Scary

Andy Puzder writes about "Why Restaurant Automation is on the Menu."  Here is more (H/T MR). More now seen in Sweden but probably coming your way (H/T Craig Newmark)

Just in time for the next pronouncement that minimum wage hikes have no costs. Here is Hillary Clinton's latest (H/T Craig Newmark). The panderers will swear that the moon is made of blue cheese -- if it would get votes.

I thoroughly enjoyed Robert Gordon's (no relation) The Rise and Fall of American Growth.  He likes the years 1870-1940 best. This the period when Americans' consumption opportunities (health, transportation, entertainment, labor-saving devices in the home and the factory, etc). expanded as never before. Gordon suggests that many of these were one-time leaps and are unlikely to be repeated.

Who can tell? We do know that tech will get better and opportunities to substitute for low-skilled labor will only grow. Are politics and technology accelerating away from each other? It's a scary thought. The irony is that the people who talk this way insist that they are put on this Earth to "help people" -- and mostly to "help" the less fortunate. Also scary.

ADDED

Here they are.

Elite opinion

It's very hard to reconcile the "you have more to fear from slipping in a bathtub than from terrorism" meme with the coverage of the horror experienced in Brussels and other places that have been hit. Perspective is always elusive but rhetoric and sloppy thinking are easy. Yet, Barack Obama invoked the same idea in his recent interview with Jeffrey Goldberg. Well and good to remind people that the greatest thing to fear is fear itself, but credibility matters too.

Everyone takes risks all the time. We have come to terms with (adjusted our actions to) the riskiness(es) we know. We have been in and out of bathtubs, autos, and airplanes and have accepted the plausibility of the low relative frequencies of mishap that have been reported to us. But this leaves out the impossible-to-assess risks of using airports or trains stations in Brussels -- and places unknown.

When enough people are put off by the tone and substance of elite opinion, they start looking around for other sources. We get the likes of the current crop of presidential contenders. 

Dealing

We live better than our lowliest ancestors because we have learned to cooperate. The two sources of non-zero-sumness in our lives are market transactions (gains from trade) and love (chosen other-regardingness). Writing in today's NY Times Magazine, Adam Davidson notes "Donald Trump's obsession isn't just egotism. It reveals a dangerous and outmoded vision of the whole economy." The transactions ("deals") that Trump knows best are zero-sum. Davidson notes that coming out of the crony world of New York real estate, this makes some sense.

Yes, there are inevitably winners and losers from some international trade agreements (see my March 16 post) but the net gains are immense. Finding ways to assist the losers should start with the lower public schools. Those who nevertheless support the lower school status quo (except the standard call for more public moneys) are no more than hypocrites.

This is where Donald Trump and Bernie Sanders see eye-to-eye: the market economy is simply a place of conflict where I get the better of you or vice-versa. Mutually beneficial exchanges (which occur daily an uncountable number of times) are missing from their world.

Here is Scott Alexander's review or Trump's Art of the Deal. But it matters less whether Trump is real good or real bad at zero-sum deals.  The problem is that these are the only trades he knows about.

ADDED

More on zero-sum politicians.

Doomsday failure

I happen to have been in Washington DC the night before the great Metro shutdown. It appears that some power cables were bad and had to be replaced quickly over safety concerns.  The night before local TV news was full of the usual traffic doomsday coverage. Who would go to work? How? Would lateness to school be excused? (Yes) Would teleworking be allowed? (Yes). How much surge pricing would Uber require?

The next morning, I took an Uber from Georgetown to Dulles for just over $40 in just over 30 minutes. No surge pricing. No traffic. My driver mentioned that there had been no problem all morning.

It was about the same when LA's 405 shut down for 24 hours recently. "Carmageddon" came and went; the hype and fears were wrong. Note this from the Wikepdia coverage: "In reality, traffic was lighter than normal across a wide area ..." It was also this way back in 1984 for the LA Olympics. Traffic doomsday never came. People are not stupid and make all sorts of plans and adjustments.

