Paper money

We teach that money must be homogeneous, divisible and durable.  It must also be credible.  And politicized central banking can limit credibility.  We also teach that economic freedom means that people can be inventive about ways to dodge crises in their lives.

I can ignore debased currencies and revert to barter and some do, but that's horribly inefficient. 

But free instiutions have also brought us the internet.  Put all of these observations together and you get Bitcoin.

Here is a description from the May 9 Forbes:

The Internet has left plenty of dead and maimed paper-based institutions in its wake. If Gavin Andresen and his underground cadre of cypherpunks have their way, another archaic slice of pulped tree may be next: the dollar.

Bitcoin is a grassroots nonprofit project that seeks to fashion a new currency out of little more than cryptography, networking and open-source software, and Andresen is the closest thing the project has to a director. Bitcoin is not, he explains, just a new way to digitally spend dollars, pounds and yen. ... Bitcoin is different: It wholly replaces state-backed currencies with a digital version that's tougher to forge, cuts across international boundaries, can be stored on your hard drive instead of in a bank, and--perhaps most importantly to many of Bitcoin's users--isn't subject to the inflationary whim of whatever Federal Reserve chief decides to print more money. "Bitcoin is designed to bring us back to a decentralized currency of the people," says Andresen, a 44-year-old software developer and entrepreneur based in Amherst, Mass. "This is like better gold than gold."  As with shiny-metal-backed currencies, Bitcoins derive their value partly through their scarcity, which is defined not by how much can be dug up with shovels but by a cryptographic lottery. Anyone can get Bitcoins without paying cash for them by downloading and running Bitcoin's "mining" program. The machines in Bitcoin's mining network, now in the thousands, compute an encryption function called a "hash" on a set of random numbers, and coins are awarded every ten minutes to whichever miner happens to compute a number below a certain threshold.

That lottery tightly controls how many Bitcoins are created. There are currently close to 6 million in existence. By 2014 there will be about twice that number. Bitcoin's distributed software is set to slow production over time so that there will never be more than 21 million in circulation. "No banker can control it. No evil dictator tyrant can print zillions and destroy the value," says Bruce Wagner, organizer of New York's Bitcoin developer's meet-up.

Of course, the other factor that determines the worth of a currency is whether anyone will accept it in exchange for goods and services. And for Bitcoin, a subculture of geek-friendly merchants is catching on. About $30,000 worth of Bitcoins change hands every day in electronic transactions, spent on Web-hosting, electronics, dog sweaters and alpaca socks.

Also drugs. Particularly illegal ones. Since Bitcoins can be spent on the Internet without the use of a bank account, they offer a convenient system for anonymous purchases. There's no centralized storage of funds, so accounts can't be frozen by law enforcement or PayPal administrators. "Illegal stuff will be a niche for Bitcoin," admits Andresen. "That bothers me, but it's just like any currency. You can't stop dollar bills from being used for the drug trade either. That's an unfortunate feature of any cashlike system." ..

Sounds very geeky, but so did Facebook.

S&P downgrades the dollar and the response has been to scoff at S&P. Bond markets are derided as "bond vigilantes," a usage that smacks of ancient misunderstandings of "the speculators." No, they are facts of life. Name-calling will not stop the creative juices and better alternatives than simply barter or politicized money.

Antidote

Mark Pennington and his thoughts (video here) are the perfect antidote for the depressing nature of the previous post (the one just below).

WalMart in NYC

Just when you thought that there must be some reason to reserve a warm spot for unions and their local government supporters, along comes this reason.tv clip about WalMart in NYC.

It speaks for itself.

Conscience of an economist

I am a great fan of Russ Roberts' econtalk (link at econtalk.comorg; printed text of podcasts also posted). I actually look forward to Mondays when the new ones are posted.

This week's discussion is with Ariel Rubinstein and begins with his views of game theory.  He is a prominent contributor and a skeptic.  Rubinstein and Roberts then focus on the limits of economics and especially behavioral economics and also on widespread tendencies towards scientism.

The discussion is wise and refreshing, prompting listerners to work towards a sense of perspective, especially with respect to their own work.

Sad to say, perspective cannot be bottled, but listening to discussions by wise folks is very helpful.  Rubinstein even notes that he is not shy about spilling the beans to eager young students.

Work to do

Peggy Noonan writes about "What the World Sees in America ... It's not all something to be proud of. ... We have work to do at home, on our culture and our country."  Read the whole thing.  She writes about grafitti and unfriendly public places as well as some of the garbage on TV that enthralls millions.  I like the U.S. probably as much as Noonan does, but she has a point when she itemizes the coarse aspects of our culture. 

