities offer transactions cost economies that facilitate networking, exchange, and growth. Hidalgo likes discussing networks. I often cite supply chains for goods and supply chains for ideas. Cities and their urban structures are collections (patterns) of supply chains.

The recognition of supply chains encompasses specialization, exchange, economizing on transactions costs, and the structure of cities. Supply chain parts are within any city, but parts may be beyond the city, in other places. All of this involves location choice. People in cities (in their roles as producers or consumers) want two things:  accessibility and space. Many complex trade-offs are in play. Cities produce floor space. If all goes well, they do so in places and configurations and at prices that make it possible for large numbers of private activities to succeed. Cities are also seen as places where we can find transaction cost economies. These facilitate the formation of any supply chain. They also influence the nature of any chain; some supply chains (or their parts) are within firms and some are beyond the firm; likewise some are nearby and some are not, all reflecting the “make or buy” challenges faced by managers and owners of firms. These choices are informed by interaction costs as well as location choice costs.

Knowledge and information are each essential. How do you get one from the other? The right networks have to emerge. Out-of-equilibrium systems are jostled. These are interacting supply chains for things and supply chains for ideas. Jane Jacobs covered all this. I do not recall that Hidalgo cited her. He does link to Granovetter, Putnam, Fukuyama and Hayek.  All of these thinkers contribute complementary ideas that add our understanding of cities. 

Thursday, August 20, 2015


Eugene Volokh asks "How many people ... would want to come to America if we had open immigration ...?
"... Say that we consider largely removing limits on immigration, as was indeed the law throughout much of the nation’s history. (Let’s set aside narrow limits, such as on people with criminal records, terrorist connections, or easily communicable diseases.) Say also that we will offer these now largely legal immigrants those social welfare benefits that are in fact politically likely — not the bare minimum that some libertarians might like, nor the vast amount that some welfare-state proponents might suggest, but those benefits that are likely: Public education for their children, some level of health care, and the like."
It's a great question. The economics are win-win. The morality is inescapable.

There has always been human misery but it is now more visible than ever. Many desperate people take huge risks and many suffer unimaginably to leave the hell-holes where the accident of birth has placed them. They want to take their chances not only by signing up for a perilous journey but also for all of the uncertainties of entering a place they know very little about. If they have contacts such as friends and family that preceded them, so much the better.

But Volokh's  "how many people" question is impossible to answer. How would a long run equilibrium look? Would increased immigration flows prompt ever greater demand for entry? Or would it be the opposite; after the most desperate have left would those who stayed behind be more reluctant to uproot?

Our political season is now revealing the extent of nativist sentiment in America: even the crazy idea of deporting millions gets traction.  Tyler Cowen reports on similar backlash in Europe.

What to do? Part of the public's antipathy is directed to the awfulness of the status quo. We often proclaim "zero tolerance" only to be overwhelmed by the impossibility of implementing it. Not having a working guest worker program inevitably gives rise to fence-jumping. The latter hardens attitudes all-around and gives us the sorry debate we are now having. How to get to Volokh's "narrow limits"?  Look for the most moderate reform. Start with a guest-worker program and build trust. Go incrementally. Forget the "comprehensive" immigration reform packages. Start small.

Sunday, August 16, 2015

Starbucks, prices, politics, life extension

People who get markets understand where prices come from and why they are essential. Many others who do not get markets are sure that prices are somehow "wrong" -- and that they know what they should be (some kind of cost mark-up) -- and who should fix them. Guess who. Much of the politics (and "policy discussion") we have is because of the latter.

Today's NY Times includes "Cheap Coffee and the Starbucks Premium ... Why Starbucks raised price on some brewed coffee even as the price of beans fell globally." That does sum it up. They raise prices because they can: the "premium". Those crazy consumers. But who better? (Figuring out when and how they can is not so simple; price adjustments happen often; they are called "sale", "clearance", etc.)

To be sure, the Times piece mentions that Starbucks announced on July 6 that its costs were rising.  Announcements like these accompany all price hikes because sellers understand the public's grasp of pricing.