Doomsday predictions have a long history of being wrong. But people do like to worry. This tendency seems to overcome credibility concerns. Will climate change cause massive coastal flooding? Have beachfront property values been falling or rising?

Cosmpoplitan complexity

You would think that Smithian specialization and exchange as the basis of our prosperity is a no-brainer. Sad to say, you would be wrong. This WSJ op-ed notes (once again) the sad state of political discussion on this issue in the U.S. this year. It's not just Trump. Cruz, Clinton and Sanders pander to the same "low-information" (polite expression) crowd.

All of them make personal consumption choices that involve many supply chains that cross multiple international frontiers. This includes your pair of Bentleys, Mr. Trump. Even U.S.-label autos are sure to include all sorts of parts that cannot be said to be "domestic."

Establishing any boundary beyond which trade is taboo (my front yard, my city, county, state, country, hemisphere) means higher costs. All of this may seem abstract when "the best argument against democracy is a five-minute conversation with the average voter." (W. Churchill)

Nevertheless, supply chains and their cosmopolitan complexity is the story. It must be emphasized again and again.

ADDED

David Autor and Russ Roberts discuss winners and losers re trade with China. All shocks are redistributive, even ones that are net beneficial.

MORE

Economists react to the conversation.

"The burbs"

Aggregations and simplifications are often useful. The downside is that they can obscure more than they reveal. Here is a discussion re capital aggregation. "Harbors and hammers" was the way Sandy Ikeda once described it. Arnold Kling worries over simplifications that see the economy as one big GDP factory. We throw away the field's signature intellectual achievement, the understanding of how an uncountable number of complex resource allocation choices are coordinated in a decentralized manner.

When it comes to land and location, the mantra "location, location, location" makes the point. But the people who study and discuss cities, still insist on categories that are ever less useful. "Suburbs" vs. "central cities" dichotomies are still popular. The many places that describe where most Americans live and work are no longer simply "bedroom communities". That was a post-WW II label. It hangs on as a cliche.

We get reports such as a "More and More People are Renting. Thank the Suburbs" from the WSJ. It cites recent NYU Furman Center research.

"Suburbia" is much more varied and much more interesting than back in the day when the name had meaning.  Most important, there is choice out there. A la Tiebout, people care about local government, and most especially local school districts.  There are about 13,500 school districts in the U.S., most of them in "the burbs" -- compared to just over 3,000 counties.

In a better world, there would be universal school choice, most importantly for the poorest among us who are forced into the worst schools -- and locked into them for the sole benefit of the teaching establishment and its political allies. You know who you are.

Until a better day arrives, most families with children will be evaluating the choices available to them. They will not look out there and see one homogeneous glob.

ADDED

Re the problem of aggregation, political candidates are again arguing that free trade "hurts America" or "hurts Americans."  It benefits most Americans by way of lower prices when they shop.  It also benefits most Americans by incentivizing innovation and punishing inefficient operators. Surely, there are some short-term losers. Defining and estimating "most", "some" and "short term" is the challenge. It is ignored when the rhetoric sticks to simplifications and aggregations.

Design of cities

Hayek called attention to the fact that not all orders involve a designer. There are also spontaneous orders. Matt Ridley (among others) elaborates. Some writers note that cities too can be thought of as spontaneous orders. Perhaps emergent order more accurately describes the ongoing evolution,

But both, designed and emergent orders, play big parts in our lives. Everything on my desk within reach involves intelligent design. But these are all the winners of design contests that we call "the market." In that sense, they are also emergent.

Americans still refer to city maps, but Germans (and many others) call it the plan of the city (Stadtplan). Is there such a thing. Many architects have dreamed of designing major parts of cities. They surely have designed large and notable urban structures and environs, including parks, airports, train stations, civic buildings and halls, cathedrals, public squares, theme parks, mega-malls, arcades, etc. So why not go bigger? How scaleable is design?