Visiting some of Shanghai's neighborhoods.  Some very old ones are "gated" in a very informal sense.  I found that perfect strangers are welcome.  I visited a very poor neighborhood and felt very safe.  I wish it were so in my home country. 

Trouble is that I have no idea what Noonan has in mind re "work to do at home."  Does anyone? 

Getting to three

Go from the mainland to Hong Kong and you go through immigration and exchange currencies.  This is part of the odd post-1997-fifty-year arrangement called one-country-two-systems.  At the end fifty years, which side will have evolved to be more like the other?

On the Hong Kong side, there is also internet policing.  I could not buy via Kindle.  I cannot link to my blog.

This morning's International Herald Tribune includes "Confucius vanishes from square ...  'When you have faults, do not fear to abandon them,' Confucius once said.  Apparently, someone extremely powerful has taken that saying to heart, having decided that a 9.4-meter ... bronze statue of the ancient Chinese sage that was unveiled four months ago did not belong on the nation's most hallowed slice of real estate.  The sudden disappearance of Confucius which took place under cover of darkness early Thursday morning, has stoked outrage among the philosopher's descendants, glee among devoted Maoists and much conjecture among analysts who try decipher the intricacies of the Chinese leadership's decision decision-making ..."

I am greatly enjoying Francis Fukuyama's The Origins of Political Order.  He tries to make sense of all this, noting that of the three categories of institutions he writes about -- the state, the rule of law, accountable government -- many places only manage to get two of the three.  How do you get to three?  If you have all three, how do you keep them?

Central planning and city planning

The China Daily's April 12 opinion page included "Debate: Urban congestion."  One by Murad Qureshi, ("Charge cars out of city center") argued for Singapore-style congestion charges.  Another by Tian Li, ("Problem lies deeper in economy") blamed government policies that favored autos as well as poor traffic management.  The third by Su Lang ("Multiple centers can clear jams") suggested that, "... city planners must also shift from concentric-circle to cluster-based development development, building multiple centers in a city."

The same sentiments could have appeared in any major U.S. paper.

Why do the major Chinese cities feature concentric ring beltways?  Beijing now has seven.  Historically, the emperor was to be at the center of Beijing.  Perhaps that was the model for the other cities.  Perhaps this thinking was reinforced by Western monocentric city ideas.  There is much willy-nilly copying of Western approaches.

But missing from the China Daily's debate as well as from so much Western city planning discussions is the thought that land markets left to themselves can best place and populate any city's sub-centers.  When it comes to cities, Americans as well as Chinese think in terms of central planning.

Markets and cronies

From the Shanghai Sunday Daily (17 April; will not link):  "Shanghai's car license plate prices continued to rise in April after reaching a three-year record high last month.  Industry analysts said the rise is within market expectations as the introduction of a policy limiting vehicles with out-of-town plates has prompted a demand for local licenses.  ... The average auction price for a private car license in Shanghai was 47399 yuan (US $7,260) this month, up 742 yuan from March. ... The local government offered 8,000 licenses for auction this month."

These things are tradable, with premium prices going for numbers thought to be "lucky."  I understand also that there are "black" markets.  Why not?

Market mechanisms have obvious appeal.  But they can veer off the tracks when corrupted via cronyism and worse.  And then it is the idea of markets that gets the blame.  Can we get capitalism without the threat of crony capitalism?  The widely cited U.S. example is the internet which reached full steam faster than the FCC and Congress could react.

Is that our best hope?  I hope not.

Trying again

Anyone trying to read my posts can tell that I am no match for the internet blockers.

Tyler Cowen at Marginal Revolution recently mentioned that he liked Brasilia and that planned cities can work.  (I cannot link to his post from here.)  Another way to approach all this is to note that there are top-down plans as well as bottom-up plans.  There is no "unplanned".  But what is the division of labor?

Top-down is intuitively plausible to many.  Bottom-up planning is not.

Paris has Haussmann's top-down plan plus a lot of infill which is likely to be bottom-up.  Americans are increasingly moving into bottom-up privately planned communities and shopping and playing in bottom-up planned lifestyle and other centers.  And anything that can be metered can be privatized.

Top-down has exclusive jurisdiction of "mega-projects".  We know how most of those have worked out.

All cities are "planned"

City planning here and there

City planning here and there

Sustainable?

