Cold shower

Joseph Stiglitz writes about progress he sees in Medellin, Columbia. He writes that:

... livable cities require planning – a message at odds with prevailing attitudes in much of the world. But without planning and government investment in infrastructure, public transportation and parks, and the provision of clean water and sanitation, cities won’t be livable. And it is the poor who inevitably suffer the most from the absence of these public goods.

Medellín holds some lessons for America, too. Indeed, recent research shows how inadequate planning has fueled economic segregation in the United States, and how poverty traps have formed in cities without public transportation, owing to a shortage of accessible jobs.

There are some problems with this view of unemployment. Direct tests of the effect of new transit on employment offer mixed results. Unemployment is complex. Were it amenable to the simple fix that Stiglitz advocates, we could (should) just get on with it.

But a speck of public choice analysis would challenge the simplicity of Stiglitz' prescription. And then there are the data. They show that the infrastructure investments he advocates do not necessarily work out as promised. Those who just presume that more dollars spent on more transit yields more social benefits deserve a strong dose of reality. Here is a recent study by Rubin and Mansour.  My favorite of their case studies is Los Angeles. The authors' Fig. 19 (page 41) shows that the area's multi-billion dollar transit investment prompted a 20+ year loss of transit ridership.  This happened in a growing metropolitan area with considerable immigration from Latin America.

 

Beyond the old and cliched

Here Wendell Cox again makes the case that most U.S. urban growth is outward. Because of the usual nostalgia for a "return to the cities" many analysts like to argue that some long standing trends are reversing. I recently added some comments to the Russ Roberts-Charles Marohn discussion. Each time, Marohn responded with his concerns over suburban growth. He cited subsidies to suburban development. One cannot repeat too often that suburbanization is international; trying to pin it to peculiar U.S. policies must address that fact. Policies are actually a mish-mash and do not point in a single direction. Decentralizing forces are too powerful to yield to the various "smart growth" policies.

Bu there are two related points that are more important.  First, "suburbs" vs "center city" is an artificial and misleading distinction.  The big cities are much too complex. There are sub-centers everywhere. I say this without even knowing how to define them. A three-dimensional (population or employment) density surface representing any major metropolitan area would show some peaks as well as many low-rise hills. Which ones are the "sub-centers"?

The more important point is that spatial organization is not a zero-sum game. Complex metropolitan areas are an economic unit. They persist and grow (those that do) because their spatial organization is functional and passes an on-going market test. Labor and capital are mobile; the latter is especially picky. The spatial organization (including the physical infrastructure and governance) must provide a competitive package of benefits vs costs. This is much too complex to fold into the old and cliched cities vs suburbs discussion. 

New Cold War weapon

Here is the Gyourko, Mayer, Sinai paper on "Superstar Cities. This is their punchline:

The dispersion in house price and income growth rates across locations and the skewness in house prices, especially the strong growth in the right tail, can be explained in part by inelastic land supply in some places combined with growth in the high-income population. The view that some cities and towns have turned into scarce luxury goods, which we label superstar cities, is supported by a number of consistent empirical facts.

As always, there is supply as well as demand. Supply (development) constraints are favored by planners (who also worry about housing affordability); these days, demand comes in great part from the newly rich from around the world. They like to hang out in London, Paris, New York, etc. These places are a lot more fun than St. Petersburg and points east.  Foreign policy sanctions experts in Western capitals might take note. Keep oligarchs from traveling to their favorite playgrounds.

The New Yorker's James Surowiecki invokes the superstar city story to explain high housing costs in Vancouver ("Real Estate Grows Global"). He ignores the supply side but notes that the demand side has been shown to be sensitive to turmoil abroad. 

Surowiecki is at a loss re what can be done. Having ignored the supply side, he cannot suggest that planners and local officials should face up to the downside of their favorite land use policies. The only upside is the potential new weapon handed to New Cold War sanctions warriors.

Evil twins

What do General Motors and the Veterans Administration have in common? Both are huge and politically well connected. We now know that both kill people and try to cover it up. The fact that one is "private" and the other "public" does not matter.