In between the various grand projects are very large numbers of much smaller projects (even the occasional stand-alone home or store). These also have designers but these designers must pass a market test. Can the resulting aggregation be called a plan? It is actually an emergent phenomenon. Failing to grasp all this, many simply call the vast developments (dark matter) beyond the monuments "sprawl."

This is the question implicit in Wade Graham's Dream Cities: Seven Urban Ideas That Shape the World. The author examines the ideas of various designers who dreamed of going big. The usual big-think suspects are mentioned: Burnham, Howard, Le Corbusier, Moses, Mumford, Soleri, Speer, and many more.

None can touch Corbu, "He prescribed three main 'DECISIONS' [caps in original] upon which the plan would be executed: '1. Requisitioning the land for the public good. 2. Take an inventory of our cities' populations: differentiation, classification, reassignment, transplantation, intervention, etc. 3. Establish a plan for producing permissible goods; to forbid stoic firmness of all useless products. To employ the forces liberated by this means in the rebuilding of the city and the whole country." Frustrated, Le Corbusier turned to the Soviet Union ..." but "... the Soviet authorities didn't bite either ..." (p. 91).

The following is much better."Productive cities are rarely planned and built from scratch. They evolve from the myriads of actions of their inhabitants. They are works in progress and they remain works in progress, responding as indeed they must, to new challenges and new opportunities." (Angel and Blei, 2015).

Land use

Today's WSJ reports "Companies Pay Workers to Live Close to the Office: Subsidies help firms attract new hires to high-rent areas, such as New York City and Silicon Valley." High growth places will prompt high costs unless housing markets are allowed to function. Workers may try to keep costs down via longer commutes but this has downsides -- as the story explains.

Restrictions on development are serious in places like New York and California. But supply and demand cannot be denied. So there are consequences (and costs). The political process we have is not likely to be of any use. Places like California and New York will have to accept growth (and well being) below what they might otherwise enjoy. That will also have consequences. But these will most likely be more of the same -- which will only make matters worse.

Progressive Era thinking gave us the idea of municipal zoning. Land uses would generate externalities and top-down wisdom was required to get land use right. The Coasian idea that externalities could also prompt private bargains had not yet come along. And once there is a top-down rationale, it has staying power. Politicians (and their private cronies) and the greens love it.

But Jane Jacobs, among others, recognized that the clustering of land uses can be amazingly complex. The nature of possible knowledge spillovers between different projects and different lines of work cannot be grasped or implemented top-down.

The complexity story also suggests that many urban economists and planners are wrong. It's not simply one number, density. Ideas are essential and many successes come from knowledge-sharing. But knowledge-sharing is also mysterious.

Here are the latest U.S. commuting data. Which occupation has the longest commute? Construction workers do not work at a single site and some job sites can be out of the way. But which occupation is in second place?  Computer science and math. Many of these people exchange code electronically. Perhaps they economize on housing (and commuting) costs by living further away and going to "the office" fewer times. They can be connected from wherever. So much for just simple density. So much for the idea that any of this is simple. Admitting this and retreating from heavy-handed and restrictive land use controls would help.

Things to cheer about

The definition of "luxury" is always changing. I would not trade places with Louis XIV. He can have his luxuries. I like mine. Real prices keep falling and availability keeps increasing. That's a lot of new consumer surplus. Consumer surplus is not measured by GDP or other conventional accounting. Those who beat the drums over increasing inequality should pause to notice the amazing "democratization of luxury."

It is interesting that the stagnationists (see Adam Davidson in today's NY Times mag) complain about slowing productivity growth but rarely mention the increasing availability of the goodies. Google trends shows that "digital divide" is cited less that it was ten years ago. Of course. Prices have come way down and access is better than ever for many more people.

We often hear that the 747 is so yesterday -- and we never got flying cars. But many more are able to fly. The latter strikes me as the more auspicious and the more interesting.

ADDED

I found this just after I posted.  There is lots of evidence on the same theme. 

Transformational

What to do about populism in politics? Populist impulses are always around.  Sometimes they dominate as in inter-war Europe and Japan.