The case of modern China suggests that widespread corruption and strong economic growth can co-exist.  The caveat is that the combination is not sustainable.  That is the view of Toke Aidt.  But at what point do we toss in the towel?  China has posted strong growth numbers for almost thirty years.  Aidt evokes the idea of "sanders" and "greasers".  The latter reduce transactions costs whereas the former do the opposite.

Over the years, there have been numerous recommendations for political reform that would do away with the demand for greasers. That's first-best, but second-best is to have the greasers dominate the sanders.

While there are many cases where corruption throttles growth, there is also China.  But does second-best suggest untenable distributional outcomes?  The authorities are forever looking for the "sweet spot", the level of limited rights and freedoms whereby the regime stays in power, rent-seeking and rent-extraction continue as they are and economic growth is maintained.  But sustainable is a huge order.  

Strong cores

The April 10 China Daily includes this report on the Beijing Metro.  Infrastructure planners everywhere dream of (i) accurately projecting urban expansion to the point of having the proper infrastructure in place when and where growth arrives; or (even better) (ii) putting advance infrastructure in place so that it guides urban expansion.  Both are seemingly on the minds of Beijing subway planners with an emphasis on the latter. "For most of its length, the new line runs through open fields and small towns -- and the construction sites that will transform the area into miles of densely populated suburbs."  

But the story also alludes to the fly in the ointment.  "A 2010 survey conducted by IBM rated Beijing's commute as the worst in the world, tied with Mexico City." And, "For many planners, tackling Beijing's will take more than building a better subway. ... the underlying problem was the concentration of government, universities, and companies in Beijing's relatively small historic core."

Tokyo, Moscow, Seoul, Beijing, Mexico City and New York boast great subways and awful road traffic.  The great subway "fix" falls short when the core is a dominant employment center.  With the exception of NYC, these places maintain big central government bureaucracies (and all of the activities that these attract) in their historic cores.  It's very difficult to build subways fast enough to impact the auto traffic that growth plus centralization account for.

Blocked

The subject matter of Frank Dikotter's Mao's Great Famine is fair game to people I have spoken to in Beijing.  But Facebook is blocked.  And, I was surprised to see, so is Peter Gordon's blog.  I am trying to scratch my head to figure out how that happened.

In any event, blogging will be light for a couple of weeks as I figure out how to scale the walls that have been set up.

Mating dance

When economists discovered "signaling", they were recognizing what the whole world already knew, that we spend a lot of time and effort trying to communicate strength and worthiness to everyone else.  It's part of the mating dance as well as the career dance.  In fact, there is even the possibility that the latter is a part of the former.  Men have been accused of choosing careers only for the money involved because it makes available a larger selection of females.

Advertising and branding are well established.  Much of their focus is on our selection of the signals we want to transmit.

This week's Economist includes "Status displays ... I've got you labeled ... Clothes may make the man, but it is labels that really count."  The story describes experiments that establish the point.  Show people photos of subjects wearing the same shirt, but with designer label digitally removed and note the different impressions on viewers.

It's the sort of news about who we are the upsets some.  The story ends with, "marketers can open another bottle of champagne."  Perhaps, but without the mating dance, where would we be?

Competing spreadhseets

Today's LA Times has this story about the soon-to-open LA Expo light-rail line.  Officials expect 27,000 boardings by 2020 and have spent $931 million to date.  There will also be operating costs in the ballpark of what LA's MTA now spends on its existing light-rail lines.  The Expo line does not look promising.

This coincides with the current issue of Public Works Management and Policy which includes the Gordon-Kolesar rail transit cost-benefit analysis that I have blogged about before, along with a competing cost-benefit analysis by Robert Cervero and Erick Guerra and Commentary by Lisa Schweitzer.

For teachers of cost-benefit analysis, the two side-by-side studies provide interesting case-study fodder.  The assumptions differ, the findings are (in my view) broadly similar, but the authors of the two studies emphasize different conclusions and policy recommendations.

Every worthy cost-benefit analysis ends with the caveat that there is more to life than just the costs and benefits that we have accounted for (or can account for).  And so it is here.  But competing spreadsheets, when we can build them, is much better than competing rhetoric. 

Thoughts on urban policy to think about

I enjoyed Claude Gruen's New Urban Development.  The author knows the economics and adds the lessons he absorbed as a long-time consultant on urban development.  And the book is short and readable.