They are not "too big to fail," but simply too big. Both organizations' agency problems are monumental. Their failures have been well known for many years. "Reform" has been on-going. Operating at this scale should be nothing more than the default if nothing else is possible. In that better world, do not bail out large corporations; try orderly liquidation. In that better world, give veterans vouchers and let them shop for medical care.

But no chance. Hope-and-change has come to mean that there is no hope for any change that would address the real problem: bigness mixed with evil-twin politicization.

Sixty years on

Dale Russakoff's "Schooled ... Cory Booker, Chris Christi and Mark Zuckerberg had a plan to reform Newark's schools. They got an education" in the current New Yorker arrived on the 60th anniversary of Brown v. Board of Education and it is remarkably depressing. Consider this:

The biggest concern was children’s safety, particularly in the South Ward, where murders had risen by seventy per cent in the past four years. The closest alternative to Hawthorne Avenue School, which was losing its fifth through eighth grades, was George Washington Carver, half a mile to the south. Jacqueline Edward and Denise Perry-Miller, who have children at Hawthorne, knew the dangers well. Gangs had tried to take over their homes, tearing out pipes, sinks, and boilers, and stealing their belongings, forcing both families temporarily into homeless shelters. Edward and Perry-Miller took me on a walk along the route to Carver. We crossed a busy thoroughfare over I-78, then turned onto Wolcott Terrace, a street with several boarded-up houses used by drug dealers.

Edward said, “I will not allow my daughter to make this walk. My twenty-eight-year-old started off in a gang, and we fought to get him out. My twenty-two-year-old has a lot of anger issues because Daddy wasn’t there. I just refuse to see another generation go that way.” Then, as if addressing Anderson, she asked, “Can you guarantee me my daughter’s safety? . . . Did you think this through with our children in mind or did you just do this to try to force us to leave because big business wants us out of here?” Anderson told me that she will address all safety issues, either with school buses or by accommodating middle-schoolers in their neighborhoods. Hawthorne parents said they had not heard this.

On the 60th anniversary, the talking heads are talking everywhere one looks. Most of them hit the same notes. Sixty years on, minority kids should have better schools. But I heard none of these geniuses mention anything about the gangs and the crime that make it almost impossible in places like Newark. The Dream Team of Booker, Christi, Zuckerberberg (and Zuckerberg's pledge $100 million and many others cited in the story) are seemingly inept against the biggest obstacle, kids afraid in school or on the way to and from. Nor was this addressed by Eric Holder in his latest commencement address.

Team sports

Public choice economists emphasize "rational ignorance;" once we actually think about the benefits and costs of voting or similar political involvement, we see that voting is a waste of time -- unless we are part of some lobbying effort.  The odds of one vote making a difference are about zero. So why bother? This explains low voter turnouts as well as low levels of voter interest -- which allows bogus arguments and claims to survive. Together, all of these results explain how and why interest groups win -- and how we get the policy outcomes that irk (and scare) us.

But there remains the riddle of why anyone not associated with an interest group bothers to vote. There are various explanations.  Bryan Caplan suggests that many voters actually approve of the dumb choices offered. Another possibility involves our love team sports. The evolution and the importance of our cooperative instincts has been well documented. We have all seen numerous and bizarre examples of fan insanity at the stadium or on TV. Politics involves political parties that also pose -- and incite -- as teams. Yes, there are even cheerleaders.


We had some awful traffic tie-ups in LA last week when Pres. Obama passed through to see his money people.  Major west-side thoroughfares were actually closed for several hours.  "Why can't they [donors] just mail him a check?" phoned an angry, stuck-in-traffic Mrs. Gordon?  Because they want to touch their man; they want to be in the room breathing the same air. Team sports.

Why dreary?

Some anecdotes are too good not to repeat.  Here are two from James Freeman's review ("The Man Who Knew Too Little" WSJ, May 12) of Tim Geithner's Stress Test.