Specifically, what does one say to supporters of Bernie Sanders and Donald Trump? The New Yorker's James Surowiecki raises the question but offers no suggestions. He does say that both candidates are threatening what the writer thinks is a decades-old U.S. political consensus. The WSJs William McGurn says "Grow, Baby, Grow: The Republicans have a great message about economic growth for middle America. Why make it so boring?" Great question. His Exhibit A is the campaign of Mitt Romney.

There is very little debate that Barak Obama sought to be a transformational figure. Many cheered him on in this effort; others did the opposite. The brewing fight over the next Supreme Court appointment will be over this divide.

Transformational efforts are a big deal and very likely to have backlashes. So blame the popularity of Trump and Sanders on Barak Obama?  There is no easy proof. Future historians will write the story.

Punish who?

Historians still argue about the causes of the Great Depression. Arguments like that will also go on re the Great Recession. Nevertheless, pundits and politicians (and and the NY Times editorial page, among others) complain, for example, that "no one went to jail." See here that "America got fleeced and no one was punished."

Who should go to jail? What do we know?  The pre-conditions for forest fires accumulate over many years; an unpredicted spark then sets off the fire. Likewise, at least ten political-economy events interacted to form a “perfect storm” -- the best descriptor we have until these are sorted out

 1. Federal Reserve policy. In the years 2001-2006, the Fed kept short-term interest rates too low too long (in the post-dot.com bust fear of deflation -- even during 4% GDP growth). Low interest fanned a speculative bubble in real estate. This was followed by typical over-reaction when the Fed tightening in 2005.

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2     2. Local land use policies.  The housing price bubble was magnified by (varying) state, local development restrictions; these made local housing supply less elastic (many local “bubbles”) and further boosted home prices.

  

3     3.  Federal housing policy.  Since at least 1968 (GNMA loan guarantees), it has been national policy to promote home ownership. Policy makers promoted home ownership -- and pushed debt (and speculation). More recently, 20% down payments were no longer required; underwriting standards were steadily loosened. Over-leveraged households were encouraged.

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4     4,  Many new savers around the world. World’s middle class grew by 2-billion+ in recent years (“Burgeoning bourgeoisie” Economist,Feb 14, 2009). There was a new large international demand for developed-country (mainly U.S.) assets which prompted a huge asset inflow to the U.S. Banks easily over-leveraged. 

      

4    5. Advances in finance. Securitization made it possible to tap into more money available for mortgage lending.More risk-spreading; international pools of capital made available (advantage of gains and losses spread far and wide). But loan originators did less to screen out high-risk borrowers. Regulators did equally poor job assessing sub-prime loans packaged with good loans in a single financial security 

6     6 Moral hazard. Previous bail-outs encouraged risk-taking and over-leveraging; profit-loss system requires possibility of loss. Public choice economics explains bail-outs; corporate bondholders/creditors less vigilant if 100-cents-to-the-dollar bail-outs are expected -- 100-cents-to-the-dollar bail-outs became public debt

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            7. Too few SEC-sanctioned bond ratings groups. Call it oligopoly. Competition would have been better.  Many inflated bond (including mortgage-backed securities) ratings.  Risk-averse pension fund by-laws require a certain allocation of the portfolio to be AAA -- by one of big-three ratings agencies.  Regulators require less capital held -- if against AAA-rated government bonds; greater leverage allowed if AAA-rated mortgage-backed security.

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       8. Normal due diligence by auditors and regulators overwhelmed. There never were “unfettered free markets.” Where/when/how would we get better regulators? Financial innovation usually outpaces regulators capabilities.

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       9. Panic policies (start with Dodd-Frank) and panic messages from policy makers. Robert Higgs might say these prompted extraordinary “regime uncertainty”.

       10.  More bad Fed policy. Post-2008, member banks were paid interest on their excess reserves at the Fed. This bailed out many banks – and also reduced their lending.

So, who should go to jail? Best not to ask the politicians who had a hand in all but one or two my top ten.