We hear all the time that more and more people have gone to college -- and more have been through econ 101. But if the simplest of lessons about prices were to be taught and learned, just imagine how much of the rhetoric and how much of the politics would disappear.  Imagine how much time would be made available. It would be like life extension. Imagine.

Friday, August 14, 2015

Has it gotten to this?

When they hold the "Smartest Man Alive" contest, I plan to nominate Matt Ridley. We are lucky that he is prolific.  In this morning's WSJ, he writes about "The Green Scare Problem ... Raising constant alarms -- about fracking, pesticides, GMO food -- in the name of safety is a dangerous game ... Indoor air pollution, caused mainly by cooking over wood fires indoors, is the world's biggest cause of environmental death. It kills an estimated four million people every year ... Getting fossil fueled electricity and gas to them is the cheapest and quickest way to save their lives. To argue that the increasingly small risk of dangerous climate change many decades hence is something they should be more worried about is obscene."

This is not the first time that the high-minded cheapen the lives of others -- in this case, the most defenseless others. Popular revulsion against political elites dominates our news. Trouble is that the pendulum swings all the way towards vulgar populism. Peggy Noonan goes so far as to say this: "I don’t know what happens with Mr. Trump, but Trumpism? That’s here now—outlandish candidates backed by indignant, enraptured people who’ve lost their judgment. Congratulations to the leaders of both parties: The past 20 years you’ve taken us far. We’re entering Weimar, baby. The swamp figure is up from the depths." Weimar!

Tuesday, August 11, 2015

"Love Gov" once more

Election campaigns require a strong stomach. What to do? Voting, like purchasing a lottery ticket, is unlikely to make a difference; accepting the perils of crossing the street to do either has a negative expected benefit. Trying to impact ideas is the best investment. My friends at the Independent Institute do that with these videos. I have posted on this before, but it bears repeating. ADDED These kind people want to make college "affordable." They have experience and expertise making housing, health care and much else "affordable." A whole world of free lunches.

Sunday, August 09, 2015

Answer a question with another question?

Is there progress?  Material well being and longevity are better than ever for most people on Earth except for the Bottom Billion. Getting those left out on board is the biggest problem and some of us favor open borders as the way to go.

Aside from material well being, Benjamin Friedman reminds us that more prosperous people are nicer to each other. Steven Pinker shows (convincingly, I think) that we are more peaceful. The Flynn effect suggests (suggests) we may be getting smarter. Killing lions and other big game used to be great sport but that has turned around in the relatively short space of about fifty years.

But is bottomless boorishness on the rise?  Donald Trump is still regarded seriously as a contender for U.S. President by many people.  Politics was always "a dirty business" but the Trump phenomenon is not about that. His style is of our time.

Today's popular culture causes concern. Consider what you hear in The Great American Songbook -- the popular culture of a recent era. The lyrics and the melodies are actually charming and witty. Compare that with today's rappers and their followers. In film, many of today's blockbusters are enjoyed by people who used to enjoy "comic books".  Yes, the industry is very good at special effects. To be fair, there is plenty of better-than-ever TV fare (The Wire, Breaking Bad, etc.).

Nevertheless, (contra B. Friedman) boorishness is on the rise. Is this the inevitable by-product of the positive trends I cited?  Nothing like ending with a very complicated question. 

Wednesday, August 05, 2015

Car story

Public transit in America is a hard sell -- outside a few 'transit legacy' cities, most notably New York. Private autos are the overwhelming favorite wherever (in the whole world) people can afford them; nothing surpasses the promise of  personal freedom of private mobility. Public transit, in contrast, can be seen as collective mobility.

Almost everyone knows the Volkswagen label, especially its iconic Bug and Beetle models. Many people also know that the original VW idea was pushed by Adolf Hitler and the Nazis.  For more on the story, look at "The People's Car." in Richard J. Evans's The Third Reich in History and Memory.