Here is one I liked:  

Mr. Geithner tells the story of Warren Buffett approaching him at a conference shortly after the rescue to offer congratulations. "I was sort of hoping you wouldn't do it, because then everything would have crashed and I would have been first in line to buy," said Mr. Buffett, according to the book. "It would have been terrible for the country, but I would've made a lot more money." A scenario in which Mr. Buffett is snapping up bargains doesn't sound like Armageddon.

 Here is another:

At Dartmouth, Mr. Geithner "took just one economics class and found it especially dreary."

The first one is pretty clear. Re the second one, let's absolve Geithner. Many people have taken Econ 101 and most remain uninformed. Our political leaders claim that a 10-cent bag fee is an incentive to recycle but a $15 minimum wage is not a disincentive to hire. The politicians have their agenda but most people and most media go along. Could it be that so many principals/intro econ classes are geared to those who might one day enter an econ PhD program and, thereby, do not bother to engage or inform the everyman (woman) students.

The most important fact of our existence is that many of us live longer and much better than our ancestors -- including the recent ones. Econ 101 has something to say about all this. This big news/good news story should not be "especially dreary."

There is much more here from Brad DeLong.

In the eye of the beholder

In the current New Yorker, Jill Lepore discusses books that ponder the evolution of work spaces, "Away from my desk ... The office from beginning to end." Our work habits, the demands of work, lifestyles, and our gadgets all change. Their evolutions are obviously linked. So what happens?

Leisure may be over, but that’s only because when your office is a cloud it follows you everywhere. The arrangement that began in the nineteenth-century factory and lived on through the twentieth-century office may end soon; if so, the two-century-long separation of home and work will turn out to have been a historical anomaly. Work will no longer be a place, and home no longer an escape.

I'm not sure about her last sentence. Most work involves collaborations of one sort or another. The networking choices available to us are more varied and better than ever. Many of us get to pick a convenient mix of networks to tap into. We also choose the places from which to network. These can be home, office or the growing number of "third places" our mobile devices take us to. As they say, "substitutes everywhere." And whether a substitute is a "good" one or a "bad" one remains in the eye of the beholder

The State of Telework in the U.S. (by Kate Lister and Tam Hamish) discusses the ACS commuting and telecommuting data available to them. They mention that 45% of the U.S. workforce has jobs "compatible with at least part-time telework." But in 2009, they reported just 2.9 million telecommuters. Studying the largest MSAs, they found "no positive correlation between cities with the worst congestion or longest round-trip commutes and the extent of telework."

Perhaps it's early in the game. I am reminded of opponents of road tolls objecting that most U.S. commuters had too few choices to make tolling practical. They usually meant inadequate transit service. But "telework" is a more serious option for many of us. And, as Lepore shows, it is part of an evolution that is still unfolding.

Gary Becker, crony capitalism, inequality

I just saw that Gary Becker has died. He was one of the greats and his ideas will stimulate others for many years. The Becker-Posner blog was required reading in my class at USC -- where students were asked to pick one of the posts and elaborate in a term paper. BP managed to cover most of the interesting public policy topics -- and to demonstrate the applications of economic thinking.

Crony capitalism is the capitalism of our time.  Becker's 1983 paper made it clear that the incentives surrounding most public policies -- focused benefits and diffused costs -- make crony capitalism almost an inevitability.

The extent of lobbying, the size and complexity of the IRS tax code, the heft of the federal register, the size of various fiscal deficits (funded or unfunded) at all levels of government -- in almost all nations -- attest to the problem as well as Becker's wisdom explaining it all.

It's a wonder (and a testament to markets) that we have any growth at all.

Everyone's favorite topic these days inequality. Today's NY Times Magazine, for example, feasts on it. Our crony capitalism exacerbates inequality. Whole professions are closed to new entrants. The Institute for Justice devotes itself to fighting bizarre licensing laws. Similarly, politicians devote themselves to preserving the status quo in lower education. Wall Street bailouts enriched the rich. The list goes on. It's no small irony that those who make a career fretting over inequality are deeply involved in locking it in.

ADDED

The ideas of free market economists are best spread by people with real political credentials and savvy.  Here is a recent public lecture by Ron Paul. Listen to the whole thing.