ADDED

Central bankers, now including Janet Yellen, are talking about or actually doing negative interest rates. We hear that there are three kinds of macro-economic policy: fiscal policy, monetary policy, economic reform (which can include tax code reform). The first two have apparently failed to deliver real growth. The third remains the much discussed but seemingly untouchable "third rail".

MORE

The problem with policy.  Found this at MR.

Nudgers

Who controls the controllers? Who regulates the regulators? And, ever since "nudge" was discovered as a policy option, who nudges the nudgers?  These questions are seldom asked by social engineers. Of course not. Holman Jenkins, in today's WSJ, alludes to the people in charge of timing traffic signals. He writes, "Red-light cameras show us the flaw in the theory that government will 'nudge' us into doing the right thing." He cites "... the habit in many jurisdictions of setting yellow lights at or below the three-second minimum in order to ring up more tickets even at the cost of creating more accidents."  "Soft paternalism" is an idea that nudgers like but t-bone car crashes are not so soft.

Behavioral economics challenges the "rational man" assumption. But everyone knows (from early childhood on) that things are priced, for example, at $1.99 rather than $2.00 for the obvious reason that people are wired in ways that make the insignificant difference meaningful. And that goes to show that we are not 100% "rational". Yes, sellers may take us for fools but there are limits because they also want our return business.

But it does not work this way the public sector. Replacing regulators with nudgers does not "solve" the fundamental problem. "Softening" it does not solve the basic problem. 

Elections, war, peace and tech gadget addiction

Very few people in Iowa will soon caucus in that state's primaries. Political junkies feast, nevertheless. 

Voter participation in the U.S. is low. Public choice economists say they know why: most people have figured out that the odds that their vote can make a difference are very low. Theorists call their disinterest "rational ignorance". Outsized influence then accrues to interest groups. Those who cannot pass up team sports also remain involved -- for the thrills.

Buchanan's "Politics without romance" represents profound insights. Bryan Caplan goes further and suggests irrational ignorance.  Many of those who do vote (and/or participate somehow) embrace policies that will actually hurt them.  In a recent post on his blog, Caplan opines that most Americans' politics can be described in terms of their ADHD (Attention Deficit Hyperactivity Disorder) -- and that can be a good thing; they espouse awful policies but their ADHD causes them to not embrace these with any tenacity.  We are saved from the full consequences of the worst policy choices by a general lack of determination and follow-through.

Awful political choices have been with us through recorded history. Witness the many pointless and horrific wars. Steven Pinker sees these declining; our worst instincts are (very slowly) receding. That or mass ADHD, as we sink into in ever more tech gadget addiction.

LA transit (again)

Today's LA Times reports on transit in LA this way:  "Southland transit agencies report shrinking ridership as investments continue to grow." Spend-more-get-less" has been going on for years. What is new is that this has finally been "discovered" by the Times.

But "Metro plans to spend more than $12 billion over the next 10 years to build two new rail lines and three extensions, the largest capital investment of any transit agency in the country." This speaks for itself. The included graphic shows the high-water mark for transit use in LA since 1985 -- just before authorities began diverting funds to rail -- and when there were fewer people in the region -- and fewer low-income immigrants.

In 2010, Clifford Winston wrote:  "Although U.S. cities have spent close to $100 billion since 1970 building, and billions more operating, new urban rail transit lines, ... less than 5 percent of all commutes to work were taken on urban transit in 2004, down from 21 percent in 1960." (p. 61). That was then.

These mega-projects were supposed to be game-changers and "to entice people out of their cars." Hasn't happened.  People and planners are often not on the same page.

Might Uber (and similar outfits) be the game-changer? Perhaps. Just like cheap energy: not because of policy but in spite of it. City hall cronies in many places work hard to stifle the Ubers.

ADDED

There is an endless parade of these disasters. Here is one more. What do they all have in common?

Culture, language, cities

Napoleon, the Corsican, played heavily on French nationalism; Stalin the Georgian, ended up doing the same with Russian nationalism; Hitler, the Austrian, played on the dreams of German nationalism. Can we say that nationalism is pliable and manipulable? This is a theme of Benedict Anderson's Imagined Communities. Similar ground is covered by Joseph Henrich in his The Secret of Our Success.