Even dictators look for ways to please crowds.  Nevertheless Evan's story seemingly challenges the libertarian narrative I describe above. "In the early 1930s, Germany was one of Western Europe's least motorised societies.  This was partly because its public transport even then was second to none -- smoothly efficient, quick, omnipresent and all-encompassing. Germans mostly felt they didn't really need cars" (p. 181).  It was Hitler and the Nazis who pursued construction of the Autobahnen as well as the development of an affordable car. "The automobile, Hitler declared, responded to the individual will, unlike the railway, which had brought 'individual liberty in transport to an end.'" (p. 182).

Evans notes that Hitler's VW project never amounted to much.  The Beetle's huge success, first in Germany and then abroad, was a post-war phenomenon.

Sunday, August 02, 2015

Taking bows for what?

From Barack Obama to Ben Bernanke to Dodd and Frank, and on down throughout much of Washington DC, politicians and economists are taking deep bows for "saving" the world economy in 2008-09. But bailing out cronies ("Who benefits from bailouts") with taxpayer's money is actually pretty simple.

The morning after is the hard part. The latest GDP growth numbers are still awful. Also here and here.

But it's even worse. We lose the essentials of capital markets. Writing in today's NY Times, Adam Davidson reminds readers that, "Rather than condemn Greece for unwise borrowing, we should worry about why our economic system refuses to punish unwise lending ... We need the market to reward bets that are economically wise, instead of those that are politically savvy."

Capital markets are there to resolve an essential (and huge) coordination problem. How does society provision itself for the future? Not actually "society" but decentralized capital markets that coordinate an uncountable number of savers' and investors' consumption-smoothing plans.  Scarce resources must somehow be channeled to the most worthy projects.  That is how we grow.

To get it done, there is only one option: capital markets without political manipulation.

The investors who bet on Greek sovereign debt were betting on the bailouts they are now getting.  Investors in U.S. mortgage-backed securities were also betting on implicit (soon to become explicit) loan guarantees, first to Fannie Mae and Freddie Mac and then to much of Wall Street. As Davidson suggests, bad GDP numbers are just the parts that are most easily seen.

Wednesday, July 29, 2015


Here are some minimum wage data from Pew:
Perhaps surprisingly, not very many people earn minimum wage, and they make up a smaller share of the workforce than they used to. According to the Bureau of Labor Statistics, last year 1.532 million hourly workers earned the federal minimum of $7.25 an hour; nearly 1.8 million more earned less than that because they fell under one of several exemptions (tipped employees, full-time students, certain disabled workers and others), for a total of 3.3 million hourly workers at or below the federal minimum.
Yet, to look at all the attention, one would think that many more workers are involved.  The advocates of raising the minimum wage do not believe that the Law of Demand applies and that mandated increases are a free lunch. Perhaps they should ask themselves why nearly all salaried workers earn more than the law requires. (In a few cases, local mandates may be higher than the federal.)  Boosters might respond that most workers are productive enough to earn more; they might say that employers compete for their services and pay their workers just enough to keep them from leaving. They would be citing the Law of Demand, perhaps without realizing it.
Greg Mankiw points us to his review of Arthur Brooks' The Conservative Heart. Author and reviewer are addressing political candidates of the right and telling them to streamline their messages.  "... say it in thirty seconds. Extended rational argument can come later. A good first impression is crucial ..."  Short attention spans (and low levels of interest) are a fact of life so streamlined messaging is a good idea.
Just ask: why do so many people earn more than a minimum wage? Why does anyone earn more?

Saturday, July 25, 2015

Hope and change

By now, almost everyone has grasped the fact that Uber has built the better mouse trap. Customers have spoken, capital markets have spoken and (Holman Jenkins in today's WSJ notes) the winners have enough money to hire progressive David Plouffe to outmaneuver progressive Bill de Blasio in the NYC taxi wars.  I did not know until I read the Jenkins piece that among de Blasio's lame claims was the one that Uber adds to NYC congestion.

My wife and I live in a walkable neighborhood and walk to the bank, the ATM, the market, the cleaners, the drug store, restaurants and more. We have no good reason for being a two-car family.  But that will soon change. We plan to become a one-car-plus-Uber family.