Polarized

Clannishness and tribalism are our heritage. Morris Hoffman's The Punisher's Brain is a fine read on this topic. We gain social capital if we move on and establish trust between tribes and focus less on cementing ties within tribes. My guess is that the U.S. is currently the least tribal place on Earth. We have made good progress and I wish we build on the momentum. I first saw the Jim Crow South in the early 1960s and it was (as they say) "a different country."

The trouble is that many people feast on the divisions we still have.

Most people living in LA have long known that Donald Sterling is not someone you want to have dinner with. On top of that, he was caught saying dumb and distasteful things on an open mic. How many stories on this has the LA Times done on all this in the past four days?  Their website shows 198. (I have seen their wall-to-wall coverage in print but was not expecting that many.)

And there has been the piling on -- from Gov. Jerry Brown to the LA City Council to just about any and all local media and "personalities." I am not trained in psychiatry and cannot fathom the Sturm und Drang to be seen as on the side of the angels. But feasting on nasty racial stuff (some of which is alas always to be found) does not bring us closer to less tribalism.

The WSJ's Daniel Henninger devotes his column to "Sotomayor's Race Dissent."  He ends this way:

One is left to conclude from the Sotomayor dissent that no matter how much progress people think has been made toward fulfilling the mandate of the 14th Amendment, an argument of some sort will be fashioned to say that equality is forever disappearing toward the horizon, and unattainable. After 50 years, where does that leave us? Polarized. 

I would say that polarized is not the direction that does anyone any good.

ADDED

Here is an important economic angle.

Some contradictions

I don't know much about "sustainability" -- except that it evokes near-religious reactions on most college campuses and other such venues.  And it is not so clear. It is “… development that meets the needs of the present without compromising the ability of future generations to meet their own needs” (UNConference on Sustainable Development, 1987). We can count our blessings that this stuff was not practiced 100, 200, 500, etc. years ago.

Matt Ridley is always worth listening to.  In today's WSJ, he writes about "The Scarcity Fallacy ... Ecologists worry that the world's resources come in fixed amounts that will run out, but we have broken through such limits again and again. How innovation improves the environment." In just a few hundred words, he itemizes about 75 things that the conventional wisdom gets wrong. And this is the stuff that elites believe -- and the basis of policies they yearn to impose on the rest of us.

Here are just two of my favorites. "... the Intergovernmental Panel on Climate Change's recent forecast that temperatures would rise by 3.7 to 4.8 degrees Celsius compared with preindustrial levels by 2100 was based on several assumptions: little technological change, an end to (italics mine) the 50-year fall in population growth rates, a tripling (only) of per capita income and not much improvement in the energy efficiency of the economy." And "In his recent book 'The View from Lazy Point,' the ecologist Carl Safina estimates that if everybody had the living standards of Americans, we would need 2.5 Earths because the world's agricultural land just couldn't grow enough food for more than 2.5 billion people at that level of consumption."

Think about it. If everybody lived at the living standards of Americans (and I wish they could) that would mean that hundreds of millions have become massively more productive than they are now.  If so, we would have to re-visit the IPCC assumptions that Ridley cites. He would have us believe that the "green" platform contains some contradictions.

ADDED

More by Ridley, same idea.

Justice?

Supply and demand is seemingly simple. Trouble is that many of the prices and wages that result strike many people as "wrong".  The "just price" discussion is ancient but has not gone away.

I watch the PBS NewsHour because I expect it is the adult rendition of TV News. The program has recently looked at the $15 minimum wage proposal in Seattle ("How much does it really cost to live in a city like Seattle?").  Wages should be linked to what people "deserve" or what they "need". Supporters also expect that more "justice" would follow from politicizing the whole thing.

The report also includes a researcher who cites "hundreds of studies" that show "no impact" when there are "moderate" wage hikes. Many people, even the adult PBS audience, cannot square supply and demand with their own subjective feelings about who and what should fetch how much.

Part of the problem is that so many cannot abide high levels of CEO compensation.  The WSJ's Holman Jenkins addresses this in "Mulally vs. Piketty ...The great inequality theorist offers a shallow analysis of CEO pay." He argues that Ford's stockholders got a pretty good deal with Alan Mulalley.