Gruen's last chapter discusses his 13 favorite development policy reforms.  #9 is "Vest Tenants of Redevelopment with Rent Differential Subsidies."  In other words, in cases of eminent domain purchases, treat the renters to more than relocation assistance. #10 is "Distribute a Portion of Sales Tax Revenue on the Basis of Population Rather Than Point of Sale."  That would be an antidote to local governments' scramble for new retail development in their cities -- especially in light of Proposition 13-type limits on property tax revenues.  #11 is "A private Alternative to Public Urban Redevelopment."  This is timely as public redevelopment is now even unpopular with the likes of Gov Jerry Brown.  "... private parties who have acquired 80 percent of properties within a blighted project area will be granted the power of eminent domain to acquire the remaining 20 percent."  But there would be additional payments to these former owners from project profits once these are realized.

A recent NY Times Book Review Essay by David Greenberg is titled "Why Last Chapters Disappoint" ("No Exit" in the print edition).  "Why do books on social problems always end with suggestions that are banal, utopian or beside the point?" 

That one hit home.  Many of us should watch what we recommend. 

I would not characterize Gruen's 13 points as "banal" or "beside the point."  But some of them ("Plan and Zone to Add More Development Than Would Be Required by Estimated Likely Demand Growth,") assume a long run forecasting ability that planners simply do not have.

But readers should chew on all thirteen.  They are from a smart man with lots of professional practice experience, which comes across in all of the chapters leading up to the recommendations.
   

Chic to cheat

It's OK to "freeload" (steal) if it's for the environment. Today's WSJ includes "Freeloaders Unite to Fight Subway Fares .. In Scandinavia, It's Chic to Cheat Via Insurance Scheme." It appears that the chic honor-system transit freeloaders in some of the Scandinavian cities subscribe to an insurance combine that pays their fines on the rare occasions that they get caught.

The story mentions that subscribers are also part of a protest movement against rising fares. I guess that it's much more fun to be a protester for good causes if there is insurance for any downside.

The turnstile jumpers (when and if they actually have to jump) are called Plankers and Planka Oslo is the outfit described in the story. You pay less when caught if you can pay on the spot, 750 ($135) kroner now vs. 900 later. A monthly transit pass goes for 570, but Planka dues (premiums) are just 250. Do the math.

This all works until authorities increase fares and/or enforcement. But think of the demonstrations and marches.

Taking care of itself

We now have 2010 population tallies for all the major U.S. cities. Table 2 in this post lists Wendell Cox's itemization of major U.S. Core Cities. His latest report on head counts shows that most of these places continue to fall behind their suburbs in terms of population growth.

This is old news to some, but perhaps surprising to many who look for (and proclaim) an "urban revival." More than proclaiming, many have worked to put in place a huge number of plans and programs (including public transit) to bring it about.

In his splendid Triumph of the City, Ed Glaeser writes, "Transportation technologies shape our communities and modern sprawl is the child of the automobile." (p. 167)

Here is an even stronger statement from Witold Rybczynski:
“Virtually every technological innovation of the last fifty years has facilitated, if not actually encouraged urban dispersal.” (p. 170)

Yes, agglomeration economies are crucial, but they are available in many places. And suburbs and core cities complement each other. We can network nicely with people who are not down just the street. This is old stuff that bears repeating because no one has yet offered to give me one dollar for every evokation of "regeneration," "renaissance" or "revival" of "the city". Turning back clocks is never simple.

I did not live in New York in the years it was coming apart, but reading Pete Hamill's Piecework gives me an idea how awful it was. New York city's return from those days is amazing. Fred Siegel covers the fall and rise.

But what about the "costs of sprawl?" In my March 12 post, I mentioned that the latest data on commuting indicate that suburban journey-to-work travel times compare favorably with core city times. But those cites referred to all modes of travel and have an apples-and-oranges problem because transit use varies -- and accounts for much slower travel.

The NHTS data make it possible to compare travel via privately-operated-vehicles only, probably the most direct and representative.

In 2001, the average for the "suburbs" was slightly less than for "urban" (NHTS definitions), 20.8 minutes vs. 22 minutes. They had pulled approximately even by 2009, 22.3 minutes for "urban" and 22.8 minutes for "suburbs." The lowest travel time readings in both years were for "second city" (akin to an Edge City), 17.3 minutes in 2001 and 20.9 minutes in 2009.

These are averages, but standard deviations were small in each case; coefficients of variation were always below 1.0.

There are also data for miles instead of minutes. What do they show? Coefficients of variation always greater than one.

Commuters care most about time costs and manage to find job and home location matches that preclude crazy commutes. Planners worry over "jobs-housing" balance (and what they can do about it), but it seems to be taking care of itself.

UPDATE

Ed Glaeser explains his surprise at the New York numbers.

UPDATE2

Here is more re New York from Wendell Cox.