Most of my professional activities are from my connected home office. So the formula involves internet connectivity + walkable neighborhood + Uber (or equivalent) + one car. I will even have an unused parking space from which I plan to earn a few extra dollars. Mandated parking requirements will eventually have to be re-thought. (Looking at you, Don Shoup.)

As always, the forces of change come via markets; the forces of reaction come via the usual suspects -- the ones who cannot abide change.

Wednesday, July 22, 2015

"Living wage"

It's hard to say whether there is greater voyeurism re other people's sex lives or their incomes (even better, their net worth). LA politicians and their allies (see non-stop LA Times cheer leading) are all over this because they (somehow) know what various people "need", what "living wages" everyone should have, and  how these can be achieved by edict. Today's Times coverage cites the MIT "Living Wage Calculator".  Who knew?

Everything we thought we knew about subjective choices and tastes, scarcities, trade-offs, productivity, prices, and the wisdom of politics and politicians goes out the window. The feel-good fest of redistribution is just too alluring. Greece never happened.

Sunday, July 19, 2015

The (less than) 1% solution; not pretty

The Washington Post reports interesting survey results. "Why Don't Americans Vote? We're Too Busy."

Call it cynicism. Call it turtle soup. Many people see the utterings of Donald Trump and Hillary Clinton (and a few others) as too bizarre to take seriously.

In Los Angeles, the MTAs buses now carry ads that boast: "Metro is 25 years old ... 1.5 billion rides and counting." Counting on voters who are too busy to ask the simple questions. "At what cost?" "At what opportunity cost?"

There are about 10 million people in MTA's service area (LA county). The average person (all ages) takes 3.8 trips per day (U.S. data).  Use 300 days/year. The percentage of L.A. rail travel is about less than 1%. Could that be? "1.5 billion and counting" sounds much better. 

But MTA data show that estimated daily (weekday; system wide, all bus all rail) in FY 2015 was 1,423,458. In FY 2010 it was a little higher, 1,445,109. In other words, slightly worse than flat. Using  the same parameters as above, MTA serves 3.25% of all daily trips.

But look closer. The National Transit Data Base includes the agency's 2013 data. Rail (light + heavy) accounted for just over 24% of the boardings (24% of 3.25%, actually less than 1%!) -- and just over 27% of operating costs but almost 74% of capital costs. This is all too much to shoe horn into a boast to plaster onto the sides of buses. And it's not pretty.

Friday, July 17, 2015

The good news

It makes great sense that the world speeds up, tech speeds up, and measurement gets left behind. Many smart people work in data gathering and analysis but keeping up is harder than ever. Almost everyone gets cheaper and better tech applications routinely these days. How is anyone going to measure the consumer surplus involved? How then to measure productivity trends? Economist Hal Varian understands this better than anyone and explains in today's WSJ. "Silicon Valley Doesn’t Believe U.S. Productivity Is Down ... Contrarian economists at Google and Stanford say the U.S. doesn’t have a productivity problem, it has a measurement problem"

Thursday, July 16, 2015

Better angels

Here are four smart people (Lee Ohanian, Arnold Kling, John Cochrane and Russ Roberts) discussing the economy -- and the very big question of whether to be an optimist or a pessimist. Listen to the whole thing.

Do we take our many unfunded liabilities seriously? Do we then pursue economic growth? How about the many people who never consider these in the same discussion? In our overly long presidential election campaign (does it ever stop?) we get the freak parade that both parties muster; this has to make any observer tilt to the negative.

What to do? First, avoid (ignore) the daily news. Second read works like Robert Fogel's Escape from Hunger and Angus Deaton's The Great Escape. There is nothing like economic history.

It is also the week of the Pluto fly-by. Wright Bros flight in 1903. Man on Moon just 66 years later. Man-made object reaches edge of solar system 46 years after that. It's always a race between what our better angels and our worst instincts come up with. I keep betting on our better angels.