The very readable and  enjoyable The Second Machine Age by Brynjolfsson and McAfee includes an endorsement of a of higher marginal tax rates on high salaries. But why does the IRS code take up 73,954 pages? Does it take that much heft to get a "just" result? Or does it take that many pages to spell out all the special dealing that our lawmakers specialize in?

I suspect that greater justice would be via a postcard-size flat tax with a very high exemption. 

A very good day

I am pretty sure that everyone favors "fairness." Most also frown on "inequality." Nothing beats being on the side of the angels. But there are serious (almost endless) problems of definition and measurement. The flies in the ointment are best avoided.

Almost all of the increasing inequality stories are flawed because they compare snapshots rather than real people -- who cannot be permanently pegged via one year of (measured and reported) income data. Thomas Sowell has been pointing out this simple (but inconvenient) fact for many years.

But today is a very good day because the simple fact has penetrated the pages of the NY Times ("From Rags to Riches ... The income gap isn't as static as we think.")

Rather than talking about the 1 percent and the 99 percent as if they were forever fixed, it would make much more sense to talk about the fact that Americans are likely to be exposed to both prosperity and poverty during their lives, and to shape our policies accordingly. As such, we have much more in common with one another than we dare to realize.

 Read the whole thing and keep it handy. You will be hearing about the the 1 percent and 99 percent a lot.

The wrong capitalism

Crony capitalism is disdained by almost everyone but, according to Google trends, is an evermore popular usage. It seemingly describes the modern world nicely.  That's a great pity.  The political right as well as the political left disdain it (as in Tea Party and the Occupy people; the latter think it's the only kind of capitalism there is). Somehow they keep electing people who implement cronyism full throttle. This morning's LA Times front page includes "LA should be more selective with hotel tax breaks ..." You bet. Read the whole thing. I'm pretty sure the reporter is not posing as a satirist. The people he quotes know all about which area "needs" how many hotel rooms -- and they all agree whose pockets they "need" to pick so that this "need" does not go unmet. The word "shameful" never comes up.

Modern brokering

Why do people pay big bucks for a "seat" on the NY Stock Exchange? One of the reasons is that there is money to be made in brokerage -- and it sure helps to be located where the trading action is.

Brokerage also reduces price spreads and facilitates more accurate asset price signals available to the rest of the world.

And arbitrageurs make some money -- and they pay some of that for their privileged location. That's access cost plus location rent which describes the use and the price of every site in every city on Earth.

Don Boudreaux writes about the NY tunnel that Michael Lewis (and many others) have recently discovered -- which serves about the same function (updated) as a "seat" on the NYSE.  Some people have paid a lot of money to be the quicker broker. Location rent all over again.

But Burton Malkiel and Arthur Levitt ("We Are All High-Frequency Traders Now") comment on the inevitable new front-running ("scalping"). This refers to large buy or sell orders that are detected before they can be executed. They write:

The answer is not to set a speed limit to slow down to the pace set by those unwilling or unable to compete. Instead, solutions should be directed toward fixing problems inherent in the system such as front-running. 

Identifying "insider" trading has always been perplexing and difficult. "Solutions" are hard to come by. Defining and identifying wrongdoing has never been simple. It will be at least as challenging here.  There is no such thing as an "even playing field." If there are clear rules of the game that are broken, we hope that impartial enforcers are on the case.

Laugh or cry?

Much has been written about the life and work of Steve Jobs. I enjoyed PBS' Jobs bio, One Last Thing.  Towards the end, one commentator mentions that while Thomas Edison can be credited with three technological revolutions (electric power, motion pictures, recorded music), Steve Jobs can claim four (personal computers, recorded music, animated motion pictures, and smart telephones). Three vs. four. Comparisons and rankings of this sort are difficult but entertaining and tantalizing.