I had previously cited the Yuval Harari book which makes the point that we humans dominate the planet because of our great success forming and working in teams. He cites our tendency to create the stories ("imagined orders") that form the basis for teams. Most of us become fans of various sports teams. Many others are attracted to the team aspect of politics. Still others revel in nationalism(s) or even strong regional alliances.

Nationalisms form around language groups. The ability to learn from each other is the key -- and common language makes that possible. But how did we get language? This fundamental ability is Henrich's favorite theme: Our cumulative (and continuing) culture-gene co-evolution. [This is quite complex and makes the book well worth reading.] The way best to use the language is infused with social norms: facial and other bodily expressions add a great deal; face-to-face meetings are still important. Add social norms and their reputational consequences.

We get to form "larger collective brains" (Henrich, p. 227). Stories as to how and why cities are "Our Greatest Invention", (E. Glaeser) are the obvious elaboration. These days, we communicate via many channels, including the occasional face-to-face meetings. Cities will spread out but there will always be agglomerations.

Not pretty

Electioneering seems to bring out the worst in the candidates -- and the voters. You often heard candidates promise to "fight for you."  That's ominous in so many ways.   Democracy has always had its detractors but just look at it when the size and scope of our government are bigger than ever.

The textbooks evoke the idea of "equity vs. efficiency" trade-offs. Google Scholar beings up 2,680 citations for the exact phrase ("equity-efficiency trade-off"). There may be other ways to say it and not all of the citations use the textbook definition, but a quick check suggests that most do.  Never mind that "equity" can mean many things.

But how plausible is the trade-off idea in a world of crony capitalism. Farm subsidies, for example, enrich rich farmers at the expense of taxpayers and misallocate resources at the same time. Less "equity" as well as less economic efficiency. This Mercatus report makes essentially the same point. Is there any reason to doubt that most of the laws and policies on the books do not give us less of "equity" as well as less economic efficiency?

As is often the case, the textbooks cannot let go of a seemingly simple idea -- no matter how implausible it is.  There are of course many other examples: "perfect competition" and "perfect knowledge", ubiquitous "market failure" and "monopoly power", high and dry "equilibrium" etc., etc., etc.

Here is a slightly dated reference to research by William Baumol that finds 80% of the benefits of innovation go to the public at-large while 20% go to the investors. Is this "fair" is it "equitable"?  I would say "yes" and many others (especially in an election year stump speech) would say "no."

Innovation? No thanks! Not exactly revealed preference but not pretty either.

Our elections

I have no idea what Donald Trump did (or learned) in his years at Wharton.  Neither, it seems, do the writers at that university's student newspaper. Read this.

There must have been an Econ 101 and they must have taught Lesson #1, that trade is all about the gains from trade. I did catch Trump's thoughts on trade with China as part of last night's debate. They are, of course, bizarre.  He is also uninformed about how currency exchange rates are formed and sees nothing but clever manipulators outfoxing our less clever manipulators. This as the Chinese economy tanks -- and sinks lower whenever hapless policy people test another intervention.

Trump leads in the polls so this may just be how our politics goes. The Hillary-Bernie economic pronouncements are no better. Democracy is not always pretty. In fact, it's often awful.

The three biggest voting blocs these days are people who do not vote at all, those who vote with a paper-thin level of interest and those who love being on a team. This is about what public choice economics predicts. The model also predicts the quality of politics (and policy) that results.

Who won in 2004? Not who you think.  The New York Times of Dec 26, 2004, (p. 16) reported the results of that year’s presidential election. Most people think that George W. Bush was the winner (over John Kerry and Ralph Nader). But the reported vote totals were these: Nader with 407,992; Kerry with 59,026,003; Bush with 62,027,582; eligible and not voting were 79,279,000. The “I don’t care” vote won by a huge margin. This is not an electoral college total but very suggestive.