Inequality is the "defining" issue (in some eyes) of our times but much of it is driven by the rewards bestowed on new ideas and the work of entrepreneurs. Aside from hagiographies such as the one I cited and near-riots by consumers when a new gadget goes on sale, this is seldom mentioned. I once heard (cannot recall the source but the idea seems plausible) that about 80% of the fruits of innovation go to consumers at-large while 20% goes to the inventor.  Is that "fair"?  Would I accept that division of spoils from behind a "veil of ignorance?" I surely would.  This is how we get economic growth -- which is the very best we can do for the poor and less well off.

But these simple thoughts are ignored in the feel-good sanctimoniousness of the inequality debate.  Ross Douthat in this morning's NY Times ("Diversity and Dishonesty") calls attention to the suggestions of Sandra Y.L. Korn of Harvard U.

... I would like to propose a more rigorous standard: one of “academic justice.” When an academic community observes research promoting or justifying oppression, it should ensure that this research does not continue.

Why the hell not? Discourse and ideas diversity is pretty corny these days.

Tricky "common sense"

Many of us cognition non-specialists used to think in terms of vague "left brain" vs. "right brain" functions.  Daniel Kahneman's  Thinking Fast and Slow provided a much needed corrective; many of us are a now little bit smarter about how our very complex brains function. I had previously only considered lazy vs. non-lazy thinking. 

The fast and the slow thinking approaches each have their usefulness and it is up to each of us to be wise about how we deploy our various capabilities. Humans working with computers (and gadgets) face the problem of how to allocate responsibilities. The same challenge applies to sorting out the work for our "fast" and "slow" brain modes.

Duncan Watts, in Everything is Obvious: How Common Sense Fails Us, calls attention to the challenge. We face incredible complexities everywhere and must be alert to how easy it is to fool ourselves.  Things are "obvious" when we are simply stuck in "lazy" mode. That mode is always available; our job is to apply some thought before we decide to simply let it fly.

ADDED

Division of labor has always been a moving target.  Have you met your robot? Target now picking up speed.

Cities

The importance of responsive markets is a seeming no-brainer.  I have noted impressive co-location in U.S. cities that limits the lengths of commuting as well as non-work trips. The Economist of April 5 includes "Metroland spreads out ... The cost of strict planning laws is measured in longer commutes."  How can it not?  It is the old story that planners (anywhere) have no way of assembling all of the information they need in their quest to make cities function better.  F.A. Hayek and many others have endlessly called our attention to this fundamental fact. It works for cities too.

"Those who cannot remember the past ..."

Natural gas is much in the news because it is the weapon of choice by Russia as well as (perhaps) the West in the new Cold War. V. Putin uses threats to shut the pipelines that connect Russian supplies with much of Europe.

But the West is not yet sure whether to respond -- via signals and/or actions -- that they plan to expand world supplies, push down the world price, and give Russian elites something to think about.

In any event, labor and capital are ever more mobile. Seasteading, as suggested by Patri Friedman, is the logical extension. If taxes and other impediments on the land become onerous enough, move operations to the high seas -- just beyond any national jurisdiction. The extra costs have been labeled the "sea tax" and they can be compared with the costs of operations at conventional sites.  Today's WSJ notes that a tipping point may have been reached "Asian Gas Demand Spawns Floating Superfactories ... Energy Companies Aim to Cut Costs With LNG Production Plants at Sea."

The original Cold War was won when the economic weakness of the side that denied economic freedom realized that the world was accelerating away from the East bloc. That realization may soon dawn on Putin and the Russian elites. "Those who cannot remember the past ..."

Signs of hope and disappointments

Everyone wants to believe in the Mandela-inspired optimism for South Africa. Yesterday we visited Kliptown in Soweto. The poverty is heart-breaking but the people are seemingly friendly to visitors. The Kliptown Youth Program was a bright spot, engaging the very young in computer-based learning as well as song and dance.

One of our touring group asked about funding and the guide mentioned it is all private. The guide did not know why there was no government support.

This morning's South Africa Times reported "Politicians want free flights for 10 years after they retire." The Sunday Independent reported "The ANC's tops brass have all but absolved President Jacob Zuma of any wrongdoing in the 246 million Rand [$25 million] upgrade of his Nkandla residence ..." Otherwise, it's all about the Oscar Pistorius trial.